FINANCE BILL

HC Deb 09 December 1947 vol 445 cc856-922

Order for Third Reading read.

3.49 P.m.

The Financial Secretary to the Treasury (Mr. Glenvil Hall)

I beg to move, "That the Bill be now read the Third time."

My task this afternoon is, I venture to think, an easy one, and it follows, I hope, that that of the right hon. Member for West Bristol (Mr. Stanley), who is to speak for the Opposition, will be equally light. The right hon. Gentleman has a very heavy Parliamentary programme before him this week, and if there is anything we can do to assist him from this side of the House, we shall be only too happy to do it. Common humanity demands it. I would also like, before going any further, to express to the House the apologies of my right hon. and learned Friend the Chancellor of the Exchequer for his inability to be present at this Debate. As I think the right hon. Gentleman who will follow me already knows, it is impossible for my right hon. and learned Friend to be here; otherwise, he would have certainly been on the Bench. It would, I think, be out of Order for me to go outside the provisions of this Bill on Third Reading, though I must say that certain observations of the Leader of the Opposition during last week-end do tempt me to do so.

Mr. Nigel Birch (Flint)

Well, go on.

Mr. Glenvil Hall

It would be out of Order on Third Reading.

Mr. Birch

The right hon. Gentleman does not know he is out of Order until he is called to Order by the Chair.

Mr. Glenvil Hall

It would be unfair to the House to burden it once more with a recital of the effect of the various Clauses in the Bill. We have had fairly long Debates, and I think the terms and provisions of the Bill are well known to hon. Members in all quarters. We have, I think, managed adequately to discuss all its provisions in spite of the new procedure, and, with certain exceptions they have been accepted. I therefore intend to devote my attention to points and queries which, though they have been raised during our Debates, have perhaps not yet received a fully adequate reply.

First of all, interest on tax arrears. During the Committee stage on Clause 8 a request was made that a break-down should be given of the figures mentioned in the Third Report of the Public Accounts Committee for the Session 1946–47. The House will remember that the global figure given there is £780 million. This figure covers Income Tax, excluding P.A.Y.E., Surtax, National Defence Contribution and Excess Profits Tax outstanding at the end of the year 1945–46. It was built up as follows: Income Tax, excluding P.A.Y.E., £283,723,000; Surtax, £36,818,000; National Defence Contribution, £22,381,000; and Excess Profits Tax, £437,012,000.

As the Comptroller and Auditor-General pointed out in his Report, only about £150 million of the £437 million shown as carried forward under the heading of E.P.T. was in the hands of the Collection Branch, and of this nearly £43 million had not actually fallen due. I should mention, in order to get the sum as accurate as possible, that about £3 million was in the hands of the Assessments Division for collection. The true amount due and payable at that date in respect of E.P.T. was therefore £110 million. It will be observed that this is only about one quarter of the total mentioned as outstanding. It is, of course, a substantial sum, but not nearly as much as the general public were led to believe.

I think it is only right that we should make the actual figures quite clear. We wish to do justice to the taxpayer from whom these amounts were due and to the Inland Revenue who might otherwise be thought not to be doing their job adequately.

Mr. I. J. Pitman (Bath)

Before the right hon. Gentleman leaves that point—and we thank him very much for what he has said—I was interrupted at the moment and did not hear whether tax reserve certificates covered a substantial amount of that £110 million.

Mr. Glenvil Hall

I intend to come to that but I thought I would clear up that one point first.

Mr. Oliver Stanley (Bristol, West)

That only applies to E.P.T. Will the right hon. Gentleman deal with the other taxes in the same way?

Mr. Glenvil Hall

As far as I can, but the figure for the rest will be a total. The reason is that the old Surtax and the National Defence Contribution are old taxes, and the amounts outstanding can more or less be said to be definite. The assessments have, for the most part, either been agreed to or abandoned. In addition to the £110 million, a further £81 million—this is the point the right hon. Member for West Bristol wishes me to deal with—was due and payable under the other headings of Income Tax, Surtax and N.D.C. This makes a total actually due of £191 million, which was the figure given by my right hon. and learned Friend in answer to the hon. Member for East Ealing (Sir F. Sanderson) early this afternoon. The balance of £589 million represents assessments which had not been finally determined and therefore the money cannot be said to be due.

I was further asked by the hon. Member for Bath (Mr. Pitman) whether in any event the tax reserve certificates issued did not cover the amount of tax outstanding. When he put the question, he was, I believe, thinking primarily of the £110 million, the figure then given as due under the heading of Excess Profits Tax. The answer is, as my right hon. and learned Friend indicated at Question time this afternoon, that the total of tax reserve certificates which were outstanding on 31st March, 1946, and which amounted to £648 million, cannot be linked up with the actual tax which was then outstanding. No doubt some of the certificates had been taken out by people who owed the arrears, but quite a lot would have been taken out by people who were probably not in arrears at all, but who were simply investing in these certificates against a forward tax liability of one kind or another. I hope these details will rectify the very natural misunderstanding that has arisen in the public mind and will also do justice to the Inland Revenue.

Mr. Stanley

The right hon. Gentleman promised that he would try to give the figures for the amount of arrears of Income Tax which is attributable to the 100,000 outstanding claims on people owing under £1,000, which will not be touched by this Measure.

Mr. Glenvil Hall

It would be impossible for me to do that at this moment. We are thinking of the year 1945–46, which is a fair time ago. It is unfortunate, but under our system we can do no other. By now quite a lot of the money then outstanding has either been abandoned as not due, or has been actually paid by those from whom it was due. What we are doing now is to take the last completed year for which we have figures and to show, by reference to them, the kind of amounts that have been outstanding from year to year under these headings. If it is possible to break the figure down, I shall be very happy to do so, and to let the right hon. Gentleman know, either privately or by arrangement through a Question in the House. I should remind the House that the next report of the Comptroller and Auditor-General with more up-to-date figures should be out in the early part of next year.

Mr. Walter Fletcher (Bury)

There is one question to which the right hon. Gentleman might give us the answer now that he is really attempting to give a clear and completely unprejudiced picture. We have never been told the anticipated yield of this tax. Secondly, in his opinion is the case originally put forward that there was considerable and unjustifiable delay, not now supported by the new figures he has given?

Mr. Glenvil Hall

Unless I misunderstand the hon. Gentleman entirely, an estimated yield of a tax is always given by the Chancellor of the Exchequer when he opens his Budget in April.

Mr. W. Fletcher

I have here a quotation from the Chancellor of the Exchequer——

Mr. Glenvil Hall

I am sorry, but the estimate is given of the yield from the various taxes, and after the event figures are published which give the actual yield which has accrued.

Sir Arthur Salter (Oxford University)

While fully realising that people who have taken tax certificates are not necessarily the people who are in arrears, is it not the case that what is in a sense owed by the taxpayer to the Treasury is only about one-third of what is owed the other way round, in the sense that they have already taken out tax certificates which have not been used?

Mr. Glenvil Hall

Strictly speaking, there is no relation between the two. I only gave the figures for the tax reserve certificates outstanding, because I was invited to do so by the hon. Member for Bath and others, during the Debate on the Committee stage. I think the hon. Member for East Ealing was one of those who asked. The House is entitled to all this information, if it desires it. All sorts of people take out tax reserve certificates and they are not necessarily the same people who owe arrears of tax.

Sir Frank Sanderson (Ealing, East)

Am I not right in saying that tax reserve certificates can only be used for the purpose of paying taxes?

Mr. Glenvil Hall

Yes, that is the purpose. I hope that nothing I have said would lead the House to believe that it was not so.

Mr. Pitman

Is not the situation this: that of the £191 million to which the £780 million has come down, namely £110 million for E.P.T. and £81 million for other taxes, an unknown proportion is covered by tax reserve certificates in the hands of those people who owe that money, but that we cannot say how much it is because we do not know?

Mr. Glenvil Hall

I think that is a true statement of the case.

May I turn to sweets? During the Committee stage, there was criticism from the other side, of the proposal that sweets should be divided into two categories, light and heavy, for the first time. In the course of the discussion I indicated that this was an innovation, and that my right hon. and learned Friend was quite willing to watch its effect, particularly as the industry itself felt that this was likely to be grave. We have no desire to destroy or injure the British wine industry. I also inferred I did not propose to tell the House why this change had been made, although there were good reasons for it. Perhaps I may be allowed to do so now.

Three kinds of wine are drunk in this country, foreign, Empire and home. Foreign wines are divided into two categories, the light up to 25 degrees proof spirit, the duty on which is now to be 22s. a gallon, and was previously 17s.; heavy, from 25 and 26 degrees up to 42 degrees proof spirit, on which the duty is now 44s. a gallon and was previously 34s. Empire wines are likewise divided into two categories, light up to 27 degrees proof spirit, upon which the duty is now to be 20s. a gallon and where it was previously 15s.; heavy, up to 42 degrees proof spirit on which the duty is to be 40s. a gallon whereas it was previously 30s. This differentiation between light and heavy corresponds to the distinction between table wines—such as claret and heavy wines such as port and sherry. However, British wines up to now have not had this classification. Before this supplementary Budget they were not divided in any way. The duty levied was a flat one of 14s. 6d. per gallon; although the majority of the wines produced by the British wine industry could be classed as heavy, as over 80 per cent. of them were of the port and sherry type.

With the decision in this Budget of an increase by 5s. and l0s. for these two categories respectively of foreign and Empire wines, about which I think no one in the House has had complaints to make, the question arose, what we should do when we came to the British wine industry? A 5s. increase, considering the nature of most of the output, seemed hardly sufficient, and Dos. might have been looked upon by many as too much and unjust. Therefore, it was decided to do what has already been done with foreign and Empire wines, that is to split them, roughly about the middle, into light and heavy. I mention in passing that if we put 5s. on British wines and left them all under the same umbrella, they would have been paying 19s. 6d. under this Budget, whereas Empire wines of the same type, that is heavy, would have been paying 40s. Although we are anxious to give preference to the home industry, the difference between the two rates would have been too glaring.

I have re-read the Debates on this matter and have formed a view that the complaint is not against the division of British wines into light and heavy but because the British wine industry has not been allowed forthwith to fortify its wines in the way that Empire and foreign wines have long been able to do. My right hon. and learned Friend is quite willing to give sympathetic consideration to a proposal to allow the British wine industry to fortify in the same way as Empire wines are allowed to be fortified, but on the understanding that some difference will have to be made in the rate of duty levied. It is true that foreign and Empire wines are allowed to fortify their products, but they pay a much heavier duty than the British wine industry. If, between now and the opening of the next Budget, the British wine industry wishes to make representations to my right hon. and learned Friend on this matter, he will be willing to receive them and to treat sympathetically anything that they have to say. It is only fair to remind them that it would be next to impossible for him to leave the rate where it is as compared with that now levied on Empire wines.

The other criticisms of a major kind which have been levelled at the proposals in the Bill have been adequately, if not, so far as the Opposition is concerned, satisfactorily covered in our discussion. We had long Debates on the Profits Tax, and I have no desire now to waste the time of the House in going over the ground then covered. The proposal to disallow 50 per cent. of certain advertising expenses has been withdrawn in the light of the general assurance given on behalf of industry. I would like to pay a tribute to the hon. Member for Bath who was of great assistance in the negotiations that took place between my right hon. and learned Friend and industry in that matter. My right hon. and learned Friend will watch what happens during the next month. He realises that industry is as desirous as all hon. Members that wasteful expenditure in this direction should be cut down, and it would be excellent if we could achieve on a voluntary basis what otherwise might have been imposed by force in this Bill.

One small and useful concession has been made on Purchase Tax, and I think that all of us who remember the long hours of boredom we spent——

Mr. Stanley

Boredom?

Mr. Glenvil Hall

I found the long auctions, as I think they were called, as to what should or should not be included in this category or left out of it altogether, very boring. Except for those who were interested in some article on which they were anxious to see the tax adjusted, these hours were very dull.

The proposal to tax certain forms of betting has had a friendly reception, and it is interesting to consider what would have happened if such a suggestion had been made some years ago. Then the religious community would have been up in arms over the proposal, but now the only criticism we have had is that the tax does not go far enough. On the whole, the Bill has received a very smooth passage so far. In fact, yesterday it helped to set up what I believe is a record in brevity for this Parliament. I hope our proceedings this afternoon will be equally speedy. I commend the Bill to the House.

4.12 p.m.

Mr. Oliver Stanley (Bristol, West)

First of all, may I say that I, too, regret the absence of the Chancellor of the Exchequer from this concluding stage of the first Budget of which he has some control, but I know also the business upon which he is engaged and the fact that to some extent it was fixed, not to suit his convenience, but that of others. I can assure the Financial Secretary, however, that he is always an acceptable substitute, and I am particularly grateful to him for the desire he evinced this afternoon to make my task in replying to him easy for me. I can assure the right hon. Gentleman that he always does so. With him it is not merely a matter of expressing a desire; he in fact always puts his desire into effect.

The right hon. Gentleman told us that it is with great difficulty that he resists the temptation to comment on a recent speech made by my right hon. Friend the Leader of the Opposition. We on this side also have our temptations. We shall resist them, though, with equal courage and determination. There is nothing I would like better this afternoon than to spend some time in discussing the modern meaning of the ancient phrase "sitting pretty," a phrase which in the old days meant a comfortable and assured resting place for one's anatomy, but which today means sitting on a slide, down which one is going to almost inevitable chaos. However, I must not be behind the right hon. Gentleman in putting Satan behind me, all the more because, if I did not do it myself you, Mr. Deputy-Speaker, would do it for me. So I will confine myself entirely to certain aspects of the Bill, most of which, I agree, have already been discussed, and which therefore, need only brief comment.

I heard the Financial Secretary referring to some proposals for dealing with advertisements. I looked in the Bill which we are discussing, and found them still there. I do not know whether I should be in Order in pursuing that point, but all I can say is that I think nothing would more become those proposals than their omission from the Bill we now have to discuss.

