HC Deb 18 July 1947 vol 440 cc734-57

Order for Third Reading read.

11.6 a. m.

The Chancellor of the Exchequer (Mr. Dalton)

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

Proceedings on our Finance Bills are not brief, and we have been, as the custom is, considering this particular Finance Bill for some little while and in successive stages. It is three months and a day since I made my Budget statement, and since that time there has been much discussion, both in the House and outside, upon a number of the items here referred to and as I shall briefly summarise, a number of changes have been made following such discussions in this House. It will perhaps be convenient if I run over very briefly the main changes involved and remind the House of other points in which changes have not been made and which therefore have not been considered so recently.

When I proposed to the House the changes in taxation up and down, contained in my Budget statement, I was aiming at a Budget surplus in this financial year of £270 million, as against a prospective surplus on the existing basis of taxation of £248 million. I told the Committee to which I made the Budget statement that I thought that the £248 million was a little on the low side and that I should seek on balance to fortify the revenue, to use an ancient phrase. I proposed to put up the surplus to £270 million. In fact, a series of concessions have been made in the Committee and Report stages of this Bill, but I have kept an eye—though I have not wearied the Committee with a running commentary of calculations as to how the thing was going—upon the resultant figure. I had it in mind that we ought not to let the prospective surplus fall below £250 million. In fact, it will only come down from £270 million to £258½ million as a result of the tax concessions. I think, therefore, that we have not only given satisfaction in many quarters and done the right thing with regard to a number of concessions, but we have done it relatively cheaply. What more could a Chancellor of the Exchequer desire to do than to do the right thing at small cost to the State? On this principle at any rate I am sure we can all be agreed.

One word more about the surplus. An argument was deployed, which is familiar to students of our financial Debates, to show that this surplus was, at any rate in part, not wholly genuine. I resisted that argument at that time, and I will not repeat the arguments which I then employed. But I wish to say, for the greater comfort of those who attach importance to that argument—which I myself sought to rebut—that, in the period which has so far gone of 3½ months since the beginning of the financial year, we have made another record, which I hope I may be allowed to mention without seeming unduly optimistic for the future. I am speaking merely about what has happened in the 3½ months that have gone by since the beginning of this financial year; during this time we have achieved a revenue surplus of £234 million of revenue over expenditure. I am sure that the right hon. and gallant Member for Gains-borough (Captain Crookshank), who is very expert in this, will be interested in this point, because he was one of those, I think, whose argument called in question the genuineness of the surplus of £234 million as shown by the accounts now made up. Even if we deduct from that figure the £30 million that we have received from the sale of war stores since the beginning of the financial year, the £20 million received from the trading services, and the £144 million which we have received in miscellaneous revenue, more than half of what I allowed for in my Budget—if we deduct these debatable figures, though I argued them to be completely genuine, we are still left with a realised surplus over the period in question beyond any range of doubt or cavil, of £40 million.

This has never happened before. I have charged those who look after the historical records of the Treasury to look back, and they cannot find in any other first quarter of the year—a period of the financial year when normally the revenue comes in but slowly and the expenditure goes out fairly fast—any precedent for that financial achievement which we are now recording. I shall be interested to hear what ingenious arguments can be produced to prove that this is what the Opposition would have done had they had the power. I think it is on the whole a very happy state of things, and though I do not prophesy what will happen over the rest of the 'financial year—it would be rash to do so—we have certainly had a very happy start.—[Laughter.]—Why not? It is a very good thing. This buoyancy of the revenue, which has been manifested, is entirely due to the fact that we have full employment in the country and that the unemployment figures are down to less than 2 per cent. of the registered insured population or, putting the matter in another way, that more than 98 per cent. of the insured persons are now at work. That is one reason why the revenue has come in pretty well.

If I may, I will give the House one or two figures showing the effect upon the revenue of the various tax changes that have been made since the Budget statement. Take first the Customs and Excise. We find there that the exemption of kerosene, the changes in the gas and electrical appliances—that is to say, other than space heaters and water heaters remaining at the 66⅔ per cent. charge—and the others reverting to the pre-Budget rates, in some cases completely exempt and in others 33⅓ per cent., the other Purchase Tax concessions, and the net cost of the concession on tobacco to old age pensioners—all these together cost about £10¾ million revenue this year. In a full year it will amount to between £17½ and £18½ million. With regard to motorcars which, as the House knows, stand in a separate category of our classification, the position is that this year on balance we shall gain a quarter of a million pounds as a result of the two operations which have been approved by the House: first, the institution of the £10 flat annual rate and, secondly, the increase of the Purchase Tax on cars above a certain level of price. The net effect of those two together is to give me an additional quarter of a million of money this year. Therefore, so far, taking Customs and Excise and motors together, the revenue is down about £10½ million this year and £17¼ to £18¼ million in a full year.

