New Clause.—(RELIEF OF PROFITS TAX ON RESERVED PROFITS.)

HC Deb 22 June 1950 vol 476 cc1482-553

(1) Subsection (2) of section thirty of the Finance Act, 1947, as amended by section one of the Profits Tax Act, 1949, shall be amended by the omission of the word "twenty," and the insertion of the word "thirty."

(2) In subsection (3) of section thirty-six of the Finance Act, 1947 (which as amended by section one of the Profits Tax Act, 1949, contains an incidental reference to the rate of tax) for the words "twenty per cent." there shall be substituted the words "thirty per cent."

(3) Subsection (3) of the said section thirty shall be amended by the omission of the words "at the rate of twenty per cent. on the amount of the difference," and the insertion of the words "at a rate equal to the rate of non-distribution relief obtained on those profits." For this purpose the excess of the net relevant distributions over the profits chargeable to profits tax for any chargeable accounting period shall be deemed to have been distributed out of the profits of the next preceding chargeable accounting period on which non-distribution relief was obtained and if those profits are insufficient then out of the profits of the next but one preceding chargeable accounting period in which non-distribution relief was obtained and so on as may be necessary.—[Mr. Eden.]

Brought up, and read the First time.

3.48 p.m.

Mr. Eden (Warwick and Leamington)

I beg to move, "That the Clause be read a Second time."

This Clause is in fulfilment of the undertaking I gave to the Chancellor on the Second Reading of the Finance Bill that we should seek some further occasion to probe this topic when we got to the Committee stage. The object of this new Clause is to remove the Profits Tax altogether from the profits of companies so long as they are not distributed. As I understand it, the net cost of this concession was estimated last year by the Financial Secretary as £58 million, though conceivably I should have thought that it might be rather less after certain other gains were taken into account.

There are some matters about this new Clause on which we are all agreed, and one might perhaps mention them first. Nobody will dispute the need for industrial concerns to conserve their profits by putting sums to reserve, and yet, when these sums are so put to reserve they still remain chargeable to Profits Tax at the rate of 10 per cent. in place of the higher rate of 30 per cent. on distributed profits. I do not think, either, that the Chancellor would dispute that the problem of replacing the physical assets of industry at current prices is a very serious one.

The arguments are so well known that I do not propose to rehearse them in detail. It is only necessary to say that the replacement cost of plant, machinery and other physical assets has risen as a result of the war and of post-war inflation—would it be right to say?—between twice and three times the pre-war cost, and in some instances it is higher still. It is certainly higher still, for instance, for imported machinery, since devaluation.

Existing wear and tear allowances—and here also, I think, we are agreed—allow only for the building up of replacement funds equal to the original cost; and, therefore, businesses have to provide the differences between the original costs and the replacement costs out of their taxed profits. In addition, industry has to provide out of its liquid resources for carrying its stock, work in progress and debtors all at greatly increased prices.

Therefore our submission is that the profits on which industries are taxed are not true profits, since a large part of the earnings on which they pay tax is required merely to maintain existing productive capacity. About that, again, I known there cannot be any dispute because the Chancellor himself put the case so well at Workington in January last year, when he said this: A large part of so called profits is not a pure surplus, but must be put to reserve for replacement and repair of plant and machinery and for industrial expansion to meet our new production needs. Therefore, there is no dispute about that.

Thus it is that concerns, industries and companies, which, on paper today are reasonably prosperous, are selling their Government securities, borrowing from the banks, or raising fresh share capital in an effort to maintain the old level of production at higher prices; and if no adequate relief from taxation is given, I should suspect that there is some danger of a shortage of capital—new capital—in the not distant future.

Now it may be said—and will be said by the right hon. and learned Gentleman when he replies—that the sums placed to reserve by industry have greatly risen. That, of course, is perfectly true; but, as I have said, the costs of replacement have risen twice or three times compared with those before the war. In fact, a large part of the £530 million which was put to' reserve last year was required to make up for what is the admitted inadequacy of the depreciation allowances.

I understand that Mr. Chambers, who is now the I.C.I. finance director, and, I think, was—if I am right—an Inland Revenue official at one time, in an article he wrote in "Lloyds Bank Review" in January last year, estimated the deficiency of existing depreciation allowances, as compared with the money which was required to be spent in 1947, as £400 million. The President of F.B.I. put the figure for 1948 at £300 million, and there is an interesting figure in the National Income White Paper for 1948 which shows that the extra cost of maintaining the volume of stocks at increased prices was no less than £400 million. I am not suggesting, I hasten to add, that that relates only to stocks carried by industry I fully realise it does not. I imagine it is for all stocks in the country altogether, including Government stocks. However, it still does show the recent tendency of that cost, as well as that of the other items I have mentioned.

I do not suppose, in face of those figures, that anyone can deny—or would wish to deny, probably—that this problem is a real one. Leading accountants have recently emphasised its gravity. Mr. A. Stuart Allen, President of the Society of Incorporated Accountants, said at the Society's annual meeting on 25th May last: A fiscal expedient introduced shortly before the war and estimated to produce an annual revenue of £20 million at a flat rate of 5 per cent.,"— that is, the old National Defence Contribution as we knew it— has developed into a levy which in 1949–50 depleted corporate resources by £260 million, and that at a time when modernisation and expansion of productive capacity were keynotes of official policy.

The Chancellor, I understand, has accepted this argument in principle—the argument that action is necessary—both by his action in doubling the initial allowances last year and by setting up the Tucker Committee to investigate the whole question of the proper basis for computing business profits. It is rather disappointing to hear that the Tucker Committee is unlikely to publish its Report before the end of this year; though I would agree with the Chancellor that, if that time is necessary for the work to be well done, it will be time well spent. Still, this fact only makes it all the more important that the Chancellor should take any action that may be open to him now, both on the grounds of logic and of sound economics, to abolish the tax on profits put to reserve. I do not think anyone, after what I have said, and in face of the figures I have given, will dispute the handicap that this tax is to productive efficiency.

I just want to give one comparative figure. It is from the United States of America. I think I am right in saying that undistributed profits of large companies in the United States today carry taxation of about 7s. 6d. in the £. I think that that is about the figure. It compares with almost 12s. here. Moreover, I think that smaller concerns in the United States pay even less than the 7s. 6d. It is quite easy to criticise British industry for being less progressive or productive than American industry, but having regard to the burdens it has to carry in the form of taxation, both on capital and on income, I think it is a tribute to British industry that it is so vigorous and so vital.

At the present time, when so much depends upon enterprise—and I noticed what Mr. Tanner said over the weekend, again urging more production, and rightly—it is almost incredible that income from enterprise should be more heavily taxed than any other form of income. And yet so it is today. The object of fiscal policy surely ought to be to encourage the building up of reserves for the re-equipment and for the modernisation of our industry, and not to hinder it.

Last Saturday, reading the "Economist," I came across an account of the recovery of Sweden, which is interesting, to which I would draw the Chancellor's attention in the hope that it may melt his heart a little, because I know he approves of Sweden and Swedish methods in politics and in industry. What happened there? It is an interesting commentary. The attitude of the trade unions"—says this article— towards production affords an example of enlightened alertness which could well be imitated in other countries. It was the unions, for example, that insisted on the provision of fiscal incentives to plough back profits into industry. I think that is rather interesting, because the Chancellor on Second Reading, in reply to me, pointed out what is going to be the effect of this kind of thing on the wage position in this country; and yet in Sweden it is the unions themselves who have urged this and insisted upon it, and won their way and secured it, their argument being, of course, that industry would thereby be more efficient, and that they themselves would obtain a larger share out of the greater efficiency and the larger profits which industry would earn. I suggest that perhaps in this Swedish example there is a lesson for us, too. At any rate, I should like to see the Chancellor following that precedent.

The only other comment I have to make is about the new Clause itself.

Mr. Ellis Smith (Stoke-on-Trent, South)

Before the right hon. Gentleman leaves that point. He is making his case very reasonably, but seeing that what he has suggested with regard to modernisation was not applied before the war, then, supposing this Clause is accepted, what guarantee have we that the money will be spent on modernisation now?