Mr. Deputy-Speaker (Major Milner)

gather that the Bill as amended was not reprinted on the ground of economy.

Mr. Stanley

I understand the ground of economy. As the proposal is still within the Bill, shall I be in Order in discussing it?

Mr. Deputy-Speaker

Only to the extent of a passing reference.

Mr. Stanley

I think it has already been buried, and needs no further reference.

I wish to say a few words about the Purchase Tax. The late Chancellor of the Exchequer explained in dealing with this tax that as this was an emergency Budget he had decided to deal with it by categories and to adopt a different rate for each category, but not on this occasion to make any changes between categories. We on this side of the House accept that as a perfectly fair proposition in an emergency Budget. The right hon. Gentleman must have noticed the self-denying ordinance we strictly observed, which prevented us raising any number of individual cases which hon. Members on all sides of the House are used to doing on an ordinary Budget occasion. But if we agree to this proposal for this emergency Budget, we feel that it should only be temporary, and that by the next Budget, in April, some consideration should be given to a real review of the categories, and all the various items which comprise them, because the very heavy increases in taxation which have taken place in this emergency Budget may well mean that certain items are now in categories which really make a very considerable burden for the consumer, and it may be necessary to make considerable changes on review. In any case, I think some review of the items under the Purchase Tax was due to be made.

I agree with the Financial Secretary in disliking—indeed, I have expressed my dislike before—the Dutch auction methods which on previous occasions have accompanied discussion of reviews of the Purchase Tax. I would not join for a moment with the Financial Secretary in saying that I was bored by that method, and I was surprised to hear him say it. He certainly concealed it, as always, when discussing the Purchase Tax at a very late hour, and his expression, when awake at all, was lively——

Mr. Bowles (Nuneaton)

He was bored when he was asleep.

Mr. Stanley

I think perhaps the expression of the hon. Member for Nuneaton (Mr. Bowles) is right; it was when he was asleep that he was bored. I hope that if we come to a stage again when we can contemplate reductions, we shall not go back to that system, which I think a bad system, and which never left any time for a scientific review of the incidence of the tax. The reduction of a particular item depended partly on luck, and partly on the eloquence and vociferousness of an hon. Member who happened to pick on a particular item. I hope that in the April Budget we shall be given a scientific review of the whole of the categories of the Purchase Tax, and shall be allowed to deal with it in a scientific manner.

I desire to say a word about the Betting Duty. I have tried to make it clear, and I think it is a matter in which all my hon. Friends will agree with me, that I have no objection whatever to people who take their pleasure in gambling, bearing their share, at this time of inflationary danger, of the efforts we have to make to avoid it, but I think the question which must arise in the minds of all of us, when we view the proposals in this Budget, is whether these proposals are fair. We have, in other cases, quite rightly followed the principle that at a time like this it is fair to ask people to bear a heavy tax burden upon the particular pleasures which they select; but, in all other cases, we have, at any rate, tried to arrange that it falls equally upon all those who select that particular form of amusement. When we dealt with the tax on tobacco, we tried to make it fair as between the person who prefers a cigarette, a pipe or a cigar. We did not heavily tax one or two of them and leave the other completely free. The cigars of the Chancellor of the Exchequer are taxed just as heavily as my humble Player.

Mr. Glenvil Hall

Why not a Woodbine? Why a Player?

Mr. Stanley

It happens that cigars are the Chancellor's choice; Players, not Woodbines, are mine. It is the same with drink. Whether it be beer, spirits or wines, we try to hold the balance level between the three.

It is, therefore, only for those who indulge in gambling that this selective process has been adopted, so that one may gamble tax free in one way but may only gamble in another way after paying tax. The Financial Secretary to the Treasury, in a previous speech, twitted me most agreeably on being disloyal to what he considered should be my primary interest of horse racing. I assure him that I can sense no disloyalty. My affection is not in any way diminished, my regard for Epsom, is, indeed, enhanced. In anything I have said, I have not been in the least against horse racing, but I am for fairness; I do want to make quite certain that in dealing with gambling in the way we are doing, we are doing it fairly, and what is more, doing it so that everyone concerned can see that it is fair.

In blaming me, the right hon. Gentleman attaches much too little importance to the influence upon my adolescent mind of the pronouncements of the previous Chancellor of the Exchequer. I have heard that right hon. Gentleman standing at that Box, moralising in a way in which only he could do, and explaining how the particular form adopted in this Bill was not a question of impracticability—that might change—not a question of riot being worth while—that might alter—but was a question of natural justice, and what is something even beyond that, Labour Party justice. The right hon. Gentleman cannot blame me for feeling that really here was something upon which we should, have to look with the greatest caution.

I am not in the least against the tax in this Bill. I do not want, in point of fact, to tax anybody on this particular line. I have no moral desire to tax gamblers in order to reduce gambling, because whatever I may feel about the social dangers of excessive gambling, I very much doubt whether the wisest way to approach social dangers of that kind is by restrictive legislation. The right hon. Gentleman says "How different would have been the reception of these proposals some years ago." Yes, how different it would have been, but how different are the circumstances today. If we were not today in an inflationary danger which the right hon. Gentleman opposite at last admits, but which we believe to be greater and more imminent than anything that he has yet disclosed, if we were not in that danger now, our attitude today might well be what it was 20 years ago. But we are in that danger, and we are prepared to take whatever steps are necessary to meet it. We do ask, however, that those steps should be fair to all, and should depend more on justice than on a pure question of administrative simplicity and ease.

I have a word to say on the question of interest on overdue taxes. The history of this proposal has been a splendid example of arithmetical regression. Every time this subject has been mentioned in the House, the size of the problem, and the size of any effect to be created by these proposals has become less. It began with a reference in the Budget speech of the ex-Chancellor last April. There were no safeguarding provisions in that; the arrears then were due entirely to the unpatriotic action of the taxpayer, and instructions were to be given that they were to be chased by the Revenue authorities.

That left an impression on the minds of those who listened of vast sums in arrears merely because the taxpayer—and naturally, in this instance, the late Chancellor of the Exchequer, of course for reasons of prejudice, selected the Surtax payer to whom to refer—the Surtax payer was delaying payment, despite the calls of patriotism, merely for a selfish motive.

It was left like that until the same right hon. Gentleman's Budget speech in November. Then, it is true, an explanation was given, but the only figure quoted, and the figure which must have stayed in the minds of hon. Members who listened to it, and even more in the minds of the great outside public who read it, was the figure of £780 million. We now know that that has no relevance whatever to the real problem of arrears, that is, money which is due and payable, but which is still being retained by the taxpayer. That figure of £780 million has been whittled down on every occasion until now the amount with which this proposal deals must be very small indeed.

The right hon. Gentleman has today kindly given us some further elucidation, and according to him, if these figures are broken down, the £780 million becomes, in fact, £110 million of outstanding E.P.T. two years ago, and £81 million outstanding on the other three forms of taxes. As far as the future is concerned, E.P.T. is no longer of great interest. Gradually, no doubt, the sums outstanding will be paid off, but that particular tax has come to an end, and new arrears will not be created; therefore, nothing this Bill does will have any substantial effect on that part of the problem. We are then left merely with an arrears total of £81 million in all the other three forms of taxation— £81 million of genuine arrears on Income Tax, Surtax and National Defence Contribution.

Mr. Benson (Chesterfield)

Does the right hon. Gentleman suggest that E.P.T. arrears are not genuine arrears? If he looks into our tax accounts he will find it is because similar arrears have dragged on year after year that the 3 per cent. should be paid on E.P.T. arrears.

Mr. Stanley

I am not saying that it should not be paid on things outstanding. I am trying to see the real dimensions of the problem of the future which we must face. As E.P.T. has now ceased, from now on we cannot be creating new arrears of E.P.T. The only new arrears which can arise are on the other three items already reduced to the sum of Or million——

Mr. Glenvil Hall

Profits Tax takes the place of E.P.T. As the years go on, arrears may pile up in respect of that.

Mr. Stanley

I am only trying to bring this thing into its real relationship. The main burden of the future is this £81 million which included the old N.D.C. We do not know how far that £81 million is further reduced by the amount of arrears which are attributable to small taxpayers under the £1,000 limit whom, in any case, this proposal will not touch. From some figures which the right hon. Gentlemen gave on a previous occasion of the number of people under that figure who are in arrears, it would seem that a very substantial portion of this £81 million will be attributable to them. Therefore, it will not be touched in any way by these proposals.

We on this side of the House have no objection whatever to interest being asked for on sums which are genuinely due to be paid. We do, however, object very much to the manner in which, over the last few months, this subject has been introduced. It was deliberately introduced in order to give the impression of vast sums being outstanding due to lack of patriotism on the part of the taxpayer. It is only after the greatest efforts on the part of my hon. Friends, only after a number of discussions and questions, that we have been able to show what a very small extent of arrears really exists and how trivial is to be the effect upon our national finances of this Clause.

We have discussed Profits Tax at considerable length, because it was the point in this Budget about which we on this side felt the greatest doubt. When we discussed this tax in the summer, I remember saying that it was not so much the amount of the Profits Tax then imposed which I regretted, but the danger for the future. Here was a tax which was a simple tax although, to my mind, it was a bad tax. Through its very simplicity it was likely to be the sort of tax on which any Chancellor of the Exchequer without any difficulty would always fall back. I did not realise how very soon my prophecy would become true. It is just because this tax is so simple that it is also so bad. It is just because it has a simplicity which takes no account whatever of individual circumstances, that it is likely to be so unfair.

I will not go again over the particular points which we objected to in this emergency Budget which were not in the Budget of April—the doubling of the tax on undistributed profits and the retrospective nature of the provision. No doubt other hon. Members will deal with that. I want to point out the danger that I see from the easy acceptance of this tax. Glib arguments can be put up, no doubt, that under the particular circumstances of our economy today, this tax does not do the harm and does not have the ill-effects which might result in more ordinary circumstances. It is said that this tax is one which discourages venture capital and throws all its weight on the side of those people who take no risk; but today is a time when circumstances do not, for the present, make it necessary to attract capital of that kind.

These times will pass—at least we hope that they will. We hope that we are riot always to live in an era when people are neither encouraged nor allowed to take risks, when the whole emphasis is that in order to keep our export trade going we should plug along on the old safe lines which need no expensive new capital development and entail no risk of loss or failure. That may serve us for a short period, but if we continue on those lines for very long, it means inevitable death to the economy of this country and inevitable loss of export trade. Sooner or later, we must resume the practice which alone keeps industrial nations in the forefront of world trade, the practice of finding new methods, new products and new outlets for the inventive genius and industrial skill of our people. When that time comes, the existence of a tax which selects the venture money not for the ordinary treatment given to incomes, from wherever they are derived, but for special hard treatment, may well be found to be a severe handicap.

There is another factor, which again we hope will be temporary, and which obscures the dangers of this proposal. It is probably quite true that today, even with the additional Profits Tax, if a reputable company were to be allowed to go to the market for new capital, it would get it; but that is due to a condition in the market which we hope will pass away. It is due to the fact that the investor is looking much less at the return he is likely to get under any equity investment than at the insurance that an equity investment gives him in the case of uncontrollable inflation in the future. Anyone who studies the course of the stock market, will see that it is far more influenced by factors which bear upon inflation or deflation than it is by factors which bear upon the profits either of individual companies or of companies as a whole.

The more accustomed we become to this tax, the more fearful I am of the effect that, sometime or other, it may have upon our economy. We have in the last two years seen a Chancellor of the Exchequer, in a time of rising inflation, putting into effect all the Keynesian remedies for a deflationary period. I am very much afraid that, if and when the danger of deflation should ever be the one we have to fear, it would be only those existing remedies which are, or are considered to be, popular with a certain section of the followers of right hon. Gentlemen opposite, which are not likely to be changed.

This Finance Bill is going to face a test which not all Finance Bills have to face. It will be judged not by the arguments which have been delivered during the course of its passage through the House, but by the events of the following months and years. Its object is designed, and rightly designed, to check inflation. If it fails in that, no words, not even of the most skilled dialectician among right hon. Gentlemen opposite, will mask its fate for events will surely disclose it. We have at different stages in the course of its passage expressed our doubts and fears as to the effectiveness of this and other Measures which are now being taken to meet a danger of which all of us must now be aware, and of which all of us in our hearts must be frightened. We have expressed these doubts and fears, but I believe I speak with sincerity on the part of every one who sits on these Benches behind me, when I say we shall be only too glad if it is found that our doubts and fears are unjustified, and that the nation will avoid the circumstances of a catastrophe whose effect upon all of us and upon the general life of the people be over-estimated.

4.41 p.m.

Mr. Donovan (Leicester, East

I want to raise a point of a general character in relation to this Bill, but before I do so, may I associate myself with the remarks which have been made by the right hon. Gentleman the Member for West Bristol (Mr. Stanley) about the danger of raising taxes so high that they will have a discouraging effect upon enterprise in this country. I have seen at first hand that cause and effect operating, and what the right hon. Gentleman has said deserves the closest attention of the Chancellor of the Exchequer.

The point I want to raise comes from Clause 10 (2, d) of this Bill, which in my copy reads: So far as it relates to income tax, the profits tax or excess profits tax, shall be construed as one with the Income Tax Acts, the enactments relating to the profits tax or the enactments relating to excess profits tax, as the case may be. The meaning of that is that if I want to find out exactly what are my liabilities under this Bill, I have to look at every Act there specified, and there are 36 of them, beginning with the Income Tax Act, 1918. I assume that, strictly speaking, I should be in Order if I took each of those Acts one by one and Section by Section and went through them so that I might, as I am enjoined to do, construe this Bill as one with those 36 Acts. If I did that, I imagine I should be unpopular; I should certainly be very long; but that is what we are asking the taxpayers of this country to do tonight when we give this Bill its Third Reading. If the taxpayer does that and goes through the enactments relating to Income Tax and all the rest of it, not only does he find there are 36 Acts, but he finds that in parts of them the language used is completely unintelligible.