On the other hand, when we come to the Inland Revenue, the concessions there have been smaller and the total cost of all the concessions made is only £1 million loss of revenue this year and £9 million in a full year. The £1 million of concession on Inland Revenue is made up principally of Stamp Duty concessions, namely, the exemption of transfer to charities, where exemption from the higher Stamp Duty is costing £300,000 this year; the removal of the duties on solicitors and barristers which was widely welcomed, costing £210,000 this year; and the arrangement about Stamp Duties in respect of nationalised undertakings, which was also widely desired and was thought to be just to the persons concerned, which will cost half a million pounds this year.

A total, therefore, adding together the Customs and Excise and the Inland Revenue, of about £11 million of revenue has been sacrificed this year, which will rise in a full year to between £26 and £27 millions. On the other hand, it will be recalled that in my Budget proposals, speaking in terms of a full year, I made a certain provision by tax increases, which fructifies only later on. Therefore, even looking to the full year—which is not, as the House knows, any one exact and precise year because sometimes it takes more than two financial years for these things fully to stabilise themselves—we have also fortified the revenue to a reasonable extent.

The Finance Bill, as it originally was drafted and considered on Second Reading, contained a number of tax reliefs which have not been called in question, though on nearly all occasions suggestions have been made for their increase. It may be as well for me to recall at this stage that there are Income Tax reliefs embodied in the Bill which I think are generally welcomed. There is an increase in earned income relief from one-eighth to one-sixth, with the ceiling raised from £150 to £250 a year. Then there is an increase in the child allowance for taxpayers from £50 to £60, and an increase in the income limit for dependant relative allowance, designed so that the increase of old-age pensions does not take away the right of taxpayers to receive this allowance in full. The precise formula, of course, is a little more complicated. These three Income Tax concessions will cost about £87 million in a full year and £76 million this year. It will also be recalled that with regard to postwar credits, there was no serious challenge to the proposal, which we have now arranged, that all persons over 65 in the case of men, and 60 in the case of women, shall have their postwar credits made available to them at an early date, as soon as the administrative arrangements can be made. They will get them in full for all the five years and, hereafter, any person reaching this age will at once become entitled to all the postwar credits he or she may have for the five years.

With regard to the Armed Forces, I would recall as part of the list of tax remissions that, following requests made from all parts of the House, I felt able to propose, and it was accepted, that there should be relief from Income Tax on bounties and training expense allowances for members of the Territorial Army and other reserve Forces. This, I think, was generally approved. In the original Purchase Tax changes, which were accepted with satisfaction, were reductions on certain sports requisites, linoleums and floor coverings, and exemptions for silk stockings. They have already been given effect to, but if was proper to take them into account. We were also able to exempt dust-bins, which was much demanded, and playground equipment, and not only in regard to athletics but also in the more marginal case to make a concession to netball in terms of Purchase Tax and also in regard to works of art and mirrors.

Mr. Bowles (Nuneaton)

What about tub-pairs?

Mr. Dalton

We have not yet explored how that can be done, but there is a possibility of making provision by Order. It is between the hon. Member for Tyne-mouth (Miss Colman) and myself, and the Order will come later on, if the hon. Lady and I agree. We have finally removed the Excise Duty on artificial silk, and no opposition was raised to that. That, I think, was the removal of a tiresome anachronism; and there was also the exemption on fuel oil conversion, fuel and gas oil, and so on.

One more word about motor taxation. I hope we have got very nearly to the end of our discussions on motor taxation, except in so far as it may be proposed on future occasions to change the actual rates of tax. I hope we have got to the end of the discussion of what the shape of the taxation should be, and that everyone agreed that the annual flat rate equal for all cars is the best way, and the right way to encourage export trade. Whatever may be said about the rates of Purchase Tax—and I will not repeat the old arguments—I hope that any additional tax on motorcars will take the form of Purchase Tax, and I hope we have heard the last of arguments about the shape of the tax.

Sir Patrick Hannon (Birmingham, Moseley)

I hope we have not heard the last of double taxation on the f £1000 car. Surely the Chancellor will keep that in his mind?

Mr. Dalton

I was expressly reserving the question of the rates of tax. That was what I was trying to make clear, that we should now agree that the annual fee of £10, or some similar amount, was the right way to tax cars, and that if any further revenue was required to be got from the motor industry, or from motor users, the right type of tax was the Purchase Tax, rather than an increase in the fuel tax. I hope we have laid that idea to rest. As I said in discussions earlier, it will be open to discuss the rates of tax, and whether in any particular case of the more highly priced cars there are reasons to show that the double Purchase Tax is not equitable—from a revenue point of view it is a balancing factor—and whether that will cause serious damage. In that case, I have undertaken to look at the matter again.

One word about the means by which we have fortified the revenue to make up for these various reductions. I have to collect a little more money, not much this year, from the Profits Tax. We have had much Debate on the fringes of the Profits Tax, on questions of definition and the like, which I do not want to go into now. But, in this case I think it is useful to have established in this year's Finance Bill, a distinction in respect of the rate of tax between profits to be put to reserve, and profits to be distributed. I think that the broad proposition that the payment on profits distributed should be heavier than on profits ploughed back into the business, is sound, and, whatever may be said about detail, I hope that principle will be accepted as being in line with the industrial needs of the time.