Mr. Eden

I think that that is a perfectly fair point. I was just coming to it in respect of the drafting of the Clause. We have to word the Clause so as to deal with the contingency—which, I submit, is unlikely, but which, were it to arise, would be counter to our intentions—the contingency that these profits would not be spent in the way in which we should like to see them spent, but might be distributed at a later date. I think that that is the point that the hon. Gentleman, very properly, has in mind. We have tried to meet that very point in the drafting of the Clause, and that is why it is rather complicated. I think that we have met it. If we have not we should be very ready to consider any form of words designed to do so, because the object of the Clause is to enable industry to use this money for re-equipment, and for nothing else—certainly not for distribution in the form of larger dividends, or anything of that kind.

4.0 p.m.

If they did at a later date distribute this money in the form of dividends or anything else, then the tax would have to fall at the same rate as if they had not had the exemption; the tax would have to be a retrospective levy. That is what we have tried to make clear in the terms of our new Clause. That is the case we submit to the Committee. I do not think it is a case that concerns party politics. It is a case which I hope will appeal to all hon. Members who are concerned for the future of British industry, and I hope the Government will see their way to meet us in some measure upon it.

Mr. Albu (Edmonton)

The right hon. Gentleman has put the case on grounds which I think we can all accept—those of the national interest and the national economy. Nevertheless, I think the Committee should be aware of the fact that there are three aspects of this proposal. The first is how it will affect the Revenue. The right hon. Gentleman has himself admitted that it will affect the Revenue to the extent of about £60 million. That sum would presumably have to be found, and no doubt we shall hear from the Treasury Bench whether that sum is correct. I do not think it is any good hon. Gentlemen opposite now demanding that we should discuss a reduction in expenditure, because only yesterday the right hon. Gentleman himself agreed with the Government on an item of increased expenditure which may be necessary in the near future in regard to Malaya. I think I should be out of order if I proceeded any further on those lines.

There are two other aspects of this matter. One is what I would call the technical and economic aspect, on which the right hon. Gentleman based his case, and the other is an aspect which cannot be neglected when discussing taxation, and that is social equity. On the technical and economical aspect, I think the right hon. Gentleman would agree that there is a great deal of conflict in industrial circles; certainly it is not quite so simple as he would lead the Committee to believe. Anybody who has been following the discussions that have been taking place amongst accountants and economists during the last year or two, and anybody who has read books like Mr. Sewell Bray's "The Measurement of Profit," will have realised that this is not a matter on which there is a universal opinion amongst industrialists, economists or accountants. It is a very complicated question indeed as to what value we should place upon stocks and what value we should place upon plant, machinery and other assets in the balance-sheets of companies continuing in business.

We all await with great interest the Report of the Tucker Committee, and I suggest that it would be inadvisable to take any further steps until the Tucker Committee has reported. In the meantime, I cannot agree with the right hon. Gentleman that the matter is of such urgency for one or two reasons. The "Economist" itself, which is always anxious to try to prove that the Government are robbing industry of its assets, has had to admit, when discussing the reports of the companies that reported in the first quarter of this year, that they did not show any signs of financial strain, and the capital and free reserves indicated in the 559 companies which reported show a quite considerable increase.

Then, of course, there is the question of the difference between the inflation that took place during the war and the continuing conditions in present circumstances. The Chancellor has already given considerable assistance to industry by the increase to 40 per cent. of the initial allowances made in the Budget last year. I suggest however, that on current business, even if some prices are rising, replacement of stocks and fixed assets takes place out of increasing profits at increasing prices. When there are falling profits and falling prices presumably the cost of equipment, plant and stocks are falling too.

In other words, if the profits are rising because prices are rising, profits are higher to pay for the increased costs of replacement. If profits are falling it is because prices are falling and the price of equipment—and certainly of raw materials, which probably fall first—will be falling too. I therefore suggest that this matter is far too complicated to be dealt with in the rather simple manner, if I may say so, in which the right hon. Gentleman put it to the Committee.

Mr. Oliver Lyttelton (Aldershot)

Surely the hon. Gentleman is not suggesting that the prices of re-equipment have now begun to fall? My information is entirely contrary.

Mr. Albu

No, I am not suggesting that, because I think prices are rising. There are signs that that is the case, and that during the early part of this year profits were again rising, too. If the boom in the United States continues, profits in this country will continue to rise pari passu with the rise in the prices of raw materials, and presumably with a rise in the price of the replacement of assets, although I should have thought, particularly with the increase in productivity in the engineering industry of this country, that the cost of the replacement of fixed assets should show a considerable decline, because the cost of labour in those assets is a very much higher proportion of the total cost compared with the cost of materials than in many other products.

Finally, I turn to the question of social equity. In moving this new Clause, the right hon. Gentleman said that he and his hon. Friends had drafted it in such a way as to avoid the distribution of these retained profits to the shareholders. I think the right hon. Gentleman will admit that the retention of the profits will mean eventually increased profits for shareholders out of the increased assets; or, alternatively, if there were to be an end of dividend limitation, very great capital gains indeed, because presumably the Stock Exchange values of companies which retain profits in this way are held down at this time only because of dividend limitation. If it were removed, as has been seen in the case of Woolworth's recently, there would be a considerable increase in share values, and therefore considerable capital gains to shareholders.

The problem for hon. Members on this side of the Committee is that we are not only dealing with the national economy. Companies belong to private shareholders, and the increase of profits or the increase of the assets of companies out of profits affects, either immediately or in the near future, the power to spend, the power to demand things out of the national economy. This is one of the conflicts between the two sides of the Committee, and one of the real problems with which we are faced. The right hon. Gentleman referred to the trade unions, and I think that at the present time the trade union movement would find it extremely difficult to maintain even the present degree of wage restraint if they were not to believe that, in some way or other, all these increased profits going into increased assets would not go eventually to the ordinary shareholders of public companies, who play no part whatever in their management or control.

Having said that, I believe that there may be a case for looking at the small concerns which are really the risk takers and are really enterprising, where the manager and owner are roughly the same person or persons, and whom it is desirable to encourage in increasing their activities and their enterprise. Hon. Members on this side of the Committee would not, I think, necessarily object to that, but I do remind the Committee that two-thirds of the business of this country is done by public joint stock companies whose shareholders are absentee owners who play no part in the business whatsoever.

I suggest that if we are ever to get this matter finally agreed with the trade unions and the workers who work in industry, we shall have to look again at the laws of joint stock companies—or, rather, at the principles of joint stock companies, because there is nothing in the law which says that the actual assets of joint stock companies are entitled to be maintained, but only that the nominal money capital should be maintained. We should have to look at the practice that has grown up of the whole surplus of a public joint stock company belonging to the ordinary shareholders.

Mr. Henry Strauss (Norwich, South)

I am anxious to follow the hon. Gentleman's argument. Is he saying that it is contrary to the public interest that there should be an increase in the assets held by joint stock companies?

Mr. Albu

The hon. and learned Gentleman has not followed the three parts of my argument. I particularly said, in the second part, that the right hon. Gentleman the Deputy-Leader of the Opposition put his case on the grounds of national interest, and I also said that on those grounds we on this side of the Committee could agree. I pointed out, however, that there was no agreement among accountants, economists and industrialists on the technical aspects of this matter.

I am finally saying that there are grounds of social equity which make it extremely difficult to solve the matter without changes in the present company law, if one is to take into account modern conceptions of social equity. I was suggesting that in the case, at any rate, of public joint stock companies with absentee shareholders, the time may well have come when we ought to consider whether or not there must be some permanent dividend limitation, and whether we ought to continue with the principle that the whole of the surplus incomes of these companies belongs to the ordinary shareholders.

Colonel Ropner (Barkston Ash)

I do not intend to follow the hon. Member for Edmonton (Mr. Albu), and I certainly do not want to over-simplify or to try to over-simplify my remarks on this new Clause. I do, however, wish to draw the attention of the Committee to one aspect of this form of taxation which affects those industries which are open to competition with other countries. The Committee will perhaps excuse me if my remarks are in particular devoted to the shipping industry, but that is an industry about which I know something, and I think that it is typical of those industries which are open to the full extent of foreign competition.

Let me freely admit that the shipping industry is enjoying comparatively prosperous times today; but so are our foreign competitors; and what is happening now is that, whereas British owners are finding it extremely difficult to set aside those reserves which they are quite sure will be sorely needed at no distant date, our foreign competitors are day by day gaining a substantial lead in their financial position over Britishers and are putting aside very much higher reserves than the British owners are able to do.