Tonight I am asking the Chancellor of the Exchequer to take the first step to put an end to this state of affairs. I ask him to reconstitute the Committee on the Codification and Simplification of the Income Tax. That Committee was set up in 1928 and reported in 1936, after eight years of work. It produced a Bill which to everybody, except a few persons in the Inland Revenue, appeared to be an extremely good Bill; but since then nothing has happened. I suggest that we reconstitute the Committee and go on from that point. I do not believe it is so difficult a task as it sounds, but the sooner we get to work on this, although it will be perhaps a long task, the sooner we shall be out of this dreadful jungle of words. I ask the Chancellor to take some action on this before the next Budget, because if the next Finance Bill comes along, and nothing has been done, and we find, as we shall find, another Clause saying, "Read this Bill with 37 other Acts," we never know but that someone might get up in this House and insist on doing it.

4.45 P.m.

Lord Willoughby de Eresby (Rutland and Stamford)

I should like to say a word about this Bill before it leaves the House. I suppose any increases in taxation are never pleasant or very welcome, but in so far as the provisions of this Bill make an attempt to deal with the problem of inflation, with one possible exception they have my support. My main criticism of the Bill is that the proposals are not drastic enough, and do not go far enough. The Government strike me as still fiddling, if I may so describe it, with this problem of inflation, and I think more drastic and more unpleasant measures will have to be taken before we can say we have successfully dealt with it.

I have always felt that the Finance Bill is really the best weapon which any Government has in directing our economic and social life. I say that in spite of the very elaborate centralised system of Government control which is being set up at the moment to deal with inflation by other methods. I am sorry that this Bill has not been used more effectively to deal with the problem of inflation. I also think that, for psychological reasons, this Bill does not go far enough, because it is not unusual in a democracy that a majority of the people, possibly because they have not had the advantage of going to the London School of Economics, are ahead of the Government in their realisation of the seriousness of our financial position and of the possible unpleasant remedies which will have to be taken. The Government have missed the psychological moment to bring us down to earth and get us over the unpleasant things which I think still have to be done.

I pass from those general remarks to make a few particular remarks about the increase in the tax on undistributed profits. This Profits Tax, in my opinion, was a bad tax in its origin and it becomes even worse now that it has been increased. The arguments of the Financial Secretary in support of this increase were both misleading and on the whole unconvincing. The Financial Secretary no doubt will remember that he argued that this increase was necessary and desirable because certain forms of businesses had been using their reserves or undistributed profits to improve their offices and re-equip and modernise their plant and buildings. Such expenditure, he said, was both inflationary and antisocial at this particular moment in view of our serious financial position.

If that is true, what has the Minister of Works been doing all this while? The Financial Secretary knows perfectly well that no business or industry can improve its office accommodation or spend money on buildings without a permit or a licence of some kind. One can only say that, so far as the arguments of the Financial Secretary were valid, they are a complete indictment of the whole system of centralised Government control in these matters. Surely, we cannot blame ordinary businesses for wishing to improve their offices or to re-equip, and we should not punish them for doing so by increasing this taxation? Unless they did try to go forward in these matters, they would no doubt be castigated by the Lord President of the Council in one of his wittier moments for showing a lack of private enterprise.

In so far as money has been spent unnecessarily, I think that the Ministry of Works is far more to blame than the individual businesses concerned. In my view, money put to reserve by firms is, on the whole, invested in Government securities, or left in the banks. I would have thought that was definitely deflationary rather than inflationary. I am far more doubtful about what will happen to the £23 million, which we are told this increased tax will bring in, when it gets into the hands of the Treasury. I wish that the Financial Secretary had, as he described it, wearied the House a bit longer by telling us what he meant by the rather curious term he used the other night about this money fructifying in the hands of the Treasury. I admit that money which is transferred from businesses to the Treasury need not necessarily be inflationary; it all depends how the money is spent. Far from money so transferred fructifying in the pockets of the Treasury, I would have thought it would have been far better if it had been sterilised and kept there, only to be used for some constructive purpose when the danger of inflation had passed, or unemployment had begun to appear. If it is now to be used for productive purposes, the effect will be inflationary rather than deflationary.

There is one other question I would like to put to the Financial Secretary in respect of the Profits Tax. What will be its effect on what are usually known as private or one-man companies? As he may know, a private or one-man company is between the devil and the deep blue sea. Presumably, it is still the wish of the Government that money or profits should be put to reserve, rather than distributed in the form of increased dividends. The Financial Secretary no doubt knows that if money is put to reserve, Treasury officials very often come along and say that a bigger distribution should be made. Last year, the right hon. Member for Bishop Auckland (Mr. Dalton) gave an assurance that, provided profits of companies were not distributed in excess of the dividends that had been paid in the past, the money could be put to reserve. I hope that, on behalf of the present Chancellor of the Exchequer, the Financial Secretary will tonight be able to give us the same verbal assurance as we had last year.

As the right hon. Gentleman knows; in the case of landed companies—which are the only ones with which I am personally acquainted—it has been quite impossible for the past six years to carry out much work of improvement on buildings, repairs, and so on, which everyone would have liked to do. As the Minister of Health—who I see is present—also knows, the longer this work is left, the greater the measure of deterioration, and the greater the ultimate cost will be. I believe it would be in the interests of everyone, and of the country as a whole, if reserves could be built up against these repairs which seem to be deferred from one year to another. To repeat what I said at the beginning, I am sorry that, at this moment, the Government are not taking this opportunity to perform what one might describe as the major operation which will, sooner or later, have to be performed before our economy becomes stable once again and inflation has been effectively dealt with.

4.56 p.m.

Mr. Nigel Birch (Flint)

I will start by saying that I fully agree with every word which my noble Friend the Member for Rutland and Stamford (Lord Willoughby de Eresby) has said. I also agree with what was said by the hon. and learned Member for East Leicester (Mr. Donovan). I hope the Financial Secretary will take his words to heart, and that, if a committee is set up to consider the reform of the Income Tax Acts it will also go carefully into the incidence of P.A.Y.E. I and many of my hon. Friends are not convinced that the best method is now adopted. Both these matters might well be cleared up at the same time.

We have now reached the end of this Bill, and, speaking for myself, I find it much less enjoyable owing to the absence of the right hon. Member for Bishop Auckland (Mr. Dalton). He is an old friend across the House, and I think it is a poetic injustice that he should have disappeared through a trapdoor just at the moment when Nemesis was upon him. He would have many words to eat had he been here. I also regret that his departure has not had any effect upon this Bill. We have had the assurances of both right hon. Gentlemen that they are two minds with but a single thought, two hearts that beat—and sing—as one. That is a particularly depressing commentary on the present situation.

It would be tempting to go into the question of electric batteries again. There is something about electricity which confuses the Government. It is like alternating current; it goes back to where it starts from, and gets back there almost before it has started. With regard to the Purchase Tax, I thought the right hon. Gentleman took an odd line. He said that he was tired of listening to hon. Members on this side talking about things in which they were interested, rather as if they had a financial interest in them. Let us take toothbrushes, which are subject to a tax of 50 per cent. I do not know whether the right hon. Gentleman is wholly disinterested in toothbrushes.

Mr. Glenvil Hall

May I correct the hon. Gentleman? In the observation which I offered to the House, I was not only referring to hon. Members opposite on that matter. What I was trying to say—and the right hon. and gallant Gentleman who followed me in the Debate underlined what I said—was that these questions were raised by people interested in certain articles, but not financially interested.

Mr. Birch

I entirely accept the right hon. Gentleman's explanation. I am sorry if I misinterpreted him. I also agree with what my right hon. Friend the Member for West Bristol (Mr. Stanley) said about horses becoming overprivileged.

I want to say a few words on Clause 7, about the Profits Tax, and to go a little wider than did my noble Friend just now. I wholly agree with my right hon. Friend the Member for West Bristol that this is a most dangerous tax. It is not only dangerous, but it is offensive in principle. It is offensive in principle, first, because it has been ante-dated, and, secondly, because it is capricious in its incidence. Adam Smith laid it down that that is one of the things a tax should never be. Whether people pay much of this tax or not depends entirely on whether they have a large amount of loan capital. General speaking, it is wholly undesirable that companies should be burdened with a large amount of loan capital. This tax specifically encourages the wrong distribution of capital. But the danger is the main point—much more serious, I think, than its offensiveness.

The best case against this Tax was made in April, 1946, by the hon. Member for Chesterfield (Mr. Benson). He talked such good sense upon the tax that I fear that may have been one of the reasons why he has not secured office. He made, in particular, the point that it is a tax upon activity. A tax upon activity is a serious matter when 80 per cent. of our industry is still in private hands. If we are going to get exports up and keep them up, I am quite certain that the main developments are going to be in new things. That has been so over the last 60 or 70 years. We have seen a steady decline in the old staples, like cotton and coal, and a great increase in new things, such as artificial silk, gramophone records, radar and so on. However much money may fructify in the pockets of the right hon. Gentleman, I do not think the Treasury is likely to start any new businesses of this type, on which I am very certain we shall have to rely in the future to keep our place in the world.

The great thing about starting a new business is that a person is taking a risk. He may very often be wrong. One reason why a profit has to be made is that losses also are made, and they must be recouped. This taxation really amounts to a case of "Heads I win, tails you lose." That is what the Treasury says to a man starting a business. If he loses the whole of his capital, then it is lost, but if he makes a profit an enormous amount is taken away. It is not only a case of a 10 per cent. tax on undistributed profits, but Income Tax has also to be paid on all retained profits. That is equivalent to 10s. 1d. in the £, and on top of that, when ultimately distributed, Income Tax and Surtax must be paid. The effect must be that everyone plays safe. It is no use risking money unless there is some chance of getting something back. So that new developments are not only being blocked by physical controls, but also financially.

The right hon. Gentleman may very well say, how is the money to be raised if not in this particular way? He may also say that an increase in Income Tax, which in principle is more desirable, is impractical, because it has got to such a level now that it deters everybody in all income groups from putting forward their best. I think that is true. It shows where we have got to. We are running national expenditure now at a level which is absolutely certain to land us in inflation. The case has been put up many times that once national expenditure is much more than 25 per cent. of national income, it ends in inflation.

That has been happening. There is a depressing parallel between what is going on in this country and what went on in France between the wars. Not only was there inflation in France between the wars, and a loss in the value of the franc, but there was also industrial stagnation. In France, unlike all the other countries of Western Europe and the New World, there was no rise in the standard of living between the wars. I feel that the effect of this type of taxation and the weight of expenditure will produce precisely the same results here. There will be a loss in the purchasing power of the pound, plus industrial stagnation. Hon. and right hon. Members opposite, perhaps unconsciously have relied completely on the past success of capitalism and do rely on its future success. If they are going to make the system unworkable and freeze it, they are taking a very heavy mortgage on the future. I feel we shall get to the stage where we are producing the wrong things, because people have not the incentive to go for the new things and our export trade will starve and our home production languish. Meanwhile, there will be a steady fall in the purchasing power of the pound with all the damaging social consequences that will result.

5.6 p.m.

Sir Peter Bennett (Birmingham, Edgbaston)

I intervene only because I was the Member who raised this question of arrears in taxation on the Committee stage, and I voiced the resentment of industry at the suggestion that they had been immoral and had taken advantage of the position. I also put in a plea for those over-worked people, the Inland Revenue group, who were not so slow in collecting taxes as might have been suggested by the arrears accumulated, compared with their prewar figure. The Financial Secretary has dealt with this matter today. I was not satisfied with his answers during the Debate in Committee. To suggest that we could get all the information from White Papers when the Press and radio had given out a figure of £780 million was a little bit far-fetched. The ordinary reading public does not study White Papers in order to find facts, nor can the Press be expected to look into them to get the right figures.

This £780 million, which we were told was outstanding, now comes down to £191 million. The figures, in comparison, are, therefore,£70 million prewar and £191 million today. I would remind the House that all taxation has gone up in the meantime. The Income Tax standard rate has risen from 5s. 6d. to 9s. Surtax has gone up, and we have had the new taxation on excess profits. Therefore, it would be quite understandable that the amount overdue should go up. Anyone in business knows that if the turnover increases, the debtors increase also. The point I am making is that, quite apart from tax reserve certificates, the business public who have been censured should have been congratulated on the way in which they have helped in this matter. When the figure of £648 million subscribed for tax reserve certificates is put into the balance, it seems to me that a most gratuitous attack has been made on people who have been doing all they can to help the nation. I am glad the matter has been aired. I hope that as much publicity will be given to the Debate today as was given to that unfortunate remark which caused so much indignation and upset.

Sir A. Salter

Would it be considered a fair statement, taking the taxpayers as a whole, that they have voluntarily lent the Government three or four times as much as they have intentionally withheld?

Sir P. Bennett

I agree. The appeal was made, and the very way in which that appeal was answered showed that, instead of being censured, they ought to have been congratulated on the way they helped the Government. I want also to put forward once more the resentment we feel at the increase in the Profits Tax. I know we are in a period of inflation, and that industry today must put up with taxation with which it disagrees, but I tell the Government once more that they are playing with fire in imposing this Profits Tax. We hear suggestions that the division of profits is unequal, but we hear very little about the creation of them. As I have said before in this House, I am concerned, not with the cutting up of the cake, but with the creation of it, and making it bigger.

The Profits Tax will have a very bad effect. We live and exist as a nation by adventure. Here, we are doing all we can to clamp down adventure and to get people to play safe. We should not exist as a nation if we had played safe in the past. I do not know whether people realise the unique, peculiar position of the people of these little islands. I read the other day something that was written by a well-known economist. He said that if we took the population of Great Britain, those living south of the High- land line, thus leaving out the North of Scotland, we had the densest population in the world. That did not surprise me, but he went on to say that if we took the rest of the population of the world and put it into the United States, that population would still be lower in density than the population of Great Britain south of the Highland line.