There have been provisions for increases in Stamp Duties on Stock Exchange transactions of various kinds, and much Debate has taken place on the tax on bonus issues. I have made various concessions there. The Opposition, of course, does not think them very substantial, but I have shown my good will towards them by exempting all bonus increases of less than 5 per cent. We have had a long Debate on that, and I will not repeat the argument, except to put it back, so to speak, into its proper perspective which is that tax on bonus issues is one of a fairly large range of increases in Stamp Duties on Stock Exchange and other transactions in general, and transfers of real property above a certain level. Here again I think it will be generally felt that when the country is in need of revenue, this is a very good way of collecting it. If I may take a very simple balancing case, it is better to collect a little more by way of Stamp Duty on Stock Exchange transactions and then to reduce the Income Tax falling on people of moderate means. Similarly, the Legacy and Succession Duties have been modified. I would like to emphasise again a point which has not been posed as the House has not focused much attention in discussions on these Clauses—I suppose they were accepted as generally reasonable—that although Legacy and Succession Duties are shown formally, we are making a number of exemptions specially designed to benefit small people, and those who receive relatively small amounts on the death of other persons. I have already referred to the exemption from the increase of the stamp duties of transfers, conveyances and leases to charities, and that I think is commonly accepted as just.

It only remains to me to thank all who have helped in getting this Bill through. In particular, as on previous occasions, my arms have been sustained at all times by my right hon. Friend the Financial Secretary on the one hand and my hon. and learned Friend the Solicitor-General on the other. If occasionally I have had to slip away for a moment, I have always been completely confident that either alone or together they would be able to withstand any cross-examination or argument. I want to thank both very much for what they have done. Although occasionally differences of view developed, and very occasionally the Opposition went so far as to divide, for the most part I think they have accepted—I will not say with complete agreement, but over quite a wide field—the suggestions I have put forward. They voted against the Second Reading of the Bill. I do not know whether they are going to vote against the Third Reading. I think they would agree with me that it is a much better Bill since they voted against the Second Reading. Many improvements have been made, and many Amendments have been put forward from all parts of the House which I have accepted as they stood, or in their substance. Although the time has been long in reaching this Parliamentary journey's end, none the less I think considerable improvements have been made, and I am grateful to those who have contributed to the matter. Before closing, I recall that I have not mentioned one of the changes, and to complete this survey I should mention it now. That is the power taken to impose hereafter, if it should seem necessary to do so, a duty on imported films.

These Finance Bills come separately once a year and it is not easy to get a sense of trend by one alone. I hope, however, that it will be felt that a number of things which I have proposed this year, and to which the House has agreed, in many cases unanimously, are in line with what has been proposed in earlier Finance Bills since the last Election, in particular in relation to the lessening of the burden of Income Tax on the lower levels of income on the one hand, and on earned as distinct from investment income on the other hand. I have sought to carry that principle further this year. That is one of the underlying thoughts which have run through this Budget and its predecessors, and which I hope may continue to run through any further essays I may make in the future.

Finally, I touch upon the overseas deficit. That is our great anxiety. We have discussed that subject on many occasions, and we shall discuss it again. This Budget does not directly touch it and indeed purely fiscal measures cannot do the major part of what would be required in that field, but it does touch it here and there, as I have indicated. I end by repeating what I said in my Budget statement. The contrast is most remarkable between the great difficulty of the overseas position, more difficult than we, two years ago, had any grounds for expecting, and the relative ease of the purely domestic financial posi- tion, in which things are very much better and easier than we would have had any reason to expect two years ago. The size of the Budget surplus, combined with the high level of expenditure, which we have been able to maintain for developing the social services, and the lower levels of taxation that have already been reached, is quite contrary to what even optimistic people would have thought possible two years ago. This has been a remarkable achievement, to which the taxpayers have made their great contribution, I wish to thank every one who has assisted in that direction. I repeat, and it is right that it should be my concluding word on this Measure, that the external situation is of a very different character, and we shall unquestionably have to give further thought and consideration to it. But that is not for today.

11.32 a.m.

Mr. Oliver Stanley (Bristol, West)

The Chancellor said that we have today reached the final stage of what has been a long Debate upon this Measure. Unfortunately, the final stage is also the most restricted, and it will be impossible for me today to touch upon many of the things which I should have liked to discuss. If, for instance, I were to argue that, despite all the grand talk in the past, the Chancellor has conspicuously failed to use this Finance Bill as an instrument of national planning, and has rather used it on this, and on other occasions, as an instrument of party vote catching, you, Sir, would rule me out of Order. If, on other hand, I were to try to argue that this Bill merely stereotyped the misguided financial policy which, over the last two years, has already distorted our economy, and contributed in no small measure to the ominous overseas gap to which the Chancellor referred again, I should not be allowed to proceed. Similarly, I feel that your ban would fall on any attempt to prove, as I should otherwise be able to do, that in the financial field as in other fields, the Government have wholly failed to face up to the imminent perils of the increasing inflation and the decrease in production with which this country is faced.