The hon. Member for Edmonton talked about social considerations in this matter. He should, I think, take into account the possibility of grave unemployment in some of these industries at some future date. I am quite sure that when difficult days arrive, as they may well not many years ahead, in the shipping industry and other industries open to full international competition, it will be the industries of those countries which have been able to maintain in a high state of efficiency their equipment—in the case I am thinking of in particular, their ships—which will suffer least from the bad times when they come.

4.15 p.m.

I know that it is a fact that at the present moment foreign shipowners—and I am sure that this is true of other international industries—are acquiring highly-efficient modern tonnage, whereas British owners are prohibited from doing so by the high rate of direct taxation, of which, I think, the tax under discussion this afternoon is the most iniquitous of all. If, as I am sure is the case, the Government desire to take the long view as well as the short view, I want to impress on the Minister who is to reply that there must be some alleviation of direct taxation if British industries, such as shipping, are to survive when bad days return, which they may well do at no very distant date.

Mr. Angus Maude (Ealing, South)

I want to take up one or two small points which the hon. Member for Edmonton (Mr. Albu) made. First of all, it seems to me that his suggestion that industrial companies in this country were finding no difficulty in replacing out of their resources the plant and equipment which have become obsolete requires a great deal of proof. I think that he quoted the "Economist" as stating that the quarterly reserves of profit showed no sign of strain. I cannot remember the exact issue, but my recollection is that not very long ago the "Economist" published another article in which they said that the replacement of inventory stock and plant was causing great trouble in particular cases where costs were rising sharply.

The hon. Member suggested in a complicated argument, which I should like to read before commenting on it at length, that there was no real difficulty about this, because when profits were falling, prices for replacement would be falling, too, and when prices were rising, profits would be rising pari passu, and the difficulty would not be so great. That, I think, was the burden of his argument. That seems to me to be an attitude of mind which is partly responsible for the present trend of rising prices. If we do not mind very much that prices are going up, then, of course, we can say, "It is all right; let profits go up as well," and they will. Personally, I do not believe that profits in most cases ought to go up any more than they are going up now, and that they cannot go up any more if rising prices are the corollary to them.

I am certain that the Government's present financial policy has the immediate result of sending prices up, because there is no inducement at all for greater efficiency when it is just as easy to make high profits without being efficient as it is to make profits through being efficient. Unless we are prepared, it seems to me, to do something directly aimed at getting replacement capital costs down—although it may help the Chancellor to find that profits and therefore his tax Revenue are going up—it will be the ruin of the industries of this country, and also place the capital industries of this country at an increased disadvantage with their foreign competitors.

One final point on the argument about social equity. We have heard something of this kind when considering a number of Clauses in this Bill, and it has to be a great deal more specific before it will carry any weight with me. Are we really to believe that the hon. Member for Edmonton is perfectly content to hamstring British industry by preventing them getting a tax concession, which he himself has agreed is desirable in the national interest, simply because someone may find the price of his shares going up? If that is the Socialist conception of social equity, and if they are prepared to throw British industry to the wolves for the sake of keeping down the interests of a class of whom they disapprove, I can only say for my part that social equity is a very different thing from what I have always understood it to be, and that is justice and progressive justice.

Mr. Albu

Does that mean that the hon. Gentleman is unwilling to see any interference in the right of shareholders in public companies to take the whole of the surplus income?

Mr. Mande

That was not what emerged from the hon. Member's original argument. He was saying that we must not give this concession until we have had a couple of committees and got a lot of accountants, lawyers and economists together to see how we should reform the company law. Company law is a very complicated matter on which I am no expert, and I should be out of order in discussing it, but I know that this is a matter of urgency. We cannot afford to wait for reports of committees. I do not believe that the effect on the equity value of shares is going to be nearly as pronounced or will operate nearly as much in the interests of a minority rentier class as the hon. Member believes.

If we do not give this concession, then sooner or later we shall find our competitive position deteriorating, and that will affect the Revenue of the Chancellor in a way he will find very difficult to sustain. I also believe that this is a matter which will confront us, the shipping industry perhaps being the most obvious example, in a very short time indeed. All the capital goods industries may face difficulties soon, and the shipping industry very soon. I hope we may have some concession to show that the Government are, at least, aware of the urgency of the matter and are prepared to meet us in some measure.

Mr. Spearman (Scarborough and Whitby)

I thought that the hon. Member for Edmonton (Mr. Albu) made as restrictive a speech as I have heard in the few years I have been a Member of the House. He seemed almost to be saying that whereas we want to do such things as will make the poor rich, he wants to keep the poor poor in order that there shall be no rich.

The Financial Secretary told us last week that he thought the tax then under consideration, however necessary it might be, was unattractive compared with the Profits Tax. It seems to me to be a fair assumption to make that he approves therefore of the Profits Tax. I hope it will fall to him to reply to this Debate, so that he can tell us why he approves of the Profits Tax. Can it be that he is so occupied in giving good advice to Whitehall that he has not yet realised the difference between profits which are good for the country as a whole and profit margins that are bad?

I entirely agree that we want to keep down the profit margins all we can, but perhaps one of our main attacks on the Government's handling of our economic affairs is that their policy prevents that competition which is the only way that profit margins can be kept down to the minimum. Perhaps I might quote the example of Ford Motors in advance of the argument that profits are good for a company. This company at one time made the greatest profits of any industrial company in the world. At that time they were paying the highest wages of any company in the world, and there is no harm in that. They were also supplying goods at the lowest prices in the world. Profits, on the whole, must be good for the country when they result in efficiency.

I am not suggesting that Members opposite have a complete apprehension of modern ideas of finance, but in modern ideas of finance it is generally accepted, I think, that no longer is it the object of taxation to collect so much money for the coffers of the Treasury, but to make a balance between the demand and supply for goods. What possible demand for goods can be created by the profits which are not distributed? As they are not given to the consumer, the consumer cannot possibly spend them. The only people who can spend them are the companies in replacing their equipment.

It may be that, owing to the vast proportion of Government expenditure, it is necessary to cut down the expenditure on capital equipment. But, can it possibly be the wisest way of doing it to make an indiscriminate cut on all concerns, good or bad, efficient or inefficient, whatever their purpose? It might not be a perfect weapon, but a far better weapon for that purpose is the interest rate; to put up the interest rate so that it is not worth while inefficient concerns spending money on capital equipment, but only worth while to those who can make good profits.

It might well be that if this Profits Tax were cut out the Chancellor would lose £60 million, as the hon. Member for Edmonton has said, but if the Budget surplus was less than that amount, what does it matter provided the money is not spent? Surely it would be only an embarrassment to the Chancellor to have a huge Budget surplus and continually to be pressed to make concessions. It would be far better if the same restriction on purchasing power could be maintained without a large Budget surplus.

It is vital at the present time to see that those industries which can best produce goods for export and home consumption are re-equipped. When Members opposite talk about extortionate profits, I wonder whether they have looked at the figures given in last week's "Economist." Mr. Stuart Allen, who is, I believe, President of the Society of Incorporated Accountants, quoted the case of a company which had a capital of £100,000 in 1900. He made two assumptions. The first was that prices have gone up three and a half times since 1900, and the second that during 1948 prices rose generally by 5 per cent. On these assumptions, he showed that in order to pay the present rates of Income Tax and Profits Tax, as well as to maintain their capital intact, the company would have to make a profit of 43 per cent. to pay a 6 per cent. dividend. Hon. Members opposite may say that 43 per cent. is an extortionate amount, but it is necessary to make that large amount in order to pay the not immodest dividend of 6 per cent.

Mr. Jenkins (Birmingham, Stechford)

Will the hon. Member say whether that is 43 per cent. of its nominal or 1900 capital?

Mr. Spearman

It is 43 per cent. on the money put up by the shareholders in 1900. This means a much smaller yield than 6 per cent. for those who have bought the shares at a higher price. I am quoting the original price, which is much more favourable to the argument of Members opposite. I oppose this Profits Tax, not because it hits a certain section of the country, because I could not expect support from Members opposite in doing that, but because, and I ask all thinking Members opposite to oppose it on these grounds, it impoverishes the whole economy of the country.

4.30 p.m.

Mr. Mitchison (Kettering)

There are two main points about this Profits Tax. Firstly, we are told that it throws industry to the wolves. That phrase, I think, was used by the hon. Member for Ealing, South (Mr. Maude), who said that it was causing great difficulty and the like. That is obviously a complete exaggeration. So far as making profits goes, companies in this country at present are doing quite well, and with a tendency to rising prices there is at least a corresponding tendency to rising profits. It was very properly observed that the difficulty in replacing stocks and plant on a rising profit and rising price position disappears, and is met by a corresponding facility when and if prices and profits come to fall.