That statement staggered me. It only goes to show the truth of what I have been saying, that we in this island are a very unique people. We exist because of the adventure, forethought and initiative of our forefathers. If we lose those qualities, I do not like to think of the standard of living which will exist in this country in the future. My right hon. Friend the Member for Woodford (Mr. Churchill) made a certain statement during the week-end. I, for one, dare not contradict it. If we are not to have freedom to maintain the standard of living won for us by our forefathers, but are to damp down the spirit of adventure, kill the spirit of initiative and bring ourselves into a regulated State, we may well find that it will bring the ruin which has been foretold. That is why I wish to put upon record once more the fact of industry's intense dislike of the Profits Tax.

5.12 p.m.

Mr. S. N. Evans (Wednesbury)

The hon. Member for Edgbaston (Sir P. Bennett) speaks of the need for the spirit of adventure. I would agree with him. But what the Tory Party consistently fail to understand is psychology. The times in which we live are not normal. We are passing through a revolution which involves mainly the consent of, roughly, 20 million people who, in the ultimate, produce everything. The Tory Party seem consistently to ignore that fact. The Profits Tax is the result very largely of the irresponsibility shown by those whose political instrument the Tory Party has always been in a period of great national emergency. I do not propose to retail a long string of exorbitant increases in ordinary dividends since the end of the war, because I think the facts are well known to hon. Members on the other side of the House. If they had employed some of their arts of argument to damp down the exuberance for exorbitant dividends, the Profits Tax might not have had to be imposed.

We who go out into the country at the weekend explaining to the workers why, having won the war, Britain now finds it necessary to work harder than ever before, have been greatly hampered by the irresponsible and anti-social conduct shown by many boards of directors. The wisdom of the old English proverb, "It's an ill wind that blows no good," is well exemplified by recent events. Out of a political hanging for a blackout offence, has come the blessed nuptials of planned economy and financial policy, a union some of us had begun to despair of because of the play of politics. I hope that we shall now see finance revert to its rightful function, which is that of a lubricant facilitating the exploitation of raw materials, their fabrication into usable articles and commodities, and their eventual distribution to those who need them. I hope we shall not have any more interference with the process of making articles available to those who need them. It was the hegemony of finance that brought so many of our ills in the period between the wars. In the altered circumstances of our time the rôle of the Chancellor becomes that of a book-keeper to those responsible for economic planning.

It was right and proper that the interim Budget should have been brought in, although at one time I thought it was much ado about very little, as the lad from Stratford once neatly said. However, I am glad of the effect which the Budget will have in the workshops, and I regard the Profits Tax proposals as much the most important part of it. The psychological effect of the increased inroad into the cake, which is profit, will compensate for the added imposition upon ale, which is felt almost exclusively by the lower income group. Anything that creates the impression that the Government are bent on "fair do's among shipmates" is to be welcomed. It is not easy to create a sense of crisis in the mind of a chap who has £6 or £7 to pick up at the weekend and who is quite unable to understand the great national and international economic factors that are bedevilling national recovery. That fact may be put down very largely to lack of education in these matters in the period between the wars.

In speeding the progress of the Bill on its way to another place, I wish the new Chancellor the best of luck and, not least, good health. I do not for one moment accept the inference of the hon. Member for East Aberdeen (Mr. Boothby) that the President of the Board of Trade, the Minister of Supply, the Minister of Fuel and Power, and Uncle Tom Cobleigh and all, are now to become "Charlie McCarthys" to the Edgar Bergen of the Chancellor, but it is a fact that greater power is now concentrated in the hands of the Chancellor than has ever before fallen to the lot of a British statesman in peacetime.

Mr. Birch

What about the Prime Minister?

Mr. Evans

The Chancellor is a man of great intellect and of the highest integrity. It is right that he should speak in terms of deep draughts of Christian spirituality. I hope he will remember the effectiveness of an occasional draught of political spirituality. When leading an army over an uncharted "no man's land," with pitfalls at every turn, it is a good thing to have an occasional glance over one's shoulder to see that one is in touch with the main forces. Otherwise, one is likely to find oneself a general without an army, a most unpleasant and unhappy situation. We wish my right hon. and learned Friend well in the task which he has assumed, and if he pays regard to the concluding part of my speech, I am sure the national effort will be the better for it.

5.21 p.m.

Mr. Spearman (Scarborough and Whitby)

The hon. Member for Wednesbury (Mr. S. N. Evans) has told us that he found some difficulty in encouraging the workers to produce their best because of the inflationary effect of the increase in dividend distributions.

Mr. S. N. Evans

I do not recall having said that at all.

Mr. Spearman

I naturally withdraw if I have misquoted the hon. Member. I am speaking from memory. I thought he said that, going round the country at weekends, encouraging the workers to produce more, he found the fact that boards of directors had increased dividend distribution so largely was having a very adverse effect psychologically on the people.

Mr. Evans

That is true.

Mr. Spearman

I wish to suggest two facts which might be taken into account. The first is that the proportion of money paid out in dividends is about 3 per cent. of the national income, whereas the amount paid out in wages is over 40 per cent. I am not quarrelling at all with that proportion; I am merely saying that, to get a fair perspective, the hon. Member should realise that the inflationary effect of increasing dividends is very small compared to the amount of wages paid.

The second point I wish to make is that up to now the shareholders, it may be quite rightly, have done pretty badly compared with the wage earner, bearing in mind the situation before the war. According to the "Economist" of 15th November, allowing for the rise in the cost of living, the wage earner is now getting 105 compared with 100 before the war, whereas the shareholder is getting 74 as compared with 100 before the war. That may be altered in the future by the removal of E.P.T., but up to now the shareholder has borne a considerable burden and his purchasing power is reduced a lot, whereas the wage earner's purchasing power has increased.

There have been several attacks on the Profits Tax, and I want to criticise it, not because it bears on the shareholders —I believe that in this crisis all sections of the community must bear their share of sacrifice—but because it is inequitable in the burden which it puts on some shareholders as compared with others, for reasons beyond their own control. I would like to give an illustration to emphasise my point. I will take as an example two companies, each of which earn and distribute £100,000. One company has £1 million preference shares and £1 million ordinary shares. The other has £1,500,000 preference shares and £500,000 ordinary shares. In the case of the first company, the shareholders used to get 5 per cent., and after this Profits Tax increase they get 2½ per cent; whereas in the case of the second company, the total profits of each being the same, the shareholders used to get 5 per cent, and now get nil. I do not see the fairness of one shareholder suffering so much more than another, for reasons over which he has no control.

The Financial Secretary told us that he was very satisfied with the easy passage that this Bill was having. I would sug- gest that perhaps that easy passage is due not so much to the equity or the effectiveness of the proposals, as to their insignificance. When we heard there was to be an interim Budget I hoped that the financial policy of the last two years, which seemed to me to be so foolish and so damaging, was going to be repaired by a drastic Budget to deal with inflation. If in its conception this Budget is inadequate for that purpose, it may be that in its reception in this House we have seen the reason why. From the speeches of hon. Members opposite—I would make notable exception of the hon. Member for Chesterfield (Mr. Benson)—I do not believe there is any clear realisation of the gravity of the present situation; indeed, there appears to be no realisation that this country has no automatic right to live better than most other nations and do less work.

In judging how far this Budget will be successful in attacking inflation, I would like to examine the gains and losses involved if it succeeds or fails. The prize for success would be very great indeed. Not only would present supplies of food and necessary articles be ensured, because we would hold in check the ever threatening excess of domestic purchasing power which pulls goods into domestic consumption and so diminishes supplies for export, but by diverting men and materials from the luxury trades into the essential industries we should hope to increase supplies of those goods which we export and thereby ensure our ability to buy more goods which we need from abroad in future. Therefore, if this Budget should be a success in attacking inflation, not only should we consolidate our present rather perilous position but we should have prospects of a richer life in future.

If the prize of success is great, the price of failure is enormous. If inflation continues, it is quite clear that prices and costs will rise so that we shall no longer be able to sell abroad. We cannot always depend upon the easy sellers' market which we have had up to now. We shall not be able to buy the food and raw materials that we have got to have to maintain a decent standard of living. In addition, those things which we have got will not be fairly distributed. If there is to be an increase in the pressure against physical controls, if there should be less goods and a greater demand for them, I do not believe those controls will stand up to that pressure. We shall find more and more goods escaping into the black market, so that we shall get a less fair distribution than there is at present.

The present situation, to use the hackneyed phrase, is "More money chasing less goods." That is in spite of the fact that we have been getting about £700 million worth of goods without paying for them because of our adverse balance, which itself is a by-product of inflation. Therefore, when we get rid of that adverse balance, unless we do it by increasing production, we shall face not the present inflationary position which is bad enough, but something infinitely worse. How will this Budget meet that situation? It proposes to do so by the saving of £48 million in the current year and £208 million in a full year, plus of course the saving of capital investment. It does not look to me as though that will add up to anything like enough to deal with the present situation.

Therefore, I criticise this Budget because it does not reduce the total demand for real resources within the limits of available supplies. I suggest to hon. Members opposite that by not facing this situation and by not facing these cuts which should be made in an orderly way, they will not avoid their being made. The only result will be that they will be made in a disorderly way, and therefore the burden will fall on those least able to bear it. I would suggest to hon. Members opposite that this Budget is trivial compared with what is needed and that we shall wish in a year's time that the Financial Secretary had had a more difficult Budget to pioneer through this House, because something altogether more drastic is needed to deal with this grave situation.

5.31 p.m.

Mr. Selwyn Lloyd (Wirral)

May I begin by saying how much I agree with what has been said by the hon. and learned Member for East Leicester (Mr. Donovan). No one is more qualified than he to speak about taxation matters, and I hope that his appeal to the right hon. Gentleman to do something about the codification of tax law will be heeded. On the third Reading of the last Finance Bill, I and the hon. and gallant Member for North Portsmouth (Major Bruce) pressed this point. I do not know whether the right hon. Gentleman was bored on that occasion, but on this occasion at all events I hope he will be interested. The hon. Member for Wednesbury (Mr. S. N. Evans), said that he thought of this Finance Bill as "Much ado about nothing." I feel the real comment to be made about it is "Very little ado about a great deal." In other words, in that sense it is a "phoney" Budget. If anyone thinks it is really going to preserve this country from the danger of inflation, that person is living in a fool's paradise, and in that sense the Budget is certainly "phoney." Its epitaph, like the epitaph of so many Measures by this Government, will be "Too little and too late."

The hon. Member for Wednesbury, in giving advice to the Chancellor, said that if one is leading an army over an uncharted minefield it is wise to look over one's shoulder from time to time. I would respectfully suggest to him that it would be singularly foolish to attempt to lead an army over an uncharted minefield and, furthermore, if one were leading an army into action it would also be very foolish to start looking over one's shoulder.

Mr. S. N. Evans

I did not use the term "minefield." I said an "uncharted no man's land'" and, in many ways, that is what we are having to navigate at the present time—an uncharted economic and financial "no man's land."

sMr. Lloyd

I will content myself by answering that time spent in reconnaissance is seldom in fact wasted, and if one is going forward to attack, it is not very wise to look over one's shoulder at the time. My general opinion on the Budget is that it will not be effective in avoiding the surgical operation which so many of us feel is necessary if this country is to be brought back to economic health. So far as the details are concerned, I do not think anyone can deny the necessity for the first three Clauses. With regard to the fifth Clause, dealing with Purchase Tax, again I do not think we deny that it is an appropriate method to attempt to deal with the evil. Clause 5 has been made much more palatable, at all events to me, by the Chancellor's undertaking to review and revise the Schedules and, if I may mention again the matter of drugs and medicines, may I once more appeal to the right hon. Gentleman not to be bored about that, but to be interested and to see that something really is done about it between now and the next Finance Bill? With regard to Clause 6, again, I think, we mostly feel that is right in the present circumstances.

I want to say a word or two about Clause 8. This is an interim Budget and I should have thought that the first requirement of such a Budget was that its provisions should be short, simple and straightforward and in my submission this Clause is none of these things. I do not think we, on this side of the House, have any objection, in principle, to the view that those people who are long overdue with their tax payments should be made to pay some interest on the sums overdue. But it is quite wrong that a new departure like this should be made in an interim Budget, because it is obviously a matter which is going to affect the whole field of taxation. Such provisions need to be very carefully weighed and studied, and in this instance there has not been adequate time to study the provisions of this Clause. The undertakings which have been given have been very acceptable to hon. Members on this side of the House, but they have made me all the less happy about the actual wording of the Clause.

We are entitled to know what is the purpose of this Clause. Is it a penalty for wrong doing? If so, surely it is wrong to let a person off for the first three months and also wrong to let people off whose sums overdue are less than £1,000. If it is not a penalty for wrong doing, is it meant as an incentive for more prompt payment—I think myself that is really what it is meant to be. In that case, in view of the figures given today, is it really worth while? If it is meant to be an incentive, why should the taxpayer not be entitled to charge the interest he has paid against his profit and loss account? The contrary is the case so far as the Government are concerned, and I do not understand why the taxpayer should not be allowed to charge the interest paid against his profit and loss account.

Why is it not made clear in the Clause that when the State owes money to the taxpayer, the State will pay interest on the sum overdue? We have just been to some pains to pass a Bill dealing with proceedings against the Crown in order to put the Crown on a level with the ordinary litigant. Here we have quite the contrary principle. There is to be one law for the rich and one for the poor, one law for the Treasury and one law for the taxpayer, and that is quite contrary to the idea implicit in the other Bill. The process seems to continue of the growth of power of the Executive at the expense of the subject and the taxpayer. This is just another example of that sad process. In my submission, this Clause is ill-drafted and complicated, and its intrinsic confusion is treble-confounded by the undertakings and promises given in regard to it.