As it is impossible to raise these matters today, other opportunities must be, and no doubt will be, sought. I think I should be permitted to say one word in response to the Chancellor's concluding remarks. I think it is highly dangerous to draw, as he does, this sharp line of division between the dangerous external position and what appears to be the more flourishing internal position, because it will have the effect of increasing complacency among the vast mass of the people in this country who do not yet realise the dangers that face us, and who may be led, by the Chancellor's statement, to think that it is possible to maintain a prosperous internal financial situation if our external position continues to deteriorate at the rate at which it has been doing during the last few months.

I will content myself entirely with the details of the Bill which is before us, but I do not think it would be out of place or out of Order if I were to make two comments upon the general line of our discussions. First, it is interesting to note that though these discussions have been long, and on several occasions I am sorry to say, have also been late, never has it been necessary to move the Closure during the whole course of the proceedings. That is saying a great deal, when we think about the Government Chief Whip, who has no inhibitions about moving the Closure; he does not feel any difficulty about it. I sometimes think that when he comes to his last days, which we hope will be a long time hence, with his last failing breath, he will be heard to murmur, "I beg to move, That the Question be now put.'" The fact, therefore, that during the whole of these Debates he has not found an opportunity for exercising this peculiar talent of his shows that the discussions which have taken place have been constructive and necessary, that no time has been wasted, and that this House could not, with any safety, agree to any curtailment of the time which this year has been allowed for the discussions.

The second point to which I wish to call attention is that I do not think that in all the time I have been in the House—I will not mention how long, because the period would not sound impressive compared with the period which some hon. Members are able to mention in that respect, but still it has been a fairly long time—I remember a Bill which, in its final printing for Third Reading, has been so different from what it was when it was first printed, and even more from the forecast which was given in the Budget Resolutions. At every stage, owing to arguments advanced, sometimes from one side, sometimes from the other, and sometimes from both sides of the House, the Chancellor has had to make alterations. It is important to remember that at a time when there is talk, as I believe there is in Government circles, of curtailing the stages available for the discussion of the Finance Bill. Any Members who look back in an objective spirit to the proceedings on this Bill will see that, at any rate so long as this Government are in power, we should think not of curtailing stages, but if necessary of adding to them, because they clearly need not less but more opportunities for correcting those mistakes which come from lack of caution and those omissions which come from lack of foresight.

By far the most important Clause in the Bill is Clause 9, which sets the standard rate of Income Tax. That standard rate of 9s., after two years of peace, is the foundation on which is built the whole monstrous superstructure of taxation which this country has to bear today. I will not deal with that point at any length. My right hon. Friend the Member for the City of London (Mr. Assheton) intends to deal with it when he speaks later in the Debate, but I should like to remind the House that in winding up the Debate on the Budget Resolutions, I asked the Chancellor a question. It joined the great majority of the questions which I have asked the 'Chancellor in the past, in that it disappeared without trace and without reply. I pointed out then that the rate of national taxation now was at something like 7s. in the£ of our national income. I asked him then—and I now ask the Financial Secretary—whether he agrees with many economists who say that there is a ratio of taxation to national income above which it is impossible to go without disastrous inflation. If so, I would like to know whether he agrees with those many economists who would put this figure at something between 25 and 30 per cent. and, if that is so, I would go on to ask, having already surpassed those limits, what he intends to do in future to reduce them?

I should like to deal briefly with one or two of the Clauses of this Bill. For my purpose, I will divide them into two parts. There is a group which deals largely with indirect taxation, and many of those Clauses have a very considerable effect upon the individual taxpayer. There is another group dealing with direct taxation and those Clauses are more technical in their character, more limited in their scope, but yet undoubtedly require just as much investigation and discussion by this House. With regard to the group in the indirect taxation class, there is, first, the Tobacco Duty. I want to say little about that today except that I think it will go down in history as the most expensive economy that has ever been made. I do not know whether the House and the country really realise the mechanics of this saving. In order to save £7 million worth of tobacco, we are imposing upon the people of this country £70 million in tax. If that is going to be a precedent for the way in which we are going to make the far more substantial economies in dollars which are going to be necessary in the future, the taxpayers must regard it with horror. We do not disagree with the necessity for saving this sum in dollars. We did ask, and we still ask, whether there is not a better and less expensive way of doing it than charging £10 in taxation for every £1 that we save in dollars.

Next there was the motorcar tax to which the Chancellor of the Exchequer himself referred—the change in the basis of the annual tax on cars. I, in common with all hon. Members on this side of the House, welcome the agreement which has been reached among motor manufacturers as a whole. We are grateful to the Chancellor for acceding to their requests. We hope, as he does, that this will do something to help the export of British motorcars in the future, but I must be excused if I refer once again to the doubts I have whether this change will be found in future to be so effective, so dramatic in its effect as was made to appear in the course of the Debate. I have my fears that what limits the export of cars from this country, by limiting the home market upon which the producer can depend, is not so much the method but the weight of motor taxation. I am afraid than even though the alteration of the method may give some relief, we shall never be able to compete in the free markets of the world with the car exports of America, so long as we stagger along under a total weight of motor taxation far beyond anything that either the pro- ducer or the user of a car in America ever has to bear.