What we are asked to do is to meet the former difficulty, which no doubt exists, by a particular fiscal measure. One has to remember what happens when the reverse process takes places and there is a tendency to falling prices and profits. In those circumstances the person who is bound to replace is making an actual profit, a capital profit if I may so put it, out of the replacement money he has put aside in the rising price period. The difficulty only exists so long as there is a rise and so long as the rise continues. It is an exceedingly difficult point to put clearly or, indeed, to measure clearly, but it is not a question merely of prices and profits, but of the rise continuing or not continuing.

The second point I want to put in this way. Something was said about social equity. I should like to put the matter very simply. At present in this country we are facing a large number of claims for increases in wages. It would be out of order to go into them now. But there are some cases of wage and salary earners to whom a rise is long overdue. I have in mind cases like school teachers, railway-men and others. I do not want to go into that now, but clearly if all those claims are to be met, then we are on the high road to inflation. That position is recognised by responsible trade unions and by the men themselves. They have always made it a condition—and it is a reasonable one—that so far as shareholders hold back from taking their share of the profits that have been made—I think that is the way they look at it—then they will accept some corresponding holding back.

In this case they would say, "Profits have been taxed, but now some of them are going to be relieved from taxation." They would not inquire too closely into the question of whether those profits were distributed or undistributed. They would simply say, and rightly, that the effect of this new Clause would be to reduce taxation on profits. I do not see how that could be denied or how any man at present faced with that position could not feel that the lid was completely off, that the pot was boiling, and that the time had come to press forward wage claims, whether or not they were such as would receive our particular sympathy.

Mr. Spearman

If these profits were not going to be used to increase dividends but rather to improve the capital equipment of the country in order to raise the standard of living of the workers, would they still take that view?

Mr. Mitchison

I think they would, with respect to the hon. Member. I do not believe that those earning wages and salaries look as closely as he does at the way in which profits are applied. I am going to deal with the substance of his objection later, but I want to say that these people would rightly say that here is an easing of taxation on profits, and they would feel that that would justify a wage claim, which otherwise might have been withheld, at any rate for the time being, in the national interest. That, at any rate, is my own view of what would happen.

If I may take the hon. Member's courteous interruption and go on to the next point I was going to make, I should say that one has to remember what happens to undistributed profits. It is perfectly true that they are not put into monetary circulation, but they remain in the coffers, if I may over-simplify the matter, of the companies concerned. They remain available for the replacement of stock or machinery, or, of course, for the substitution of other machinery or the substitution of other stock, or generally for the enlargement of a company's activities. To that extent they represent a potential demand on the capital resources of the community.

On the other hand, they may be taken by way of taxation to some extent, and it seems to be assumed by hon. Members opposite that they are thereby at once dissipated in some remarkably profligate way. That is quite untrue. Much of the expenditure that the Government have to consider is not only obviously necessary, but, on any possible view of the matter, a great deal of it is in the nature of capital investment. There are people who would like to see more sewage schemes in the countryside, and the objection which must be offered by the Chancellor of the Exchequer or the Ministry concerned is that in the circumstances of the country at the moment it would be excessive capital expenditure. There are others who would like to see an extension of the telephone service.

Those are matters of Government capital expenditure, and it seems to me that one has to remember that in the long run it is not a choice between one item in a company balance sheet and one item in the public accounts, but a question of whether the choice of the capital investment programme should rest with—I do not wish to use the words offensively in any way—the big business community or whether it should rest with the Government. In the present state of the capital investment programme of this country, when there are so many urgent public demands for investment capital, the transfer of the choice and power from the hands of the Government to the hands of the business community would not be in the public interest. That would really be the practical effect of this tax remission.

Accordingly, for three reasons, I object to this concession. My first reason is that, though it has a spurious appearance of fairness, it does not really take into account the temporary element in the replacement of capital goods by companies. Secondly, and perhaps in some ways most urgently, it does not take into account the psychological effect that any reduction in the Profits Tax would have in this country. It would have a most grievous inflationary effect in practice. Thirdly, when we look at the reality of the matter, this is not a choice between a prudent company putting aside money for the replacement of capital assets and profligate spending by a wicked Government. It is a choice between who, to this extent, is to have control over actual and potential investment: the Government of the day, with such urgent capital requirements as those I have already mentioned and many others, or the business community.

Sir Arnold Gridley (Stockport, South)

I wonder whether it would be possible for every hon. Member to put out of his or her mind, at any rate for a few moments, all thought of profits, shareholders' interests, rising shares values, and the like, because the Clause about which we are talking now affects what is really the core of our national problem; that is: How can we increase our production and our sales overseas and, to do that, how can we cheapen our costs?

Every day this week I have been asked to sanction the expenditure of some thousands of pounds on new tool equipment. In a few remarks I made in a speech in this Committee a few days ago, I said, rather complainingly I fear, that those of us who are engaged in engineering production had to contend with increased costs in all sort of directions—power, gas, electricity, railway freights, and so on. All these additions to our costs are forcing the managers of those engineering concerns with which I am associated to apply their minds the whole time to this question: How, by putting in equipment even more modern than we have, can we reduce our costs of cutting material into the shapes required, of setting up machines and so on, in order to meet increased costs in the directions which I have already indicated?

I am sure that my hon. Friend the Member for Edgbaston (Sir P. Bennett) would confirm that those of us who are trying to conduct our businesses are not so much concerned about the making of profit as about cheapening our costs of production in order to increase our sales. If we look at the Americans, when we are trying to get into the United States, we find that it is a well-known fact that in their industry there is three times the horse-power in mechanical equipment placed at the disposal of each individual workman than there is in this country. We are up against another very grave difficulty which is not being fully appreciated, and that is the handicap from which we suffer in the shortage of electrical power generally in this country. In connection with that point, I suggest that every Member of the Committee should read, mark, learn and inwardly digest the very grave warning issued by Sir Henry Self, one of the two deputy chairmen of the British Electricity Authority, when he spoke at Harrogate two days ago.

4.45 p.m.

We are suffering from that handicap, and we could do a very great deal in the way of providing ourselves with more modern equipment if we could be sure that the electricity supply would not be cut off during the winter. Sir Henry Self pointed out that the whole of the capital investment programme of the Government may be thrown into complete jeopardy after a number of interruptions in the supply reducing for several hours in the winter months the rate of production, which is running in this country at the present moment at some £6,000 million per annum. These are grave matters when we are considering our economic situation. This is a definite handicap to industry.

If those of us who are responsible for what we do with our profits decide, as most of us have decided, to limit our dividends, at the request of the Chancellor of the Exchequer, and to leave as much as we can in reserve—and we have fulfilled the Chancellor's request as honourably as we can—a great deal of what is left is taken away in taxation by the Chancellor with the other hand. We have not the wherewithal to provide the additional new equipment that we require in order to reduce our costs and make it possible for us to do what everybody, trade unions, leaders of industry, and those in Government circles who understand industry, regard as absolutely vital and essential—to improve our production. Great as is our production at the present moment, it is necessary to do all that is humanly possible to increase it still further.

Have we reached a peak of production in this country? Are we now faced with a decline? I know this, that in the shipbuilding industry very great anxiety is being felt, and that unemployment is commencing there. Those who may have the time to read the speeches of chairmen of companies who have held their annual meetings lately will have seen the warnings issued that the size of the order book is falling off and that orders are very much more difficult to get and competition is increasing. Do hon. Members realise what the effect on the costs of production in the electrical industries are? Only a few days ago the price of copper went up £16 per ton, and it may go up still further. It is one of the essential raw materials in that industry.

I do think that it is most vital that we should not be worrying our heads in this Committee about profits, or whether the prices of shares go up or down in the market. Let those matters take care of themselves. We need to concentrate upon cheapening our production and increasing our sales in this country and overseas. One great handicap to our being successful in doing that is a tax of this kind, which makes it more and more difficult for us to provide the equipment necessary to enable us to achieve success.

Mr. Leslie Hale (Oldham, West)

Every discussion I have listened to for six years past on this matter has consisted of a weeping, wailing, and gnashing of teeth by dismal Jeremiahs opposite who are always predicting the doom of their country. We have had it every time and we are having it now. I want to make an appeal today for something quite different.