I want to say a word about Clause 7. During the Third Reading discussion on the last Finance Act, I raised this point and had a certain discussion with the Chair about the "thin end of the wedge." The Ruling, eventually was that I might discuss the thin end, but not discuss the wedge itself. When I asked the right hon. Gentleman whether the Profits Tax was meant to be the thin end of the wedge, he gave no answer. We have an answer on this occasion. Quite clearly, it was the thin end of the wedge and equally clearly the wedge is growing in size. If my mathematics are right, the Profits Tax is 5s. in the £ on distributed profits and 2s. in the £on undistributed profits. The balance is subject to Income Tax at a rate of 9s. in the £, which means to say that out of the 15s. left of the of distributed' profits, a further 6s. 9d. goes in Income Tax, making a total of 11s.9d. Of the 18s, left on the undistributed £ a further 8s. 1d. goes in taxation, making a total of 10s. 1d.

If the State is going to be, in perpetuity, a sleeping partner in industry on those terms—that is to say, if industry is making a profit the State is to take those sums in respect of those two categories, but if industry makes losses the State pays not one penny towards those losses —then, I think, the situation is going to be extremely serious for the whole economy of the country. The consequences are two-fold. First, there is the question of incentive, to which my hon. Friend the Member for Edgbaston (Sir P. Bennett) referred. If we are to survive, our industry has to be flexible. If we have this enormous proportion of profits taken by the State, our economy is not going to have flexibility; we are not going to have risks taken; we are not going to have new inventions developed; people are not going to think it worth while to risk their money in undertaking such developments. It must be remembered that every one of our great industries has grown up from small beginnings, and that if we are to maintain ourselves as a great industrial nation we must make it possible for the small beginnings to be made from which new industries will grow. That is the first consequence negation of incentive.

The second consequence applies much more to old-established industries. It will deprive private enterprise of the resources with which to expand. It will deprive private industry of the resources with which to overcome bad times. I think it would be very much better if the House were clearly told the fact that these two consequences mean the destruction of the private enterprise system. It is a slow and lingering death, it is true; but it will be one that will be very painful for all concerned, including the wage earners. Let us be clear about it. Let us, to use a colloquialism, "cut the boloney", on this subject, and recognise that taxation of profits at this level will mean the end of the private enterprise system.

Mr. W. Fletcher

It is probably intended to.

Mr. Lloyd

My hon. Friend says it is probably intended to. If it is intended to do that, why not be honest about it and say openly what it is that the Government intend to do? It is sheer intellectual hypocrisy for the Government to say they mean to keep 80 per cent. of industry in private hands, and that they will give it its head and to do everything to encourage it, if, at the same time, they are enacting Measures of this sort. When I consider how much private industry will have to achieve in the very terrible situation in which the country finds itself, I am filled with horror at these proposals with regard to the Profits Tax.

5.42 p.m.

Mr. Walter Fletcher (Bury)

I should like to refer first to the speech of the hon. Member for Wednesbury (Mr. S. N. Evans). The name of my constituency consists of the last two syllables of the name of his—Bury in Lancashire. That constituency is a working man's industrial constituency. When, therefore, I say that I do not at all agree with his analysis of the view that the man in the factory is taking about the Profits Tax, I think I can speak with authority equal to his own in so saying. I believe that political education has advanced so far that the average working man does not in any way think along the narrow lines the hon. Member for Wednesbury has put forward—that it is a little bit to his advantage if something is against the shareholders. I think that the industrial efforts the working man is making at this moment in the hon. Member's constituency and in mine are not based at all on anything as narrow as that, but.that he is understanding, and is understanding more every day, the implications of the present crisis, and that he is not thinking on that very narrow class line.

I should like to back up the arguments that have been put forward as to the effect of the Profits Tax, but to consider it from another point of view, that of overseas development, which has not been mentioned. The great cushion which we had to fall back upon at the beginning of the war was the enormous amount—I think £3,000 million worth—of overseas investments which we had built up over a very long time. Those investments had been built up by private enterprise, by the taking of commercial risks—commercial risks that were well worth it. Private enterprise had built them up, not only in our own Empire but also in other countries. I think that the Financial Secretary to the Treasury will bear me out when I say that at the present moment he is harassed the whole time by the Minister of Food and other procurement Ministers who want him to sanction demands on dollar and other hard currency countries for food and raw materials. Those large overseas investments have disappeared, and our earning capacity in hard currencies is not sufficient to meet the cost of what we need.

If we are to reverse that process and again to build up our overseas cushion of investments in other countries it must be worth while for private enterprise—which is still charged with 80 per cent. of the task—to do so. At the present moment that really does not hold good. I happen to be connected with an industry—the rubber industry—in Malaya and the Far East, where the future of that industry has got to be assured in a highly competitive sphere against synthetic rubber.

It may be rather a tender subject to mention at the present moment—if the Government will look up what the position is in rubber—because of recent events, which, no doubt, will come to a head soon, and the arrangements they have made for marketing, particularly in America.

Surely the wise thing would be to encourage, instead of discouraging, the extension of all such overseas enterprises. Indonesia is now looking, not only towards Holland, but to this country for investment and development, as I know from my own recent visits there. If the financial risk of development throughout the world is made so unattractive for the risk taker, we shall never again have the opportunity either to build up developments and investments abroad, in the way in which we are better qualified to do it than any other nation of the world, or to increase the real wealth of the amount of goods and food throughout the world. It is just at the present moment, when one is called upon to invest money in almost any country throughout the world, that the risk, owing to the burden of taxation, is an unattractive one, so long as companies and enterprises are centered in this country.

What is the effect? If we export some of the best exports we have to make from this country, some of our leading exports, brains, knowledge, energy and enterprise, we shall in the end have a great loss to this country; because once the line is severed between this country and incentive, once enterprise goes abroad, in the form of companies formed overseas, then this country disappears. The country will pay over the years out of that extremely valuable fund of enterprise; and all the extra employment and the extra benefits that come from all the ancillary enterprises of the companies leaving this country, will have gone altogether.

We all know that we have got to bear a burden of taxation, but there must be some relationship between that and the risk that is run. The present tax, particularly the tax on undistributed dividends is, I think, one that bears no such relationship. I hope that when the next Budget comes the Chancellor and the whole of his Department will examine these matters sympathetically. There is no doubt about it that they understand, because they have been negotiating some very valuable treaties with other countries in avoidance of dual taxation. That is, however, only one aspect, and a minor one, of the vital question. We are taking another risk, and a very expensive one, in the low outside purchasing value of sterling. At this moment the call on private enterprise to go overseas is very great. Its place cannot be taken by the £150 million of the two Corporations the Government have formed. That bears no relationship to the value of our overseas resources developed by private enterprise in that period of the horrible time of Tory misrule. I hope that this aspect of the Profits Tax will be borne in mind.

I turn to Clause 8. During the previous Debate on this I achieved what I think is almost the impossible. I roused the Financial Secretary to a display of anger against myself. Both he and I seem to have recovered from that. Today he did not—because it would not have been in Order—move an Amendment, but he did the next best thing, and made an amende honorable; he did try to undo some of the harm that had been done by the former Chancellor. I should like to quote some of the words used by the former Chancellor in the Debate of 12th November. After he had mentioned the £780 million he said: None the less, after taking all that into account, the total of genuine arrears is large, much larger than it ought to be. That impression was false, and what the Financial Secretary did today—as was emphasised by my right hon. Friend the Member for West Bristol (Mr. Stanley)—was to take a very big step towards dissipating that wholly false impression, and to show how misleading was the former Chancellor in this matter. When the Chancellor was talking about the £1,000 level he said: Where the tax due exceeds £1,000—we are not looking for ha'pence."—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 402.] Personally, I spend quite a lot of time looking for ha'pence and farthings. I find that is not only a profitable but also an extremely healthy exercise.

Mr. Scollan (Renfrew, Western)

It has not had a slimming effect.

Mr. Fletcher

I thought somebody would rise to that. We are not looking for hatred but what could show more clearly the prejudice, and unjustified prejudice, which the former Chancellor was trying to create? Within a very short time the Solicitor-General was telling us in this House that there were 100,000 cases between the £300 and £1,000 mark, and did not rebut in any way the plea I put forward, that probably the amount to be gathered between £300 and £1,000 was greater than that above £1,000, although the Chancellor was not looking for ha'pence.

One satisfactory thing comes out of the Debate on Clause 8 for those who have claims against the Government where the Government are trying, very often in an unjustified way, not to pay them without procrastinating. What is sauce for the business goose must be sauce for the Government gander. Where it can be demonstrated—and I think it can in many cases—that the Government, by delaying action, are not standing up to their true liabilities, in future they will not be able to refuse to pay proper interest. To some extent, they have established a precedent in the 2½ per cent. paid on war damage claims in this country. I hope that precedent is well established. By the next Budget it will be quite clear whether this new system in Clause 8 is having the effect which everybody in this House desires, which is to make the man who unfairly withholds his taxation, pay up. If so, the logical conclusion must be to extend it, because that is only a matter of pure justice, of right and wrong. There is no doubt that it would help the smaller trader who is the one to come in, and whose interests we on this side of the House take particular care to look after. It would mean that he would have to go into a system of close bookkeeping and accounting, and would be able to keep his own accounts up to date under the pressure of this new Clause.

On the other hand, if this new system proves ineffective, and the rate has been neither increased nor decreased, then in the next Budget let us give it a decent burial as one of those attempts of the former Chancellor to use the Budget for the last purpose for which it should be used—the creation of party feeling and class separation. I believe that under the new set-up at the Treasury that outlook will disappear to a great extent, and the Budget will be used for the purpose for which it is intended. If there is one thing that is not necessary at the present moment, it is the driving of a wedge between classes in this country. That the Budget, which is a financial instrument, should be used, or abused, for such a purpose was a scandal, which has been largely mitigated by the statement of the Financial Secretary today, and by the publicity which will no doubt be given to the bad precedent sought to be established, which I hope has now gone with the wind.

5.55 P.m.

Mr. James Hudson (Ealing, West)

I intervene for only a short time in an attempt to reply to the remarks of the hon. Member for Bury (Mr. W. Fletcher) about the implications of the Profits Tax and its influence, as he thinks, upon private enterprise; a point referred to also at some length by the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). I am extremely glad that the Profits Tax has been increased. Hon. Members may remember that in a previous Debate on the Finance Bill, I strongly advocated that a year ago we should have taken the step which my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) took when he introduced this Budget. I am glad it has been done because, contrary to the views of hon. Members opposite, I am quite sure that there is no likelihood of the call for greater labour, in the crisis which faces us, being met adequately if the mass of the workers feel that as a result of exerting their best efforts there would be, at the end of those increased efforts, only increased profits for the few.

As one who has listened for a long time to claims made on behalf of private enterprise, I have been struck by the claim made in the speeches today that it thinks of something other than making profits; that it thinks of the qualities of service involved in the industry it is conducting. In rotary clubs, in chambers of commerce—as well as from the benches opposite—we have listened to claims of that sort for a long time. If there was any substance in that claim for the merits of private enterprise, it should not matter if the private enterpriser loses his profit, or part of his profit —in the case of the present Finance Bill, to the extent of 25 per cent.; there should not be a disappearance of this desire to serve the community, which as we so often hear, private enterprise wishes to exercise. The line taken by hon. Members opposite has simply stripped all that humbug off the claim so frequently made for private enterprise. Private enterprise is, at bottom, only a process of wringing profits out of industry for its own purposes; and if the profits go, the whole impulse by which private enterprise can be carried on goes also. If hon. Members opposite believe what they have preached tonight, I hope they will preach it openly and frankly in their constituencies, so that the working men to whom the hon. Member for Bury referred will understand clearly that that is their view.

At a time when working men are being appealed to, with some success, to forgo increases of wages, at a time when they are working harder, and are being asked to give additional labour—as,for example, recently, when they have been helping at weekends to get a quicker turn-round of railway wagons—if, in this national crisis, working men can be persuaded to labour altruistically for the community, then there is no case for those who seek to make profits out of the general efforts, and who seek to maintain those profits at the level to which they have been accustomed. If the Government had not taken some such step as has been taken in this Finance Bill, but had maintained profits at the old level, it would have been a great discouragement to those who matter most in the present situation, namely, those who are being called upon to work harder to help the nation through its difficulties. Mainly because the Government have introduced this provision, I am very well satisfied with this Finance Bill.

6.0 p.m.

Sir Arthur Salter (Oxford University)

I had no intention to speak in this Debate, but I have been aroused by the hon. Member for West Ealing (Mr. J. Hudson), who has talked the most extraordinary nonsense about profits. It is not a fact that people who engage in private enterprise think they need do no work unless they get extravagant profits, or that they think of nothing but profits. The hon. Member must surely realise, however, if there is to be private enterprise at all, that when people are considering whether or not they will engage upon any particular form of enterprise, there must be a prospect of more gain than loss, or a greater prospect of gain than of loss. There must be that motive force.

The reason why a number of us are very anxious about this increase in the Profits Tax, particularly in regard to undistributed profits, is that whereas in the case of distributed profits the tax is obviously of a temporary character relating to the present emergency, and is obviously dis-inflationary, the tax on undistributed profits is not similarly, in its nature, a temporary tax; it is only too likely that having been started at one level, and then having been doubled, it may be retained and even increased. If that is so, it may make the working of private enterprise completely impossible. The one thing which is absolutely essential to the proper working of private enterprise, is that when those who are faced with a decision whether a particular enterprise should be undertaken or extended, after making their calculations and after having obtained the best expert advice, conclude that there is a substantially greater prospect of cleating wealth than of losing it, that they should have a financial inducement to undertake the venture.

But if we take the Profits Tax at the present level, bearing in mind the fact that behind it is the ordinary Income Tax and Surtax, the consequence may be—allowing a margin for risk—that unless the calculation shows that there are four times as much chance of making a gain than a loss, the decision may be not to undertake the venture. The Government are relying as to 80 per cent. of our economy on private enterprise, and to a larger percentage in the case of the export trade. If those who have to decide whether to extend their enterprise or not must say "No," unless the chance of making a profit is several times as great as the risk of a loss, it is perfectly obvious that over a large sphere private enterprise will not operate. That is why I feel very anxious about the inclusion of a higher taxation, not only on distributed profits, but on undistributed profits.