We hope that the prospects resulting from this change will be fulfilled, but we fear that sooner or later a Chancellor of the Exchequer will have to face up to the fact that we cannot hope for a big increase in motorcar exports unless we are prepared to have a big decrease in motorcar taxation. He will have to decide, in the light of the national interest at the moment, whether he is prepared to sacrifice revenue for the export of cars. I do not think that any longer he will be able to go on hoping, as we still hope, that we will get the best of both worlds.

I must say a word or two about one matter contained in our Purchase Tax discussions. I refer to the question of electric cookers. I think that the history of electric cookers over the last 18 months ought to be published in a little pamphlet and issued to everybody in the country as an object lesson in national planning. Certainly, any out-of-date electric cooker, any electric cooker which can no longer cook and for which there is no longer any electricity, should be hung up on the walls of the studies in which right hon. Gentlemen opposite prepare those weekend speeches in which they boast about the value of national planning. Then, as they write these purple perorations comparing the beautiful order of a nationally-planned economy with the chaos of the old free society, they will just cast a glance on the cooker hung on the wall and they will hurriedly dive into their papers for a different cliché.

This history of electric cookers has, indeed, been a revelation. In April of last year, with a powerful speech and the most optimistic of gestures, the Chancellor of the Exchequer took the tax off electric cookers because he wanted in the modern world to encourage people to use modern methods. The housemaid was out of date; the electric cooker was progressive. Therefore, let the people be able to buy the electric cooker as cheaply as possible. A year later he comes back and says that he has learned his lesson. He has found out in the course of 12 months that an electric cooker is no good without electricity. Therefore, in April, he says that we cannot have electricity and anybody who wants to buy an electric cooker without electricity is only buying it as some kind of ornament or luxury, and therefore, the tax is put back again. There is a second thing. But in a few weeks hon. Members on both sides point out to him that, in fact, in the vast majority of houses now being erected, if one does not cook with electric cookers, one cannot cook at all, that people still have—we do not know for how long—something to cook, and they are still determined to cook it, and the only effect of this tax was not to make people buy fewer cookers but to make them pay a bigger rent for their council house. So off the tax came again. All that in 14 months. It is on the classic method of the present Government's planning—order, counter-order, and, finally, disorder.

Of the other big matter in the line of indirect taxation, that of the films, I will say nothing at this moment. It is today not a substance, but only a shadow. We do not know whether in the coming months the Chancellor of the Exchequer is going to take the action which the House, under this Bill, enables him to take. All that we can call attention to is the fact that the cut in newsprint becomes immediately effective, while the cut in American films is left possibly for some future date.

Now I turn for a few minutes to two matters in the other group, that of direct taxation. I agree that these matters are not of so much interest to such a wide circle of the population. They do not touch directly the pockets of so many people, but they have an importance today, and they may in future have an even greater importance. The first of the questions is that of the Profits Tax. I must say that when this tax was first introduced, I thought that nothing would be simpler than to convince the Chancellor of the Exchequer how wrong that tax was. All we had to do was to refer the Chancellor of the Exchequer to an authority which he would himself readily admit was that of the greatest living economist. If other hon. Members are not sure who I mean, the Chancellor himself is well aware. I mean, of course, the Chancellor of the Exchequer in a previous incarnation; and I was hoping that this appeal from Philip drunk to Philip sober, this appeal to the right hon. Gentleman in his irresponsible days as Chancellor of the Exchequer from his responsible days as a member of His Majesty's Opposition, would be enough to secure the dropping of this tax. No one could have pointed out more clearly than he did, with more devastating effect, the unfairness that this had as between the holders of equity shares and other investors, no one could have demonstrated more clearly the disastrous effect that a discrimination, an unfair discrimination, of this kind, against the people who take the risks, might have on enterprise and risk-taking in the future. I have yet heard no argument of comparative weight to put against that weighty pronouncement made by the Chancellor only 10 years ago.

It is quite true that the hon. Member for North Battersea (Mr. Jay) tried to come to his assistance. His argument was a simple one. He said that already this Government had put so many discouragements on private enterprise that it really was not worth bothering about this new one. It was rather impressive. He described how, in a Government office in the last year or so—until he joined this House—he had managed to prevent any industry from starting any development it wished to undertake. Pointing to that with pride, he said, "Really, why are you worrying about this little further discouragement?" But that may not go on for ever. The right hon. Gentleman may some day face up to realities. The Government may sometimes try not to go on discouraging, but, instead, to encourage enterprise and risk-taking in those free industries which, at their own suggestion, are still going to comprise 80 per cent, of our industrial capacity. And when that happens—and it may happen—the Chancellor will regret having put this additional discriminating handicap in the way of those who want to be enterprising, who want to take risks, and who want to develop the production of the counrty.