In my constituency of Oldham there are the greatest textile machinery mills in the world producing some of the best machinery in the world and selling it everywhere—everywhere but in Oldham. The market for home machinery is still stagnant and disappointing. The amount of re-equipment being done in cotton spinning is regrettably small. [HON. MEMBERS: "Hear, hear."] I shall deal with that point and I hope that the Opposition will applaud when I have finished it. I will give the reason. We have given subsidies but they have had practically no effect, although we were told by the Opposition that that was the sort of thing which should be done. We made a substantial concession with regard to depreciation allowances in the hope that it would have some effect. The shareholders of public companies have had more concessions in the last six years than have any other taxpayers. We abolished the Excess Profits Tax at the earliest possible moment, and although the Chancellor said that something would have to be put in its place, the only thing that was put there was this small Profits Tax.

What is holding up re-equipment in the cotton industry? It is not the Profits Tax. It is the fear that somehow or other 1923 will come again. Why does that fear exist? It is because hon. Members opposite continually attack the prosperity of the country, continually depreciate the efforts of the workers and continually prophesy imminent doom. Time after time we have heard from the hon. Member for Chippenham (Mr. Eccles) the prophecy that this is a temporary boom and that it will cease. We were attacked in February and told that we were having a premature General Election because by April or May the country would be facing disaster. We were told that the Labour Government would have to introduce a new Budget.

What is the position at the moment? Quite recently the Chancellor of the Exchequer was able to announce production figures far in excess of what they were before and that our dollar sales had increased beyond the most optimistic expectations as the result of a device which was adopted last year and which the Opposition attacked so much and said would result in the doom of our industries. If they will go up to Lancashire this holiday and say that we are the most fully-employed country in the world and that we are producing some of the best materials in the world, that our goods are now occupying wider markets, that our shipping is carrying a greater proportion of the trade of the world than before and that they see no reason why this state of affairs should not continue, they will be rendering the country a real service and may help in the cause of re-equipment.

Whenever we have suggested planned economy and whenever we have suggested planned re-equipment by the use of budgetary devices to encourage re-equipment and to stop inflation, we have listened to attack and criticism from the Opposition. The words "planned economy" have been used as a term of abuse and contempt. I hope we shall hear the right hon. Gentleman the Member for Aldershot (Mr. Lyttelton) on planned economy on Monday or Tuesday when he is supporting the turning over of the British steel industry to international control, after so bitterly opposing its control by the Parliament of his country. If hon. Members opposite would really think in terms of national interest in this matter and would go to the country and help to spread the really good news which the Chancellor has been able to give us in recent months about our position, they would be rendering a real service in creating permanent confidence and providing an opportunity for re-equipment to take place.

Mr. Brendan Bracken (Bournemouth, East and Christchurch)

What about the influence of devaluation?

Mr. Hale

The right hon. Member for Bournemouth, East and Christchurch (Mr. Bracken) is really a little out of date. I should have thought that he would read the "Financial Times" more regularly than he appears to do. The influence of the results of devaluation was given some weeks ago, while devaluation took place some months ago. All the indications are that our dollar sales have expanded very much and that very great and substantial benefits have been brought about.

Mr. Bracken

Our devaluation, which, apparently, according to the hon. Gentleman, produced these wonderful results, has added roughly 25 per cent. to the price which we pay for our commodities, and the workers of Oldham must work at least one-third harder in order to get their exports to the United States now.

Mr. Hale

Our devaluation has increased by a very substantial percentage the amount of exports to the dollar market, and it was precisely as a result of that device that the Chancellor was able to tell us that in the first quarter of this year we had really achieved, if only temporarily, a complete dollar balance.

Mr. Spearman

Is the hon. Gentleman aware that our dollar sales for the first quarter of this year were about 100 million dollars lower than they were in the first quarter of 1949? Is that "exceeding our greatest expectations"?

Mr. Hale

Devaluation was forced upon us. If hon. Members opposite were so opposed to devaluation, some of them might have restrained themselves from making the speeches in America which had a great deal to do with producing the situation in which devaluation became necessary.

Squadron-Leader Burden (Gillingham) rose—

Mr. Hale

I have given way before and I do not think that I should take any more interruptions. I read assiduously newspapers like the "Daily Express," a very well-produced paper. I do not completely share some of its views, but we are being told in it that Britain is on a wave of prosperity. On the financial page we are told that now is the time to invest money in the shares of public companies and that in the months to come prices and profits will rise and there will be capital gains; but on the political page we are told that we ought to push out the Socialists who have caused this prosperity and try to get a new system. I read that every day. If the Opposition teach prosperity on the political platform as well as in the "Financial Times" and the industrial columns of other newspapers, they will be doing a real service to the country and we shall get re-equipment.

Mr. David Eccles (Chippenham)

I am glad to follow the hon. Member for Oldham, West (Mr. Leslie Hale), but I believe that I should be out of order if I gave a long disquisition on the economic situation. I wonder whether he realises how small a recession in the United States last year caused us to devalue. Let him consider how extraordinary is the size of the boom in the United States now, which if it were to go on for ever and ever would please no one more than it would me. Does he really think that it is in the interests of the people of Lancashire to make to them a political speech on the assumption that the present level of boom in the United States, over which he and I have really no control, will go on for ever and ever, or does he think it might be wiser to look ahead and prepare for something compared with which the small recission last year will probably be considered almost boom-time?

What we say is that devaluation—called "a device" by the hon. Gentleman—is not a device for raising the standard of life in this country. It is possible—I think it is true—that if we take appropriate measures it will enable us to close our overseas gap, but it will be at the expense of lowering the standard of life at home. It must be that way.

Mr. Bracken

Particularly in Oldham.

Mr. Eccles

What my right hon. Friend says must be true of any manufacturing industry using raw cotton.

To return to the Clause, I want to try, before answering some of the arguments used by the hon. and learned Member for Kettering (Mr. Mitchison)—whose speech was the most interesting that we have heard from the other side of the Committee—to get agreement on one point. I believe that the Committee will agree that this country needs more savings. The Lord President of the Council says that workers should buy savings certificates and not football coupons. That is oneway of getting more savings. This Clause is clearly a way of encouraging a certain kind of savings—company savings—and what the Committee have to consider is whether, against the background of the need for more savings, it is a sensible thing to encourage this kind of savings, through company reserves. I would not argue that if the 10 per cent. tax were taken off, exactly the £60 million would be saved in company reserves. Here and there we should find a company which would increase its distribution, but such companies would be the exceptions. Nearly the whole of the £60 million would find their way into company reserves.

We need more savings than ever. That means that I do not believe that the prewar rate of savings was at all satisfactory. The party opposite are always telling us into what poor shape industrial equipment was allowed to get before the war. If they say that—and I am with them to a very large extent; not in the case of all industries, but in many—then it follows that the rate of savings before the war was not enough, and we have not only to save a sufficient amount in pounds today to make up for the rise in prices, but also to make up the leeway of the war and some leeway from before the war, and that means very large sums indeed.

5.0 p.m.

One source of savings has been drying up for some time, and that is the rich saver. The rich individual cannot save now because taxes on his income and Death Duties are too high. I do not for one moment expect or hope that they will go back to the levels they were at before the war—that would be a false assumption—so we must ask ourselves this question: if that source of savings is drying up, the individual savings of people who are comparatively or very rich, what kind of savings can we put in their place?

I am sure it will be argued, and at first sight it is rather plausible, that the small saver and the Budget surplus can take the place of the large saver. I think it is true that from those two sources it would be quite possible to collect in money as much as the big saver would have put by under the old rates of taxation, but that is not the end of the story, because the small saver and the Government do not use savings in the same way for risk capital and for promoting new business as does the large saver.

The small saver must have liquidity. I think it will be found by those who study savings groups in factories that more and more the savings are being put by for purposes such as summer holidays or Christmas. The National Savings Movement is being used now more as a temporary home for building up a fund, and those in charge of savings groups, who have done such excellent work in the movement, have admitted that to me when I have talked to them in my part of the world. Those savings will not do the same job as the savings of the individual who was prepared to tie up his money for some time in a new process.

Mr. Albu

But do not some of those small savings find their way into risk capital through industrial assurance companies?