Many Members have said that the proposals in this Bill are insufficient to deal with the inflationary excess in the country, It is, of course, fair to say that they are not intended to, but are only introduced in order to deal with the increase in the inflationary excess which results from the recent measures undertaken in order to save dollars. It is obvious that even for that more modest objective the proposals are not sufficient. When we bear in mind also the great pre-existing inflationary excesses which these proposals do not touch at all, most of us have come to the conclusion that it is not possible to solve this problem purely by taxation methods, but that a reduction in expenditure and a considerable increase in production will both be required if that position is to be remedied. That second condition is very relevant to the character of the proposals which are made in a Bill such as this. It immensely increases the importance of these measures being not only equitable as between different classes, but also being such as not to destroy or diminish incentive.

That is why I put such emphasis on the Profits Tax. Quite apart from the incentive condition, it is obviously essential that any proposals introduced should be fair as far as is possible, and although the ambit of this Bill is very limited and modest, it is perfectly clear that, in one measure after measure, ordinary decent treatment as between one class of taxpayer and another has not been provided in these proposals. Let us take as an example the provisions in regard to interest on arrears of taxation payments. I do not think I remember in this House such an extravagant original case being so reduced bit by bit until it obviously bears hardly any relationship to the case which was first brought before us. We have had the P700 million brought down——

Mr. Glenvil Hall

I think it is time that this matter was put in its proper perspective so that some justice might be done to my right hon. Friend the Member for Bishop Auckland (Mr. Dalton). The figure of £750 million which has been bandied about was first put into the Report of the Public Accounts Committee. If anyone is to blame, then I think the collective blame should be borne by that Committee for using that figure without making it quite clear what it meant.

Sir A. Salter

The late Chancellor of the Exchequer, in using that figure as a basis for a new provision in the Finance Bill, should have explained exactly what was its import, how much it meant, and how much it did not mean. It has become clear now that the arrears represent a scarcely, if any, larger proportion of the total revenue than was customary and normal before the war. I believe that to be the case, and if that is so the case for a kind of punitive measure in an emergency Finance Bill is very much less than we were originally led to believe. This provision for a 3 per cent. interest on arrears is, I suppose, partly intended as a punishment and partly intended as a prod. It is a novel provision in this country, and it has very few precedents. There is a precedent in the case of the United States, but there it works two ways. The American Treasury also pay interest on the amount they owe to the taxpayer. I think it is worth emphasising that it is in that respect unjust, in addition to injustice being done to the general body of taxpayers for the reasons already described by others today.

I will merely refer to, without repeating, what has been said about the tax on betting. It is obvious there that the Government have subordinated any question of fairness to the desire to adopt a system that is immediately easiest and simplest to administer, with a rather scandalous disregard of elementary justice. So I might go on to other parts of this Bill.

In conclusion, I would say this: it is quite clear that this makes only a very modest contribution to the general inflationary problem. It does not even adequately cover that addition to the inflationary excess which is being made by recent measures taken to save dollars. That deficiency in attaining that limited object is, in a large measure, due to some of the ways in which the Government have attempted to save dollars. For example, there is all the difference in the world between the way in which dollars are being saved by the recent increase in the tobacco tax—which was intended to save £7,500,000 worth of dollars, but is also bringing in £75 million revenue—and the method adopted in regard to the basic petrol ration, where about the same amount of dollar saving was aimed at—£7,500,000 worth, later raised, I believe, £9 million worth.

The latter has been done at the cost of actually losing revenue to the extent of at least £19 million and, therefore, adding to the inflationary excess to the extent of more than twice as much as the dollar savings aimed at. In that respect, I think the Government have introduced a measure which will give a little help in one direction, but which will cause so much trouble in another direction. It is doubtful whether, on purely financial grounds, quite apart from the economic loss and the personal inconvenience, that step was, on balance, desirable. These are simply illustrations of my general view that this Bill, as a whole, is inadequate, that in many details it is undesirable in that it reduces or removes incentives, and that in other respects it is unjust as between one class of taxpayer and another.

6.14 p.m.

Mr. Benn Levy (Eton and Slough)

Like the right hon. Gentleman the Member for Oxford University (Sir A. Salter), I had no intention of intervening in this Debate, but my motives in doing so have not been dissimilar from his. Although I hesitate to say, as he did rather discourteously, that I have been provoked to rise by the nonsense talked by the preceding speaker, I am bound to confess that what the right hon. Gentleman himself had to say struck me as at least fascinatingly remote from reality. His first argument, if I did not misunderstand him, was that the Profits Tax of 25 per cent. involved, as its corollary, private enterprise being required to be assured in advance that the chance of profit was four times as good as if the Profits Tax had not been imposed. It is difficult to believe that the senior Burgess really meant that. What the Profits Tax does is not to multiply the risk of loss by four; all it does is to reduce the profits actually made by one-quarter. Which is a completely different thing.

It is no good discussing the Profits Tax as though it were an Income Tax, or assuming that people will be deterred from making profits because they cannot make as much profit as they could have done without the Profits Tax.

Sir A. Salter

I said that one had to reckon that even if the risk was a good one, and the profit was made, there was still Income Tax and Surtax in the background.

Mr. Levy

I realise that there is Income Tax and Surtax in the background but this Clause which we are discussing increases the tax payable on retained profits by only 1s. in the £ and on distributed profits by 2s. 6d. in the £ To suggest that these slight additions will be serious deterrents to private enterprise seems to be wildly wide of the mark.

The right hon. Gentleman went on to repeat an error, which I had the pleasure of pointing out to him during the Committee stage. He argued, first of all, that the Profits Tax was a deterrent and a disincentive to industry and then, almost in the same breath, complained that it was not disinflationary. I repeat now what I said then, that it is essential that we should make up our minds whether we want to repel or attract money. If we want to repel money from the pursuit of capital goods—and the right hon. Gentleman was particularly emphatic on the question of the retained Profits Tax—it is no good pleading that this tax is a disincentive. On the other hand, if we want to attract money it is fair to complain that the tax is a disincentive. But to complain that the tax is disinflationary means that the right hon. Gentleman does not want to attract money to the pursuit of capital goods.

Sir A. Salter

My point was that, in the nature of the case, a tax of this kind, now increased, is very likely to remain as part of our taxation system. If that is so it would be very undesirable as a disincentive. As for the immediate disinflationary effect, I suggested that it was not necessary at this time because there were restrictions on raw materials and so on to deal with that particular question.

Mr. Levy

It appears that the right hon. Gentleman is not talking about this Budget at all. He is talking about a future Budget in which he vaguely apprehends that a tax, although right today, will be wrong at that time and will not be amended in future. I cannot follow him in this field of speculation. We are talking about this Budget, and I say that in the circumstances of this year's financial condition this tax is a good and valuable tax. Now that the right hon. Gentleman has reduced his objection to a mere apprehension that at some future date the tax will not be withdrawn, I think we can leave the argument safely where it is.

I should like, while I am on my feet, to mention one other Clause. When I came into the Chamber the hon. Member for Bury (Mr. W. Fletcher) was advancing a rather surprising argument on the subject of the interest which is to be levied on unpaid arrears of Income Tax. He described this proposal, which is designed to diminish wilful procrastina- tion in the payment of taxation, as a piece of class legislation. I must say that the faces behind and beside him betrayed some dismay at the implication that it was a class habit to procrastinate in the payment of taxation, but we will let that pass. I have, however, some sympathy with his fears about this tax. The hon. Member expressed doubt as to whether it would reduce the very serious arrears which the Chancellor is trying to collect. I share that doubt, but for rather different reasons. A weakness of this Clause is that the phrase: When the tax becomes due and payable, which was ambiguous until it was explained by the Financial Secretary on the Committee stage, has now been explained in a manner which makes it very probable that the Clause will have no effect whatsoever. The explanation was-that interest would not be payable until agreement between the Commissioners and the taxpayers had been arrived at, It seems to me essential that, if the threat of interest payable is to have any effect, then it should be payable from the moment that the first assessment is made. This is not unfair. It is open to the taxpayer still to argue, and, in the event of his proving his case and securing a rebate, I can see no reason why the Treasury should not pay interest on that rebate. That would be perfectly fair, and I believe that is already done quite successfully in Australia. In other words, the parallel is the old Services one: Carry out the order first, and argue afterwards.

The disadvantages of not doing it in this way are very serious. First of all, it would provide a new incentive to arguefy interminably. By prolonging the controversy about a tax assessment, one will be escaping interest and payment. One serious result of this is that there is likely to be an enormous extension of cases which will have to be argued by the Commissioners of Inland Revenue who are already gravely overworked. It may be that the net effect of this tax will be to increase the burden—the already too heavy burden—on the Commissioners by providing an incentive for infinite appeals and for infinite argumentation, and, by the same token, it may fail in its effects. I hope, therefore, that the Financial Secretary and the Chancellor of the Exchequer will keep their eye on this point, in case it Should work out in the way I apprehend.

6.22 p.m.

Sir Waldron Smithers (Orpington)

As so often happens when one is called late in a Debate, many of the arguments which one had thought of have already been made. I would support wholeheartedly the speeches made by the hon. Member for Edgbaston (Sir P. Bennett), the hon. Member for Flint (Mr. Birch), the hon. Member for Bury (Mr. W. Fletcher), and, especially, the speech made by the senior Burgess for Oxford University (Sir A. Salter). Their arguments were quite unanswerable. I do not, however, propose to follow the line of their speeches.

I want to raise an important constitutional point. I make the strongest protest against the absence of the Chancellor of the Exchequer from this Debate. The 'Chancellor is now economic and financial dictator of this country, and, already, we are seeing that his duties are so great that he cannot carry out his first duty, which is to be in his place in this House on the Third Reading of a Finance Bill. I would ask the Financial Secretary who is to reply to this Debate? Will he tell me now?

Mr. Glenvil Hall

That depends on the House. Later on, if hon. Members would like a brief reply, I intend to offer, by leave of the House, to give one. I think that the hon. Gentleman could not have been in the House when I spoke earlier.

Sir W. Smithers

I was.

Mr. Glenvil Hall

In that case I have nothing more to say.

Sir W. Smithers

I was terrified lest the Minister of Health was to reply. He was sitting on the Front Bench. If the Financial Secretary had told me that the Minister of Health was to reply, I intended to move the Adjournment of the Debate, pending the return of the Chancellor of the Exchequer. I heard what the Financial Secretary said. I do not care what the Chancellor is doing; whether he is trying to appease Mr. Molotov, or whatever he is doing, it is his duty to be here. I want to have on record a strong protest by at least one hon. Member on this side of the House at the absence of the Chancellor of the Exchequer, not for the first time, because on the Second Reading of the Finance Bill after he made his speech——

Mr. Deputy - Speaker (Sir Robert Young)

The hon. Member has made his protest; he need not lengthen it.

Sir W. Smithers

I want to raise another point. I was not going to enlarge on that one. What the right hon. Gentleman did was to go out, and, therefore, he had no chance of speaking again. I was calling——

Mr. Deputy-Speaker

The attention of the House has been drawn to the absence of the Chancellor of the Exchequer. That will be reported to him. The hon. Member should now get to the contents of the Bill.

Sir W. Smithers

I was not enlarging on that point. I was asking why no reply was sent to a letter sent to the Chancellor of the Exchequer, asking him——

Mr. Deputy-Speaker

We are dealing with the Third Reading of the Bill, and not with letters to the Chancellor of the Exchequer.

Sir W. Smithers

In the letter were points raised on the Bill to which I could not get an answer. When the Chancellor of the Exchequer was speaking on the Second Reading on 17th November he said: I should like to make one thing clear at the outset, and that is I was and am in full agreement with the proposals which my predecessor put forward in this Budget"—[OFFICIAL REPORT, 17th November, 1947; Vol. 444, c. 932.] Within a few days, he altered the Purchase Tax on electric batteries.

Mr. Deputy-Speaker

The matter of electric batteries has been taken out of the Bill. The hon. Member should confine himself to the contents of the Bill.

Sir W. Smithers

He also did away with advertisements tax. What confidence can we have in a Chancellor of the Exchequer who gives a definite statement like that one week, and changes his mind the next week?

There is one other point of constitutional importance which I wish to mention. That is with regard to the public money raised under this Bill. That money will have to be spent. I want to know what position the new Economic Secretary to the Treasury holds in the expenditure of this money. It has been an age-long tradition in this country that no Department can spend money without Treasury consent, and now that we have the economic and financial direction of the country under one roof, I should be grateful for an answer as to whether Treasury control will still be strictly maintained over this combination of the economic and financial side of the workings of our country. Will that be relaxed? Will the Chancellor be able to say to his new Secretary: "You can spend that; you know that you have permission before you do so"? It is very important that Treasury control should be maintained.

This Bill, as has been said on several occasions, was primarily to stop inflation. It has done nothing of the kind. It marks another stage upon the road of disaster down which this Government is leading the country. I will conclude by quoting four lines of Rudyard Kipling: All power, each tyrant, every mob Whose head has grown too large, Ends by destroying its own job And works its own discharge.

6.30 p. m.

Mr. Attewell (Harborough)

A statement by an Opposition speaker was that this was a "phoney" Budget from the point of view of preventing inflation. I have listened very carefully, and I wonder what Clause in the Bill the Opposition would support as preventing inflation. I have no recollection that they support any particular Clause, with the exception of the increase in Purchase Tax. One Member of the Opposition made great play on the Profits Tax. If we do not have the Profits Tax as a method of preventing inflation, it appears to me that the tax must be on the only other source from which money comes into the market in considerable amounts, namely wages. Is it suggested by the Opposition when they plead for less expenditure that it should be less expenditure on the social services? If it is not wages which they want reduced to make this Budget a real Budget, what is the particular Clause they suggest?