The other point to which I want to refer is that of the tax on bonus shares. This, as the Chancellor says, is a technical point. It is a small point. It will not affect, of course, a great many people; and perhaps not a great many people will be interested in it; but, certainly to me, during the course of the Debates, it was the most interesting of all the points we discussed, because it most clearly revealed to me and to my hon. Friends on this side of the House the mentality of the Chancellor. First, it was made abundantly clear during our Debates upon this matter that the Chancellor did not know anything about what bonus shares were. It is only fair to say that neither did either of those two henchmen to whom he has referred in such glowing terms this morning. Incidentally, I should like, on behalf of all my right hon. and hon. Friends, to join in the compliments which the Chancellor has paid to the Financial Secretary to the Treasury and to the Solicitor-General. Throughout the whole of our Debates we have found those two, the right hon. Gentleman and the hon. and learned Gentleman, often mistaken, usually bewildered, but invariably courteous and patient. So far as we are concerned, we would not change them for anything. But having said that, it is only fair also to say for the Chancellor that the other two gentlemen, the Financial Secretary and the Solicitor-General, besides making clear that they knew nothing about bonus shares, also made it equally clear that they cared nothing about them. But the Chancellor was different, because the depth of his ignorance of bonus shares was only equalled by the height of his emotions about them. All through the Debates he appeared like those art Philistines whom we know so well, for he said, "Of course, know nothing about bonus shares but I do know what I do not like."

We had a number of Debates, lengthy Debates, upon them. Fortunately for the Chancellor, they always occurred in the early hours of the morning, so that little publicity was given to them; but during the course of these Debates certain things emerged quite clearly. First, it emerged that the Chancellor is opposed at the present time to heavy distribution by way of dividends of profits made during the course of the year, and he thinks—and there, most of us are in agreement with him—that the more prudent course at the moment is that a substantial portion should be put to reserves. Secondly, it emerged quite clearly that the capitalisation of past profits—of what, in fact, was an issue of bonus shares—is the most effective way of preventing those past profits from being distributed to the shareholders by way of annual dividends. It emerged that it was a more effective safeguard, than, for instance, having emissaries of the Chancellor upon boards—we have only to look at Anglo-Iranian—and even more effective than having boards which are political supporters of the Chancellor. We have only to look at the "Daily Mirror" for that. Thirdly, it emerged that the Chancellor—although this was an effective protection against what he himself wanted to be prevented—was prepared to throw it away entirely for the sake of political propaganda; because only one argument emerged from all the Chancellor's statements on this point, and that was that the inability to issue bonus shares may perpetuate what is a wholly unreal view of the company's position, but that unreal view enables party politicians to erect upon it a basis of wholly fallacious propaganda. As they desired to retain that fallacious propaganda, they had also to retain the unreal view of the company's affairs on which this alone had to be based.

Quite apart from the weight of the Chancellor's argument in favour of this tax, there is another most disturbing feature about it. If the Chancellor of the Exchequer really believed what he said about bonus shares, and if he thought that they were as immoral as he held them to be, and that they were effective in deceiving the trade unions, the workers and the investors, he has, under the elaborate machinery for the control of borrowing, power to prevent an issue of bonus shares from being made. One would think that if he really believed that they were so immoral, that would have been the course to take. He does not say that. He says that a company may issue bonus shares so long as he gets his rake-off. Condoning immorality, in return for a share in the proceeds, is not unknown in other circles. I think that the Greeks had a word for it. But this is the first time that a Chancellor of the Exchequer has joined that hitherto more restricted circle. In the past, the Chancellor has often compared himself with Mr. Gladstone, not always to Mr. Gladstone's disadvantage. I rather hope that I may be privileged in some future life to listen to a conversation between the right hon. Gentleman and Mr. Gladstone. I am afraid that it will probably have to be a long-distance conversation; but I shall certainly be interested to hear the comments which the Grand Old Man will make upon this new departure in financial morality.

As the Chancellor of the Exchequer said, we voted against the Second Reading of this Bill. It was possible during the Second Reading to develop and deploy the wide arguments, but because of the unsatisfactory way in which those wide arguments were answered, we voted against the Bill to show our disapproval. We do not intend to vote against the Third Reading. We have done what we could in the interval to make this a better Bill. We have not been able to do much, but we have certainly done something. Of course we should have been able to do much more in a situation where argument and not voting counted. We have patched a little rent here, and altered the fitting a little there, but to get a really good suit of clothes we have to have a different tailor, and for the moment we are unfortunately prevented from changing our tailor. Therefore, we shall not vote against this Bill. We shall let it go forward, knowing perfectly well that it is a poor thing, but, as such, not unworthy of the Government and the Chancellor of the Exchequer who are responsible for it.

12.4 p.m.

Sir Stanley Holmes (Harwich)

The Chancellor of the Exchequer has quoted with confidence the figures for the first quarter of the present year, but something has been happening during the last few months which may affect very much the revenue before the end of the year. I am referring to the very steep rise in prices which has been occurring lately. Admittedly, prices have been rising for a long time, but lately they have risen more steeply than ever before. Any manufacturer knows that almost every week he is compelled to pay a higher price for his raw materials, and every housewife knows that almost every day she is having to pay more for the goods she requires. This rise in prices must have an effect on the revenue to be derived from this Bill. Can the Financial Secretary tell us what is the reason for this rise in prices? Is it because of the demand for increased wages and salaries, or is it because the people are doing less work per hour? Whatever the answer, it will have an effect on the revenue to be derived from this Bill and upon savings to which the Chancellor attaches so much importance. Perhaps the Financial Secretary will give us some information, as he did last year, about the savings movement, and will tell us what effect this increase in prices has had since the Chancellor presented his Budget three months ago.