Mr. Eccles

To some extent that is true, but I do not think they do so in the quantity or in the type of risk, because when an industrial assurance company is investing other people's money they will naturally be more prudent as to what they put it into than an individual who says, "There is a high prize if I win, so I will have a go." Here I think the hon. and learned Member for Kettering made a good point when he said that perhaps this tax might be looked on as a transfer of money from the hands of industry to the hands of the Government. But I do not take the view which he does that the Government are an exceedingly good investor. I think it would be better to have telephones than groundnuts.

An Hon. Member

We have not got any groundnuts.

Mr. Jenkins

Risk capital.

Mr. Eccles

I think the Government can take risks but takes them badly, and the small saver cannot take risks because it is not advisable to do so with a little money. We know, for instance, that some of the new institutions in the City over which Lord Piercy presides are attempts at substitutes for the old big saver. I do not think these attempts to find substitutes for the source of risk capital have been successful; in fact, as time goes on they will less and less fill that rôle.

Mr. Mitchison

Would the hon. Gentleman allow me to interrupt? I suggest that in a democratic country the Government of the day, whatever that Government is, ought to have the choice of investment. In other words, the test of the best investment in a democratic country is not necessarily the most successful investment.

Mr. Eccles

I think the Committee should be grateful to the hon. and learned Gentleman for interrupting, because he is saying quite plainly that the Government know best about all these things, and that is a proposition which divides both sides of the Committee. I do not agree with him that a Government is the right single organ to make decisions on all these new ventures. If the hon. and learned Member holds that view, he will find it difficult to put across to the electorate of this country the new doctrine of the Lord President that a large section of private enterprise should be allowed to exist and should even be welcomed by the Labour Party. Because if there is to be a flourishing sector of our economy in private hands, and that is to be looked on as a reasonable way of producing wealth, then we must adapt the capital system to enable those people to carry out their functions.

Mr. Mitchison

indicated dissent.

Mr. Eccles

If the hon. and learned Gentleman will give it a little thought he will find that if there is centralised in the Government the decision about all capital investment, private enterprise will be killed, not at once but as soon as the big companies fail to have any more reserves. That may be the policy of hon. Gentlemen opposite but it is not mine. I believe that the prosperity of this country depends on a high birth rate of businesses and a low infant mortality rate amongst them, and for that it is absolutely necessary that retained profits should be encouraged.

Mr. Blackburn (Birmingham, Northfield)

Will the hon. Gentleman forgive me? Trading profits last year were three times as great as they were in 1938—

Mr. Bracken

Does the hon. Gentleman mean the groundnut scheme?

Mr. Blackburn

—so the retained profits must have been much more than they were before the war.

Mr. Eccles

Yes, but so is the cost of a ship, and the purely industrial problem with which we have to concern ourselves is whether the net sums after taxation are or are not sufficient to keep our industrial equipment up to the best of other countries. The contention of my right hon. and hon. Friends is that they are not at the present time. The fact that they are not is concealed by a world boom because during that boom one can continue to sell on easily won profit margins because the demand for goods exceeds the supply. We are concerned with looking forward to the time when there is much greater competition in shipping and then it will be too late suddenly to say, "Let us build some new ships" because they take several years to build and we shall be caught by any recession that comes not as well equipped as we might be.

This question of more risk capital and of having sufficient reserves, which is bound up with our new Clause, does not worry the big company as much as the small company. The big company suffers on account of the replacement of its capital assets but, if it has a long and established dividend paying record, it is easier for it to go to the market and get more capital or to borrow from the banks. My right hon. Friend the Member for Aldershot (Mr. Lyttelton) presides over one of our largest companies with distinction, but Associated Electrical Industries did not start as a large company. I imagine it started as a variety of small companies which in time were built up and then became a large, one.

I am concerned that more prospective large companies should make a start, and the taxing of profits put to reserve is a real handicap upon the small man when he is starting. He may have to take money out of the business because his family may be growing at the same time as his business. I should like to help the small business in other ways, but that is not, perhaps, a subject which it would be in order to discuss now. But here is one way in which we could help the smaller business to accumulate the reserves without which it always finds it difficult especially when times become less easy, to stand up to the big ones.

If the policy of this country was to nationalise everything, we need not worry about company reserves. Then, clearly, the provision of new capital would be made by the State through taxation and the Budget surplus; the Budget surpluses could be invested in the coal industry and in all other industries. If they were all nationalised the question would not arise.

On the other hand, if the policy is to concentrate private business into single large units—one multiple shop, let us say, buying up all the little ones—then also this would be a good tax because it is definitely in favour of the big man against the little man. I do not know whether there may be some hon. Gentlemen opposite who, although they have all abandoned nationalisation—or so we are to be told, I believe—may still think it a good thing that one multiple shop should acquire all the little shops, in which case they will favour this tax because there is no doubt that the Co-ops. could stand this Profits Tax a great deal better than could the small shops.

We have different views on this side of the Committee. We say that we must face the fact that big savers as a source of saving will not be as important again as they were, and that savings through company reserves are the nearest substitute that we can get. In my view, this is not adequate. I do not think that risk-taking is so easy with other people's money as it is with one's own, but still it is the nearest substitute we can get.

Mr. Follick (Loughborough)

Are not big companies big savers?

Mr. Eccles

Perhaps I did not make myself clear. I meant individual savers. I thank the hon. Member.

I come now to my last point, the question of equity. The hon. and learned Member for Kettering said that if the tax were removed the trade unionists in this country would say, and rightly say, that that was unfair on them. I do not think that he should have used the word "rightly," because his hon. Friend the Member for Edmonton (Mr. Albu) said that in the national interest we should take the tax off but that there were psychological resistances. Surely, if that is so, it is the duty of all of us to do our best to explain to the trade unionists and to all those who hold the view that there is a conflict between profits and wages, which I do not believe to be true; nor do the trade unions in the United States.

Mr. Albu

I did not say that there was a psychological conflict. I said that there was a real conflict of social equity.

Mr. Eccles

What one means by "social equity" is, I think, an idea that one holds—a principle, if you like; and it must be the conflict with the idea that one holds that causes the feeling that this would be a one-sided and unfair thing to do.

I quite believe in the psychological resistances, but my view is that the point of the American trade unionists about high wages and high profits going hand in hand is the right one in the interests of our working people and that we suffer very much now because the party opposite, in their long struggle to get into power, found it useful to give to profits this bad sense and to make out that there was this tremendous conflict between profits and the working people.

Mr. Mitchison

What about the schoolmaster, who makes no profit?

Mr. Bracken

Why do you not look after him?

Mr. Eccles

The best chance which the schoolmaster has of getting his salary raised is that the national income and the Revenue should go up; then there would be more money to pay civil servants. Therefore, if we could only get rid of party politics in this matter of what it is that increases the national income, we would all do ourselves a lot of good.

5.15 p.m.

I fully see the difficulty of a party which for years and years have supported the doctrine that there is a conflict of interest between profits and wages. They might ask themselves how it is that that view is not taken in America. Why do they think that the trade unionists in America utterly disagree with them on this interesting point of the true relation between profits and wages? I am not prepared to lie down in front of this psychological barrier which has been erected and say that I cannot get over it.

I am convinced that, as my hon. Friend the Member for Stockport, South (Sir A. Gridley) said, this is a very important matter in the national interests. It is an important matter that we should not only get our costs down in the processes that are going on today, but that we should start new processes and find new ways of making goods which the world wants to buy. For that reason, we must have an adequate stream of savings which those who own the savings are able and willing to invest in risky business and take chances. I say that the method of the company reserve is probably the best method we have. For that reason—I apologise for being so long—I commend the Clause to the Committee as something which is really in the interests of our people.

Mr. Jenkins

I was distressed to hear the hon. Member for Chippenham (Mr. Eccles) begin his speech in reply to my hon. Friend the Member for Oldham, West (Mr. Leslie Hale) by saying that we ought to prepare for a slump in America which would make the recession of last summer look something very small indeed. We know that the hon. Member has no faith in the virtues of Socialist planning, but it does not appear that he has very much faith in the virtues of capitalist planning either—that is his prediction for the future.

The right hon. Member for Warwick and Leamington (Mr. Eden) commended the Clause to the Committee on the ground that we all wanted a high level of capital investment. That is, of course, true, but we have to consider not only what level of capital investment we want, but also in what directions we want that capital investment to go. I could not for one moment—and I join issue straight away with the hon. Member for Chippenham—accept the criterion that profitability was the only test so far as capital investment was concerned. I really do not believe that if they had thought about it all hon. Members, at any rate on the opposite side of the Committee, could accept that criterion either.