I want to protest very sternly and strongly against the increase in Purchase Tax. I am aware that once a tax is placed upon a given commodity, it is always difficult to remove it. The Opposition have used that as a reason for objecting to the Profits Tax. I am objecting to the Purchase Tax because it is unfair to thousands of ordinary men and women whose wages are less than the average wage shown in the Ministry of Labour Gazette. When we consider the thousands of people whose wage is less than £5 a week who have to pay the increase in Purchase Tax, this is tantamount to saying that the men and women receiving less than £5 per week are causing inflation, and are the reason for this interregnum Budget. When the mass of goods which are vitally important to the community are on coupons, or come under some other method of rationing, that should be sufficient to prevent a drain on those commodities. When the Chancellor of the Exchequer brings in his next Budget, I ask him to see that Purchase Tax is removed.

6.33 p.m.

Colonel Dower (Penrith and Cockermouth)

I rise to make only one point. I appreciated that I have not been in the House for the whole of this Debate as I should have been, but I want to make a protest at the proposal to charge three per cent. on unpaid taxes. I do not object so much to the payment of this three per cent. on unpaid taxes, but it seems to be grossly unfair that when the Government hold money in the form of overpaid taxes, they can delay year after year without paying any interest at all. I have had a case brought to my notice. The case is one where the Government have not paid what has been due for a matter of three or four years, and it seems to me grossly unfair to have one law for the Government and their officials, and another law for ordinary individuals of this country. I cannot see any reason in that. It is for that reason that I hope the Financial Secretary, either now, though probably it is too late, or in the Budget next year, will right this wrong, because it is most ufair to have the law loaded in favour of the Executive, at the expense of the subject.

6.35 p.m.

Mr. Charles Williams (Torquay)

I hope my hon. and gallant Friend the Member for Penrith and Cockermouth (Colonel Dower) will not expect me to follow his speech. I am not in any way quarrelling with it, but he has put the matter so excellently that I feel it does not need any support on my part. I have had the great advantage this afternoon of having listened to a considerable number of speeches, which caused me to have an interest in a considerable number of points of view. The hon. Member for Harborough (Mr. Attewell) rightly referred to the effect of the Purchase Tax on certain wages. That reminded me that I should be sadly neglecting my duty on this occasion, when we are increasing Purchase Tax very heavily, if I did not remind the Financial Secretary to the Treasury, who at the moment represents the Chancellor of the Exchequer, that those who are going to fare worse than anyone getting £4 or £5 a week, are the people who are dependent on fixed incomes which they cannot increase at all. They will be in a very much worse position.

I was delighted to hear an unexpected speech earlier in the afternoon from the hon. Member for Eton and Slough (Mr. Levy). I do not know whether that interesting speech will put the hon. Member at the top, or put him further down what my right hon. Friend the Member for West Bristol (Mr. Stanley) calls the queue. I should like, however, to suggest to him that we had a most excellent speech on the matter of profits from the hon. and learned Member for East Leicester (Mr. Donovan). It was a speech which almost anyone might read with advantage so far as profits are concerned. He only said a few words about the Profits Tax, but I think he was very much nearer to the wisdom of my hon. Friend the senior Burgess for Oxford University (Sir A. Salter) than some other hon. Members who spoke.

I should also like some hon. Member opposite to tell me what was meant by the speech of the hon. Member for Wednesbury (Mr. S. N. Evans). I was completely unable to realise what he was talking about. He was giving advice pretty generally. First of all, he was advising the Conservative Party. I do not know anything about electioneering or anything of that sort, so I always accept with humility any advice for the Conservative Party. He then proceeded to advise the Chancellor of the Exchequer that he was crossing the uncharted seas of the no man's land of finance. I hope that that phrase and also the advice will be reported to the Chancellor of the Exchequer, because I feel it is most unfortunate that he is not here this afternoon to hear one of his most devoted followers offering him this advice.

If I might go on from that I would draw the attention of the Financial Secretary to one matter before I come to the other subjects which were dealt with by the hon. and learned Member for East Leicester. He drew our attention to Clause 10 and pointed out that if anyone had the time and industry to go into this fully, he could refer on this subject to something like 36, and after this Bill is passed 37, Acts. That supports the hope put strongly by several hon. Members that consideration will be given before next year's Budget to simplifying the Income Tax legislation. It would save a terrific lot of work and worry to the ordinary taxpayer.

Hon. Members must have been struck by the vast contrast between this House today towards the end of the Third Reading of the Finance Bill, and the éclat with which it was originally brought in. This Bill which was supposed to be the great work of this autumn to build up our finances, to stop inflation, to stop unnecessary expenditure, to stop our gold going out of the country and, generally speaking, to enable us to buy more food, has slowly faded away. The history of the Bill has been curious in many respects. It is probably the first time that a Finance Bill has had two Chancellors of the Exchequer—that in itself would give it some distinction—but the important thing is that the more we look at this Bill, the more we realise that it will have little or no effect in stopping inflation. The Clause dealing with Excess Profits Tax—I am not speaking of distributed profits but of profits going back into industry—will prevent industry developing, gaining and keeping export markets in the future. That is a matter of discouragement to industry. That is a main feature of the Budget about which many of us feel very strongly.

I would like to answer what was said by the. Financial Secretary in relation to Clause 9. He referred to the fact that this was the first Finance Bill going through all its stages under the new procedure. I would remind him that if we had the old procedure and if there had been a proper discussion on the Report stage of the Budget Resolutions, we would not now be in the curious position of passing a Finance Bill which has in it a Clause which has already been withdrawn by the Chancellor of the Exchequer. I know it is a matter of economy in printing, but I am pointing out these first fruits of bad procedure.

The hon. Member for Orpington (Sir W. Smithers) and others have regretted the absence of the Chancellor of the Exchequer. Other comments have also been made about the Chancellor of the Exchequer. I hope that when addressing this House in future, he will remember that when proposals by the Opposition, just as with the Government, are accepted or rejected, it is not done as an accommodation, but because it is right or wrong. We are told that a change for the better in the Budget has been made to accommodate people but changes do not prevent, and never have prevented, a free House of Commons from making comments on them. I cannot find a Clause in the Budget—the Betting Tax or anything else—that can possibly be said to be constructive so far as industry is concerned. There is not a single Clause to help the development of trade and industry in any way. There are one or two Clauses which will be of vital interest to industry but this Budget which was to do so much to help us overcome the crisis, has now faded away into a poor, weak creature in which the Chancellor of the Exchequer takes little or no interest. The only real fact which has been elucidated is that it can do a great deal of harm.

I believe I once made a short speech—[Laughter.] Hon. Members laugh: I did once make a short speech, and I have reminded myself of what I said when we began the Budget Resolutions. Not having made a long speech—at least, not what I call a long speech—I would say that it is the truest definition of the Budget which has yet been given. Remembering everything that the party opposite said at the last Election and remembering the pledges given to us by the late Chancellor and the present Chancellor before the Budget, it can truly be said of this miserable Budget that it is the Budget that does not "face the future."

6.49 p. m.

Mr. Osborne (Louth)

Having sat through most of the Debate and having heard many hon. Members say that they had no intention of speaking when they entered and then speaking and walking out, I am comforted by the thought that sometimes the last will be first and that it may be accounted to me for righteousness that I have sat through the Debate so far. This Bill is totally inadequate to the purposes for which it was brought forward. It is just useless. It will not help at all to solve the desperate economic situation with which we are faced. I believe the country is faced with the worst winter within living memory. This Bill was supposed to have been brought in to help us over our economic difficulties, but I do not think it will touch our problems at all.

Before I develop that, I would like to answer a point raised by the hon. Member for West Ealing (Mr. J. Hudson). He said that the arguments today had brought out the fact that the only motive in private enterprise was to squeeze as much profit out of industry as possible. That is just nonsense, and he must have known it. The motives in industry are much the same as the motives in politics in this House. They are mixed, and when he says that the men who are running industry have no other motive than to squeeze the last ounce of profit out of industry, he is talking the most dangerous nonsense in the world. I would remind even the hon. Member for West Fife (Mr. Gallacher), who at times shows signs of intelligence——

Mr. Stanley

When?

Mr. Osborne

When he goes off for meals—that examples like Port Sunlight and Bourneville, which have been established for over 50 years, give the lie to what is so often repeated by hon. Members opposite. The hon. Member for West Ealing also said that profits have increased enormously since the war. The increase in average dividends is not nearly so much as the increase in average wages during the last 10 years, and hon. Members ought to bear that in mind. The hon. Member for West Ealing sneered at the idea of making profits, but private enterprise cannot be continued unless it is making a profit. It is only nationalised industry which can do that, because it has the taxation of the country behind it.

The Bill itself is a terrible disappointment. The Chancellor was challenged on the Second Reading as to what the real purpose of the Bill was. He said: Its purpose is to reduce the inflationary pressure consequent upon the economic action which is being taken by the Government, and thereby to enable the economic policy and the physical controls to be more effective."—[OFFICIAL REPORT, 25th November, 1947; Vol 444, c. 1917.] The real reason behind this Bill, according to the Chancellor, is not financial, it is physical and economic, and I hold that there is no provision whatever in it which will affect the economic position at all. The so-called reason for introducing it was that we have £1,000 million more purchasing power than the available goods, and I accuse His Majesty's Government of always tackling our economic position from the wrong end. Instead of trying to cut down the amount of purchasing power, why on earth do they not tackle the production problem and increase the amount of goods in circulation? That is the answer. This Chancellor and this Government have never tackled our economic problem properly. Why not leave the purchasing power in the hands of the public, and see that the goods are in the shops for them to purchase, instead of fooling, as this Government have been fooling, for two and a half years with the purchasing power and cutting down, and cutting down. They should learn to think in terms of expansion and greater output.

Mr. Holman (Bethnal Green, South West)

As in 1938?

Mr. Osborne

The hon. Member will not solve the problem of 1947 by chewing over the evils of 1938. He is like the Irish—it is time he got out of it. The only purpose of the Bill, according to the Chancellor, is to mop up the surplus spending money, but it will not help increased production one iota. I was hoping to catch the eye of Mr. Deputy-Speaker, Sir, while the Minister of Food was sitting here, for he will have the most terrible problem this winter to maintain our rations, and the only way will be by increased production. Tinkering with our finance will not touch it at all. It will not fill the housewives' shopping baskets, and it will not put more food on our tables. I accuse the Government of fail- ing to face the economic position and the problems of the country, and playing almost at party politics——

Mr. Stanley

Almost!

Mr. Osborne

Yes, almost. The hon. Member for Wednesbury (Mr. S. N. Evans) made this point. He said that this increased Profits Tax would have a good psychological effect upon the workmen; they would feel that by working harder they were producing more, but that the extra production benefit would be mopped up in tax and would go to His Majesty's Government. Therefore, he argued, they would work better and harder. I do not believe that for one moment. The average working man hates P.A.Y.E., and if he could get out of it he would do so. It is no comfort to him that someone else is paying more; what he wants is more food, more clothes and more coal. He wants greater production all round, and this Bill does nothing at all to help him.

The hon. Member for Wednesbury denied the idea that the increased Profits Tax would make the employer work not so hard and make him less enterprising. May I put this to the Financial Secretary, if I can have his ear for a moment? If a man in private enterprise is today reasonably successful and increases his profits, he gets a shilling or perhaps two shillings in the pound out of what he has made. If, on the other hand, he loses, he loses 20s. in the pound. There is no offset, and the betting against him is 20 to one. Why should he increase the size of his factory? Why should he build new factories? Why should he try to produce more when the odds are so heady against him?

The increased tax in Clause 7, in my opinion, will slow down the wheels of industry, which is the one thing we do not want, and it is an extremely bad tax. How much better, instead of the Government wasting time and fooling the country with a miserable little Bill like this, if they had made an appeal to both sides of industry to increase production as it has been increased in the last two or three weeks in steel, in coal and in transport? It would have been much better for everybody in the country if the time and energy of Ministers had been used in appealing for a greater turnover, rather than trying to take away our purchasing power.

I say that the Bill is inadequate. It is fooling with the terrible problem facing the country, and I regret that it has been brought in at all. Instead of playing with a reduction of purchasing power, whether from the worker through Purchase Tax or from the boss through increased Profits Tax, why should not the Government make an appeal to everybody in industry to work an extra hour a day without wages or profits for the good of the country? We would then be out of our economic jam so much more quickly than we shall be under this method. I regret the Government have brought in this Bill, and I wish to goodness they had used their time to better advantage.

7.0 p.m.

Sir William Darling (Edinburgh, South)

It is always a pleasure to follow my hon. Friend the Member for Louth (Mr. Osborne), who has such a sincere and lively mind, which quite obviously probes these problems and difficulties. I intend to detain the House only on one subject. I am concerned with the Profits Tax, and would like the Financial Secretary to consider if there be any worth or value in what I am about to say. The Budget is aimed at reducing inflationary pressure, and perhaps the right hon. Gentleman will consider the effect of the Profits Tax on certain businesses to which my attention has been drawn.

It has been suggested, perhaps not accurately, that some 25 per cent. of progressive businesses came into existence in the years 1935–37. They were started by men in their forties or fifties. These businesses, because of E.P.T., were not able to pile up any substantial capital. They have large turnovers, and, from a distributive point of view, they are successful. Their owners are now in the ages of 50 or 60. They have not been able to pile up capital profits because of the punitive character of wartime taxation. The Budget is to reduce inflationary pressure, and I suggest to the Financial Secretary that, if I am right in my analysis, the owners of some 20 to 25 per cent. of these businesses are finding the inducement to sell at a capital profit almost irresistible. He must be aware of the large number of businesses of that character which have changed hands, where the owners are unable to look forward to any substantial income, but can sell their businesses for substantial capital profit. That substantial capital profit becomes an inflationary pressure, and produces in the minds of persons of 50 to 60 a reckless disposition by the fact that they are feeling that the sands of life are running out and they wish to get rid of their businesses for any advantage they may secure. Those people probably served in the 1914–18 war, and built up businesses in the intervening period, of which they made a considerable success. To put into their hands an instrument whereby they can sell those businesses will be to provide them with a very powerful inflationary weapon, which is likely to defeat the aims of the Budget.