My second point concerns Surtax. Under this Bill, the State receives from its citizens in the current year £3,451 million, of which £1,073 million is by way of Income Tax and £80 million by way of Surtax. Surtax is supposed to be the tax to "soak the rich," and yet it represents only two per cent. of the revenue. The Lord President of the Council, in a recent speech, informed his audience that nothing further could be expected from the rich, and that any further revenue must be obtained from the ordinary citizen. I wish to show that this £80 million is not worth while. I do not know, and probably the Chancellor of the Exchequer does not know, what class of citizen pays Surtax. When this tax was originally introduced, it was called a "Super tax," and there can be no doubt that those who paid it were the large landowners. Owing to Death Duties and the splitting up of estates, landowners have probably ceased to contribute to any large extent to this £80 million.

I think it will be found that the Surtax which the Chancellor is raising under this Bill mainly comes from industrialists. The Surtax which goes up to 10s. 6d. in the pound after the man has paid 9s. in the pound Income Tax, was originally imposed, not by the present Chancellor, but by Sir John Simon, as he then was, on behalf of the National Government. The idea then was that no one should make money out of the war, a very proper thing indeed. But the war has now been over for three years, and there is the same over-all rate. It is not exactly the same, as Sir John Simon imposed an Income Tax rate of 10s. in the pound, and a Surtax rate of 9s. 6d. in the pound, whereas the Chancellor's rate is 9s. in the pound Income Tax, and 10s. 6d. in the pound Surtax. When the right hon. Gentleman reduced Income Tax by is., he put Surtax tin by a like amount on the higher incomes.

The Government are straining every nerve to improve the country's economic position, which is very serious, if not desperate. They are on the right lines in seeking to increase our export trade, even though they may be overdoing the extent to which they are depriving the citizens of this country of the goods which they require for ordinary comfort. In suggesting that Surtax should be abolished, I want to remind the House that the prosperity of Britain was built during the Victorian age, mainly through people and firms taking risks with their own money in business ventures in this country, and more particularly overseas. I want to suggest to the Chancellor that this is the only way in which our economic position can be restored. It certainly cannot be done by any policy of nationalisation. If business men take risks and fail, they lose their capital; if civil servants and Government executives take risks and fail, they lose their jobs, so it is never likely that we shall see any taking of risk, or any enterprise, on the part of Government Departments. We all know that all men are not equal in ability, or in the contribution which they can make to the national effort. In diplomacy, statesmanship, art, literature, and many other walks of life there are men who stand out from their fellows. It is the same in industry. There are men whose imagination, gift of organisation, understanding of how to handle men and women working for them, good judgment, willingness to take risks, and drive, put them above everybody else. They are men who are national assets, and they and their like have built up British industry during the past 100 years. They are the men who, today, are finding most of the £80 million Surtax which the Chancellor seeks to raise.

If one of these men does extra work, he has to pay 19s. 6d. in the pound on what he earns. Out of every £1,000 which he earns, the Chancellor takes £975, and leaves him with only £25. There is no incentive. Everybody needs incentive. Only recently it was reported that some workmen had refused to work overtime, because they were offered only time and a quarter instead of time and a half. They thought that they were not being given enough incentive for what they were being asked to do. The industrialist who, in the old days, as I have said, took risks in new ventures knew that he might lose his capital, but he also knew that if he was successful he would retain a considerable portion of the profit which he made. To-day, if he fails, he loses his capital, and if he succeeds the Chancellor takes, in Income Tax and Surtax, 39/40ths of his profit. So it is not worth while; there is no incentive. On the contrary, postwar taxation policy is a positive deterrent.

If the Chancellor would be willing to give up the £80 million Surtax which he requires, that sum would go into the pockets of a limited number of people. Let us consider in what way they could, or would, use that money. They could not spend it, because there is hardly anything to buy. They would undoubtedly plough it back into industry. The result might be that it would add to their personal fortunes. When they died the Chancellor, through the ever-increasing Death Duties, would take an additional amount. In other words, on that point alone the Chancellor, by abolishing Surtax, would merely be deferring the receipt of a certain amount of revenue. But if he would abolish Surtax forthwith it would not mean that he would have to wait until the death of any of the present Surtax payers for a quid pro quo. By abolishing Surtax it would encourage industrialists to start new ventures, particularly overseas, which would bring much valuable hard currency to this country. If they were successful, the Chancellor would receive not only Income Tax from their profits, but Profits Tax, and also Income Tax from those whom the industrialists employed.