To look back for just a short time, do they really think that in the 1930's, when such capital investment as went on was determined by what was or was not profitable, it was desirable that there should have been all the light industry capital investment around London which was profitable, rather than some heavy industry capital investment in the distressed areas? Do they really take that view? Do they really believe that at present it is desirable that any industry—greyhound racing tracks, cinema companies, or any think of that sort—should be allowed to indulge in capital investment to any extent they like provided that they find the investment profitable?

Mr. Bracken

What about your groundnut scheme?

Mr. Jenkins

That is the third completely irrelevant interruption which we have had from the right hon. Gentleman this afternoon. I do not think that the Opposition can have it both ways in claiming that the Government never take any risks and then attacking us on groundnuts.

It is, I think, ground for common agreement that money which goes into building up the Budget surplus goes to pay for our capital investment programme just as much as does money which is ploughed back into the reserves of companies. But of course, in the case of a Budget surplus, the Government retain a good deal more control over how those funds will be invested than is the case if this tax were to be removed and more money were allowed to be ploughed back into the reserves of businesses.

The Budget surplus might be used in one of a number of ways. It could be used to pay for investment in nationalised industries or it could, in a roundabout way, equally well be used to pay for investment in private industry; at least the Government have some control over the way in which it is used; whereas it seems to me that if we were to accept the Clause, at a time when we are nowhere in a deflationary situation, and when there is pressure on our total investment resources, then the Government would have less and less control over the direction of capital investment.

If we got into a situation in which some slight cut in the capital investment programme was necessary, the only thing that could be done would be to make the nationalised industries bear that cut [An HON. MEMBER: "Or housing."] Or housing, but so far as industrial investment is concerned, only the nationalised industries because that would be the only field in which the Government would have control. I was amazed to hear the hon. Member for Stockport, South (Sir A. Gridley) talk most eloquently of the vital importance of electricity investment as though that was an argument for this new Clause. One result of the carrying into law of this new Clause would be to place the electricity investment programme in jeopardy.

I do not say that in all situations and at all times one need resist a Clause of this sort. If we began to get into a deflationary situation it might be right to accept such a Clause as this. I do not think that that situation has yet arisen. If it did arise it would bring with it important questions bearing on the point which my hon. Friend the Member for Edmonton (Mr. Albu) made earlier today, namely, that one has to consider not only the economic consequences of measures for ploughing back profits but also the social consequences, the fact that if private companies are allowed to plough back these profits that will not only aid the nation's capital investment programme but will also greatly enrich the shareholders of the companies concerned. I do not say that that is a reason why one should never allow profits to be ploughed back, but one cannot look at the matter from a purely economic point of view. We must look at the social point of view and work out a solution of that before we can allow people to plough back profits without limit.

Mr. H. Strauss

We have heard a number of speeches this afternoon from Gentlemen on both sides of the Committee who have great experience of joint stock companies as directors, advisers, etc. I am, I think, one of the first to address the Committee with no such experience or expert knowledge. Nevertheless I would ask the Committee to listen to me with patience because a number of terms have been used with which I have been professionally familiar, words like justice and equity. We have on other occasions heard a number of speeches about social justice, and this afternoon we heard a speech from the hon. Member for Edmonton (Mr. Albu) and other speeches about social equity.

I have been very much interested to know what is the relation of social justice and social equity to the justice and equity known to the law. I was a good deal helped by a recent Ministerial statement in another place when one of His Majesty's Ministers, answering an interruption asking what was the relation of social justice to justice, replied that the relation of social justice to justice was the same as the relation of social credit to credit. That was just about true. Social equity, as explained by the hon. Member for Edmonton, has the same relation to equity as social credit has to credit.

What was there equitable about the doctrine of the hon. Member for Edmonton? What is his case against joint stock companies making profits? Because he was making a thoughtful speech on this subject, and I wished to follow him, I ventured to interrupt him on one occasion in order to clarify his speech. I asked him whether he was convinced that it was contrary to the public interest that the assets of joint stock companies should be increased. From his answer I gather that he thought that it was, at present, contrary to the public interest, but that in the event of a quite new company law being passed that might no longer be the case. I do not criticise him for not telling us what the new company law was to be, because I assume that he would not have been in order in doing so.

Let us note the prejudice which the hon. Member threw into his speech. He referred to shareholders. "Absentee shareholders" he called them, which, if it means anything, means that they do not live in the factory. Why, if one believes in the great machinery of a joint stock company, one should think that the shareholders would be serving the public interest better if they lived in the factory, I do not know. The purpose of the whole machinery of the joint stock company is to enable the ownership of the company to be very widely spread. Nevertheless, the hon. Member managed to throw some prejudice against shareholders by referring to them, in this ludicrous phrase, as "absentee shareholders."

Mr. Jenkins

As my hon. Friend the Member for Edmonton is not here, I would say that I thought it was absolutely clear that by absentee shareholders he meant, not people who did not live in the factory but people who never bothered to attend the annual meeting and played no conceivable part in the running of the affairs of the company.

Mr. Strauss

I hope that the hon. Member for Edmonton will be grateful to his hon. Friend the Member for Stechford (Mr. Jenkins) for explaining what he thinks his hon. Friend meant. But the hon. Member for Edmonton said nothing of the sort, and I very much doubt whether shareholders perform a much more useful function by attending every company meeting than by getting on with their business.

What is the real objection to this new Clause? It is that it deals with profits. Hon. Members say that anything that helps profits, or removes some attack upon profits, would have a deplorable psychological effect. I wish hon. Members opposite would ultimately make it clear in their philosophy whether, in their opinion, profits are a good thing or a bad thing. As long as they vary from the one view to the other, it is very confusing to everybody who is trying to follow their thought, if I may thus describe what goes on in their minds. In the light of a great deal of their discussion, one would think that profits and profit-seeking were a great evil, and I am bound to say that we must all admit that, if the object of nationalisation is to avoid profits, that object has been achieved. Nevertheless, just as I think I understand the Socialist philosophy that lies behind their feeling towards the proposed new Clause and similar proposals, something happens that makes one wonder whether one has understood them correctly.

It may be remembered, if I may use this only as an illustration of the point, that there was an occasion not so very long ago, which will be in the memory of many Members, when an order was to be brought forward dealing with labour and registration for employment. It was referred to in advance as the "spivs' order." I remember venturing to ask the Leader of the House whether that was quite the expression to apply to research workers on their own account, writers, artists, sculptors, etc. When that order for the registration of workers was made an explanatory leaflet was issued by the Government. It explained that one avoided all risk of coming under the order if one was "gainfully employed." Provided you could prove that your whole object in life was the profit motive, you escaped the order. If you were not governed by the profit motive then, of course, you were a "spiv."

I implore the Government to try to clear up their ideas on this subject. This idea that a joint stock company should not be allowed to make or retain profits is not only neither equity nor justice; it is not even social equity or social justice, whatever they may be.

5.30 p.m.

Mr. Jack Jones (Rotherham)

Common sense?

Mr. Strauss

It is certainly, above all, not common sense. I agree with one remark made by the hon. Member who immediately preceded me. He was conscious, as I think the whole Committee should be conscious, of the dangers of inflation and of the effects of inflation. What is the effect of that? The effect of that, of course, is that profits are much too easy to make. If the Government would only end inflation, profits would become much more difficult to make. I say the Government are wrong in two respects. They cause and permit inflation, which makes profits easy to make, and then take them away to prevent them from being distributed. I say their policy should be precisely the opposite; to avoid inflation and to ensure that profits shall be the reward of efficiency and of nothing else. But, when they have thus ensured that profits are more difficult to make, it is in the public interest that companies which do make profits in those circumstances should be allowed to retain and to benefit from them.

Examples have been given by previous speakers of how in the past companies have made most profits whose prices to the consumer have been cheapest and whose payments to the workers in wages have been highest. It is an absolute illusion to think that a good public service is not served by good profits. My right hon. Friend who moved this new Clause pointed out that it was so designed that the gain to the company, if the Clause were passed, would not be used in the payment of dividends. Some doubt has been thrown on that by various speakers. They have suggested that to some extent this benefit would be so used. Let us consider what would be the effect if they were right. What is their doctrine about limiting the dividends paid to ordinary shareholders in such a manner that their real reward for investment in the industry goes continually down as prices go up? What would the worker in the industry say if his reward in wages were nominally the same as it had been before the last war, as is the case with very many shareholders? Of course he would say that it was preposterously unjust, and he would be quite right.