My attention has been called to a company in the Midlands which was sold for £7 million. The effect of that is that persons who dispose of such businesses for capital profits create a further extension of the monopoly system, which we on this side of the House object to just as sincerely-as do hon. Members on the Government side. In the months between now and April the Chancellor of the Exchequer might well consider to what extent the present taxation of 15 per cent. in place of 7½per cent, on undistributed profits is tending to force persons to sell their businesses, and to what extent that tendency is creating a desire to secure capital profits at present. If it is found that it is due to the doubling of taxation on undistributed profits, I hope the Chancellor of the Exchequer will look into it. The trend is obvious to me, and, without much difficulty, I could give many examples to sup port my view.

7.4 P.m.

Mr. Drayson (Skipton)

I am glad of the opportunity of saying a few words before this Bill is given the Third Reading. I am sure the public are completely at a loss to know why it was ever introduced. Apart from a small tax on football pools and greyhound racing, and the fact that a number of Christmas presents they are trying to buy cost more, due to the increases in Purchase Tax, they can see practically no reason for it.

I wish to say a word or two about the much criticised tax on undistributed profits. There may be something to be said for an additional tax on distributed profits, because they go to swell the inflationary potential at the present time; but profits which are retained in a business are put to reserve for future development, and cannot possibly be considered to contribute in the same way.

Many industrialists will have to say to their workpeople, who for some time have been anxious to operate new and up-to-date machines, that they are no longer able to put in the new machinery which they would like, because the Socialist Government have imposed such a heavy tax on undistributed profits, and they can no longer contemplate schemes of modernisation which they had in mind.

In the textile industry, we know to our regret that a large amount of modern machinery is being exported to competitors abroad. No doubt that plays an important part in the present export drive, but we hope that orders placed now for modern machinery will be fulfilled in perhaps three or four years' time. Manufacturers are not able to tell us precisely what prices we shall have to pay for these machines when the delivery date arrives in three or four years' time. It is, therefore, essential that we should be able to build up large reserves for that date. I know that hon. Members opposite have mentioned this matter in their speeches. One hon. Member suggested that when a company had reserves in its balance sheet, there was a fruitful source of revenue for the Government, which should raid the reserves of industrial companies. I ask the Government to look further into the matter, and to consider that these reserves are being built up for a very definite purpose—to carry out development schemes, and to pay for imported machinery.

It should be borne in mind that, whereas it is true that profits have invariably increased with the general inflation through which we have gone in the last two years under the Socialist Government—they may have increased by 25 per cent. or 50 per cent. on the prewar figure—the cost of new machinery has in many instances doubled, or even trebled. If an additional tax is put on money which would be put to reserve, we are making it even more difficult for companies to put by the amount they would require. Some people think this is one of the many things demanded by the trade unions, and that they say, "We will not give greater output, nor encourage greater production, unless an additional tax is put on profits."

This word "profits," under the Socialist administration, seems to have some sinister meaning. It is almost a virtue nowadays to make a loss, because the Government realise that all their nationalised industries will be run at a loss. The Government have to change the whole outlook of the general public, and to make them believe that if the nationalised industries are run at a loss, there is some virtue in it, because the taxpayer will have to pay. But this will act as a boomerang when we have to tell people in industry, faced with competition from abroad, that we could have had in our mills the modern machines we are now exporting if only we had been able to put to reserve money to pay out for them, but which the Chancellor of the Exchequer taxed as undistributed profits. In any case, this is only a temporary Measure, and I hope we may look forward to a reduction in this tax in the April Budget.

7.9 p.m.

Mr. Glenvil Hall

I can only speak again, Mr. Speaker, by the leave of the House. If it is the wish of the House, I would like to reply briefly to the major points which have been made during this Debate. I am helped to be brief by the fact that the same point on the same Clause, with, of course, new angles to it, has been made over and over again by different speakers.

Let me first reply to my hon. and learned Friend the Member for East Leicester (Mr. Donovan), who drew attention to Subsection (2, d) of the last Clause of the Bill. The effect of this is that the Bill should be read as one with previous enactments. He pointed out that since 1918 there had been 36 Finance Acts, and he asked that the law on Income Tax should be codified, and that the Committee for the Codification of the Income Tax Acts should be reconstituted. This is a work which, for some time now, Chancellors of the Exchequer have had it in mind to undertake.

It is true that almost 30 years have passed since the last codification took place, and the time is more than due for a similar piece of work to be undertaken. The matter was dealt with by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) in reply to a question on 27th October last, when he said that he was afraid that pressure of other work made it impossible to undertake this long and complicated task at the present time. It would certainly be long and complicated, particularly if—as I believe is in the mind of my hon. and learned Friend, and in the minds of other hon. Members—something more than consolidation were to take place and the Income Tax law were to be simplified. That, too, is something which is long overdue. In many Acts the language is very obscure. Of course, the difficulty is that that language has now been looked at by the courts, and certain meanings have been applied to certain phrases. There may be a large crop of litigation when we try to simplify the law—which we shall, of course, have to do—if words then take on a new meaning, or if people are not quite sure that they mean what they had meant earlier.

I wish to refer to the criticisms that have been made about Clause 8, which deals with interest on arrears of Schedule D Income Tax, Surtax, E.P.T., Profits Tax, etc. This matter was touched upon by the right hon. Member for West Bristol (Mr. Stanley), the hon. Member for Edgbaston (Sir F. Bennett), the hon. and learned Member for Wirral (Mr. Selwyn Lloyd), the hon. Member for Louth (Mr. Osborne), and by other hon. Members. I have already said that the £780 million to which so much reference has been made, some of it, unfortunately, in the Press, was the Public Accounts Committee's figure, which was given in their Report. It was perhaps unfortunate, to say the least, that that figure was given currency, and people did not realise that it was the total of assessments, as well as including moneys then due.

It was necessary, both in the interests of truth, and for other reasons, that the matter should be clarified. I am glad to think that we have here today put the matter in its true perspective. For one thing, I was worried by the possible effect of the assessments figure on those people who come under Schedule E. They might feel, and not without reason, that, if certain taxpayers who paid tax under other Schedules were "getting away with it," to the tune of something like £780 million, then they were being hardly done by. In addition to this, it was right, for the sake of the reputation of the Inland Revenue, that it should be demonstrated that they have not been lax.

Colonel Dower

Was the figure that of the actual tax, or was it tax under discussion or in dispute?

Mr. Glenvil Hall

It was the total assessments then outstanding under all these various heads, including, I think, only Schedule D, so far as Income Tax was concerned.

The amount outstanding at the end of 1945 was, nevertheless, £191 million. That is a substantial sum, which is worth getting in. If the charging of interest after a certain period helps to bring it in, it will be worth while. At any rate, we shall see what happens. It is our hope and belief that it will help to step up the payment of overdue tax. I was astonished to hear the senior Burgess for Oxford University (Sir A. Salter) say that this is a precedent; it is, of course, nothing of the sort. The noble Lord the right hon. Member for Horsham (Earl Winter-ton), who has been in this House for many years, and who, I am sure, remembers the action taken in the war of 1914–18, will bear me out when I say that at that time the same device was put into operation in order to bring in arrears of E.P.D. Today interest is already charged on unpaid Death Duties.

Earl Winterton (Horsham)

As the right hon. Gentleman has been good enough to refer to me, I must say that I would not like it to go on record that I have any such recollection. I hope it will not be taken that I am assenting or dissenting to the right hon. Gentleman's interesting observation, although I am grateful to him for calling attention to my presence in the House.

Mr. Glenvil Hall

I am glad to please the noble Lord, who may take it—I will not call him in evidence—that what I am saying is true, although it refers to a period when the vast majority of us were not Members of this House. Therefore, this provision is by no means a precedent, quite the reverse. It has been in operation before, in the case of Excess Profits Duty, and it is certainly still in existence so far as unpaid Death Duties are concerned. I would say to the senior Burgess for Oxford University and other hon. Members, who have raised this point that the Government themselves pay interest when people pay their tax in advance, or make an allowance for payment of tax in advance. Earlier today we dealt with the form that takes when we were talking about tax reserve certificates.

I was astonished to hear the hon. and gallant Member for Penrith and Cocker-mouth (Colonel Dower) say that the Government had delayed payment of a claim which had been settled, so far as the terms of the claim were concerned, for from three to four years. If he has in mind a case in which that has actually happened, and if I can be of use to him in getting the matter cleared up, I should be delighted to help him.

Colonel Dower

The Financial Secretary has given the impression that he was surprised that the Government did not pay all these claims after they had been made. Frequently, one gets no reply for a year or two, and then they admit it.

Mr. Glenvil Hall

That statement is very sweeping, and I cannot accept it for one moment. I agree that sometimes Departments, owing to the extreme pressure of work and the great shortage of staff, are rather slow about answering correspondence, but I have no reason to believe that the delay amounts to a year or more, far from it. I am certainly surprised to hear that a claim, the amount of which has been agreed, has remained unpaid by the Government Department concerned for the length of time mentioned by the hon. and gallant Member. I cannot help thinking that there must be something wrong. In any case, it is a matter which should be considered forthwith, and if he will let me have the particulars I will certainly have the matter gone into.

May I deal briefly with the Profits Tax? Almost every hon. Member referred to it. The hon. Member for West Ealing (Mr. J. Hudson) had his own angle on this. I thought that, on the whole, he made a very useful contribution to the Debate. He brought out one point very clearly. It is a point which we must not forget. I refer to the effect on the workers of this country if.profits had been outside the purview of this Finance Bill. If general increases had been made on beer, wines and whisky, with swingeing increases in Purchase Tax, and nothing had been done about profits, the workers would have felt, at this time when they are asked to work harder than ever, that they had been given a raw deal. On that ground alone, there is a great deal to be said for this tax.

The hon. Member for Flint (Mr. Birch) said that the Profits Tax was offensive in principle. Far be it from me to tell him that he should not talk in such a wild way, but I would remind him that words of that kind are sometimes a boomerang. If we go back to the war of 1914, we find that a profits tax—the Excess Profits Duty—was imposed then, and it was certainly not imposed by a Socialist or Labour Government. Between the wars, we had the National Defence Contribution, which was also, in essence, a tax of the same kind. During the last war, before the Labour Government came into Office, we had E.P.T.

Those hon. Members who read the "Economist" will have noticed that it has advice to offer from time to time to my right hon. and learned Friend. Certainly, it offered quite a lot of advice week by week, to his predecessor. The "Economist" is urging the present Chancellor to make the economic and financial policies of the Government run in the same, and not in the opposite, direction. Therefore, if the economic policy of the Government is to damp down on capital expenditure, it is obvious that, in a Budget of this kind, interim and supplementary though it may be, the proposals we make should have the same effect. It would be quite wrong to leave money to fructify in the pockets of the companies concerned when the whole policy of the Government is directed towards putting temptation out of the way both of companies and individuals to spend money which they happen to have lying about either in the bank, in reserve, or, if they happen to be individuals, in their pockets.

Profits are profits, and, up to now, they have been looked upon by successive Chancellors as fit objects for taxation. The mere fact that my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) divided profits into two categories, and said that those which were distributed at any time should pay one rate of tax, and those ploughed back should pay something less, does not mean that profits cease to be profits. We must remember that this device of charging more Profits Tax on profits which are distributed may be, possibly, a temporary device—I do not know. We cannot assume that profits which are not distributed will forever either pay only a small rate of tax compared with profits which are distributed, or else that they will pay no tax at all. The logic of that is such that we must admit that profits should not escape taxation altogether because they are placed to reserve.

Mr. Drayson

I take it that the Minister agrees that they are subject to the ordinary basic rate of Income Tax?

Mr. Glenvil Hall

Profits Tax is taken off before Income Tax. I do not want to go into the question now.

The burden of much of the criticism from hon. Members opposite, is that, somehow, undistributed profits are sacred and should not be subject to Profits Tax. The device invented—I use that word advisedly—by my right hon. Friend the Member for Bishop Auckland was introduced in order to help industry to emerge from the war years and re-equip itself. At present when expenditure on capital investment is to be decried, my right hon. and learned Friend had every right to increase the rate of tax on both distributed and undistributed profits.

Sir A. Salter

Does the right hon. Gentleman mean that it is desirable that in addition to the taxation which the equity investor shares with every other earner of income, whether from debentures or in any other way, there should be a special taxation on the person who takes a risk?

Mr. Glenvil Hall

I do not mean anything of the sort. I am dealing with one narrow issue. It is true that some people risk their capital and others, seeking investment in another field, risk very little. In normal times, the return on the one is vastly different from the return on the other. One man seeks a gilt edged security and he gets a low rate of interest. Another may risk a lot and, if he is lucky, he may win a lot.

I reiterate the promise made by my right hon. and learned Friend during earlier discussions on this Bill. The Chancellor then promised that he would over-haul the whole field of Purchase Tax. The House may be interested to know that, on his behalf, I have already taken steps to see that that is done, so that next April we shall be able to see just where we are on this matter.

I wish to say a final word to the hon. Member for Orpington (Sir W. Smithers). He wanted to know whether I could assure him that Treasury control would be maintained in spite of the dual role. of the Chancellor. I can assure him that, in spite of the dual position which my right hon. and learned Friend now occupies, the policy of the Government, until recently carried through by my right hon. Friend the Member for Bishop Auckland, will be continued by the present Chancellor——

Mr. Stanley

Does that mean that there will be no Treasury control of spending Departments?

Mr. Glenvil Hall

I have already indicated, in reply to the hon. Member for Orpington, that Treasury control will continue.

Mr. Stanley

The right hon. Gentleman said that the policy of the right hon. Member for Bishop Auckland would continue. That is quite a different thing, because his policy was to have no Treasury control.

Mr. Drayson

Can we be told, in connection with this control, whether we will have Jekyll or Hyde at the Treasury?

Mr. Glenvil Hall

I am afraid I have been a little longer than I intended in replying, but I think that I have now covered most of the points that have been put. I do not expect that hon. Gentlemen opposite will be satisfied with what I have said, but I have tried to answer on behalf of my right hon. and learned Friend, and I hope that we may now have the Third Reading.

Bill accordingly read the Third time, and passed.