I would go so far as to say that if the Chancellor abolished Surtax, and gave up the £80 million which he is budgeting for, he would more than make it up in file first year from additional Profits Tax and Income Tax, and still would have in prospect the additional Death Duties to which I have referred. If that were done, and industry were encouraged, it would not only improve the country's economic position, but would remove from the minds of many workers the fear which is beginning to creep into their minds once more—the fear of unemployment. The Chancellor might say that he cannot abolish Surtax in the Bill which we are now considering, as we have reached the Third Reading. That is quite true, but the Surtax in this Bill is not Surtax on this year's incomes. The Surtax to which the taxpayer will be liable under this Bill, payable on 1st January next, is Surtax on income for 1946–47, the year ending 5th April last. Therefore, the Chancellor of the Exchequer, while he is unable to make any alteration in this Bill, could quite well make an announcement that when he introduces his Budget next year he will abolish Surtax; then, forthwith, the benefits which I have ventured to suggest would accrue. I do not expect an answer from the Chancellor today. He may not have thought of this idea, but I am sure that it is a very practical one which would greatly assist the economic position of the country if it were adopted.

12.21 p.m.

Mr. Benson (Chesterfield)

We have had two extremely interesting speeches from the Opposition by the right hon. Member for West Bristol (Mr. Stanley) and the hon. Member for Harwich (Sir S. Holmes), complaining that, although they have done their best, the Opposition had not been able to make any really serious changes in the Finance Bill. They have outlined more clearly today the changes which they had in mind. For example, the right hon. Member for West Bristol objects to Income Tax, object to Profits Tax, objects to Tobacco Tax, and objects to motor tax; and now the hon. Member for Harwich objects to Surtax. Had the Chancellor anticipated the advice of those two hon. Gentlemen and carried it out, the Finance Bill would have been a very popular one. There would have been no taxation left on any one—not even the rich. The right hon. Member for West Bristol also warned the Chancellor most seriously against the dangers of inflation. How one is to meet the dangers of inflation and, at the same time, make slashing reductions both in direct and indirect taxation, I, frankly, do not know.

What the Opposition never have done is to table their proposals for really dealing with inflation—and that is how to reduce expenditure. They have, from time to time, girded and complained about the number of civil servants, but they know perfectly well that any practically possible cut that could be made would be so small that it would have little or no bearing on Government expenditure. It is not the salaries of the civil servants that account for the t £3,500,000,000 which we are expending. Moreover, we cannot cut the Civil Service without doing one of two things—either materially reducing the efficiency of the Service, or completely changing Government policy and cutting out great services to the community. We know perfectly well that even with the large numbers now employd in the Civil Service, there is scarcely a Government Department that is not disgracefully overworked. How long does it take to get a reply from any of them? The Board of Trade is dealing with a quarter of a million letters a day. It probably dealt with 5,000 a day before the war. It is no use pretending that we can materially reduce expenditure without very drastic changes in social policy. I would take the statements of the Opposition on the subject of economy more seriously if they were prepared to tell us what great social services they would be prepared to slash. The hon. Member for Harwich raised a very important and difficult problem—the question of incentive. Every one knows that very high taxation—taxation even below the level we have at the present time—must ncessarily produce some impact on incentive, when the major element of incentive in business is cash returns. That is a problem which I have mentioned more than once in this House, and it is a problem of extreme difficulty to solve because it is not a problem that can be solved in vacuo. The heart of our financial structure is Income Tax. In the old days when Income Tax was 1s. in the £, it was primarily a revenue tax, but Income Tax today has become a great deal more than a revenue tax. When graduation was introduced and when the graduation was over a period of years steadily steepened, one purpose of that graduation was unquestionably a desire to redistribute the very unequal incomes of the community. It was a social measure as well as a fiscal measure, and today it is quite unthinkable that we should, as the hon. Member for Harwich suggested—abolish Surtax, even if it were true that it would have all the effects that he claims, it would have very adverse results which would far outweigh such good as he suggested. One of the major difficulties of this problem of incentive is that we are moving into an entirely new social outlook, and moving nearer to equalitarianism than ever before.

As a matter of fact with graduated Income Tax as it has been in the past, I think that we must admit now that from an equalitarian standpoint and a desire to meet the growing equalitarian feeling of the country, even a stiff graduation of Income Tax at the present time has failed. It does not go far enough. But I am not at all certain that no matter how stiff we make it we can ever through taxation alone produce that equalitarianism which the community is now demanding. I am perfectly well aware that incentive and risk by owners of capital is essential to progress, but let us not pretend that our industrial system rests solely upon the initiative and energy of the owner and his capital. There is the initiative and the energy of the workers to be taken into consideration. How often has it been said from the other side of the House that we have to get a lot more work out of the miners and out of the workers generally. In practically every Debate that we have had in the last two years on the economic situation at one point or another this question of increased output from the industrial worker has cropped up.

Anyone who has come in contact with working class opinion must realise the resentment at the fact that, despite the rate of taxation, there are a large number of people in this country whose standard of living is on a range quite beyond comparison with that of the working classes. That is biting very deeply and creating a great deal of dissatisfaction. It is no use pretending it is not. It is not merely unearned income, which in the ultimate is an indefensible form of income, which is ca using the resentment. It is the vast disparity between the higher ranges of industrial remuneration compared with the lower ranges, and so long as it is regarded as—

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