If dividends were to be permanently limited—and that was the suggestion of the hon. Member for Edmonton as I understood his proposal—not only would it not be equitable, it would be utterly inequitable. Of course, if one lends to a company at a fixed rate on debentures, one never gets a greater reward, but, if one takes a risk by investing in ordinary shares so that if the enterprise goes wrong one loses everything, surely, if the enterprise goes right, a reward should result from it. I believe that some writings of Socialist economists themselves, some of their works written for students, point out the grave evils of the Profits Tax. Yet, when we come on an afternoon like this to discuss this proposed new Clause, they assume that the profits of joint stock companies should be subject to a great imposition to which no other sort of profit is liable. What is the logic of that? I say there is no logic about it at all, and it has the most serious consequences to our economy.

Many hon. Members, and indeed the opening speech in favour of this new Clause, have pointed out the very grave difficulty of even maintaining necessary assets. I wonder whether those, who have addressed the Committee from the other side and thought the matter so simple, have thought about the position that, for example, a prosperous company like the Cunard Company will be in, when it has to replace its ships. I do not believe those matters have been considered at all. I wish to deal with one point made by the hon. Member for Oldham, West (Mr. Leslie Hale). He, in a very racy and vigorous speech, which, I must assume for the purposes of argument, was seriously intended, suggested that we on this side of the Committee have continuously—

Mr. Follick

The hon. and learned Member was speaking just now about the great prosperity of the Cunard Line. After all is said and done, the great prosperity of the Cunard Line is due to my right hon. Friend sitting beside me, the right hon. Member for Dunbartonshire, East (Mr. Kirkwood).

Mr. Strauss

The right hon. Member is one who has returned to the House after an indisposition and we are all most happy in this Committee to see him back. Some of us who were in a previous Parliament know how energetic he was in trying to get a certain ship built by that great company—

Mr. Jack Jones

And he did.

Mr. Strauss

Any credit the right hon. Member likes to claim for himself—and I do not think he will claim for himself the supreme credit for what, after all, was granted by a predominantly Conservative Government—any credit that belongs to him I give to him most willingly, but that matter has about as much to do with my argument, as I am sure the right hon. Member will agree, as has the man in the moon.

Mr. Osborne (Louth)

Or the man sitting next to the right hon. Member.

Mr. Strauss

I was dealing with the speech of the hon. Member for Oldham, West, who said that we on these benches had made prophecies of woe and of imminent disaster. If we did, we were doing so in company with those whom hon. Members opposite respect, and, after all, none of us has said anything nearly as alarming as was said in this House and elsewhere by the Chancellor of the Exchequer last October. I have a whole sheaf of quotations here, but even if you, Sir Charles, would allow me to read them—and I do not know whether you would—I do not propose to trespass on your patience or on that of the Committee, but it is really too much when the hon. Member for Oldham, West, treats us as if we were prophets of disaster, and wholly omits the prophecies of the right ion. and learned Gentleman the Chancellor of the Exchequer.

I thank the Committee for the patience with which they have heard my remarks and I ask the Committee to realise that this is one of the most serious new Clauses which have been put forward. Unless something is done on these lines the whole commercial prosperity and ultimately even the economic survival of this country is threatened. Suppose hon. Members opposite proposed to nationalise everything—and I gather that since Dorking it is much nearer the truth to say that they propose to nationalise nothing, at least until they have got into power—then the fate of private industry might not matter. But so long as they leave 80 per cent. of our industry or anything like that figure to private enterprise and to the enterprise of joint stock companies on whom alone this tax falls, and leave to private industry the export trade on which our survival depends, then they must not ruin the prospects of that private sector of industry because of an obsession with the word "profit," about which they have such contradictory notions.

Mr. Jack Jones (Rotherham)

I wish to say a word in order to obtain some clarity on this subject. As an ordinary worker not used to dealing in high finance or with joint stock holding companies, nor the other paraphernalia and jargon used by the hon. and learned Member for Norwich, South (Mr. H. Strauss), I want to see exactly what the new Clause seeks to do. If I am right, the position is that hon. Gentlemen opposite seek to retain all the profit made by various companies engaged in making profit and doing with it what they so wish—[HON. MEMBERS: "No."] That seems to me to be the interpretation of the speeches as I have heard them. In other words, the Government would not take unto itself that proportion they would desire to have for the purpose of carrying out the intention of the Government so far as capital expenditure is involved.

I listened carefully to all these speeches, particularly that of the hon. Member for Stockport, South (Sir A. Gridley) who usually talks good sound common sense arising from a sound commonsense training in industry. He told the House that his particular concern was the bringing down of the costs of production—a very laudable thing. Then he told the House something it knew to its cost, that the American worker has three times the power at his disposal that the British worker has, especially electrical power. One would assume from that that the Socialist Government are to blame for that fact. When there were cuts in the lighting because the electrical power was not forthcoming, are we to assume that the Socialist Government should be accused of having been inefficient about generating plants? The right hon. Member for Aldershot (Mr. Lyttelton) more than anybody else in this House knows the reason why we were short of generating plant and telephones, etc., necessary for the full employment programme.

The hon. Member for Oldham, West (Mr. Leslie Hale) complained bitterly, and rightly so, that orders placed inside our own country for textiles were not of the magnitude he would have them to be. The firm he referred to did make a tremendous effort to get owners of textile industries, particularly in Lancashire, to place orders. Some of us sought the reason why orders were not placed, and the facts are that the controlling interest in Lancashire, the G.E.M. said. "Unless we can get operatives to cease coming and saying, 'We want new machinery and less hours of work,' and unless they will use that machinery, we are not going to place orders, because we shall not get our capital back and we cannot get redeployment, shifts and so on and so forth." I could make quite a speech on the subject—

Mr. Walter Fletcher (Bury)

Does not the hon. Gentleman think it a little disingenuous that neither he nor the hon. Member for Oldham, West, brought forward one of the real reasons why orders are not placed and that is the competition from Japan and India and other cheap labour areas?

Mr. Jones

That is an additional burden placed upon that particular industry, the fear of competition, and that fear is one which should get the operatives and the owners to respond by putting in new machinery and the necessary hours and everything else to meet that competition But that is getting away from the subject we are discussing.

I hope the Government will resist this new Clause on the ground that this Socialist Government should pay regard first and foremost to the need for its capital expenditure, to use whatever there is in the way of spare wealth to the furthering of the Socialist economy; and thereafter to allow private enterprise to seek to suit the purpose of the shareholders and all those connected with it.

5.45 p.m.

Mr. Macdonald (Roxburgh and Selkirk)

I should like to make these few remarks from a non-party attitude. I see one or two hon. Gentlemen opposite smiling, but it is possible sometimes for a Liberal to be non-party.

I believe the main consideration of this Committee is to maintain a full employment policy. How can that be maintained if industry is not allowed to be thoroughly efficient? Due to the geographical situation of this island and the fact that in a sense we live an artificial life—because we grow very little of the raw material we need for our multitude of industries-but have to import it—we have to be-more efficient than any other manufacturing country in the world in the production of our goods. The only way we can be efficient is if we can put back into industry the necessary amount of money to see that we have the best types of machinery and the best research laboratories so that we can keep on reducing the price of our products and yet make them more efficiently than anywhere else in the world.

I have a financial interest in an industry which before the war was the largest exporter of its kind in the world. We were only able to beat our competitors in the United States and elsewhere by the fact that for a great many years we had realised we must not spend the profits that we made, apart from a reasonably small amount, but plough them back into laboratory research, machinery and so on. Then the war overtook us and, like most other industries we were completely organised for full war production. The result was that research for peace-time needs had to be discontinued and our machinery as an industry suffered badly from its immense war-time production.

During that time the Americans had been our wonderful allies but they had not been geared to anything like the extent of war production that we were. As a result they were able to go on with research for peace-time needs, so that when the war finished they were miles, ahead. We have been fighting hard, and I am speaking of all those industries who need to import their raw materials, and therefore for whom the cost of raw materials plays a large part in their total cost of production.

All those industries are fighting hard to maintain their place in the export trade, and by doing that to maintain their full employment policy. They cannot continue that struggle as they would wish to do unless they can have sufficient capital, sufficient profits, ploughed back into industry. The hon. Member for Stockport, South (Sir A. Gridley) asked the Committee this afternoon to forget about the question of profits for a moment. I think he was being perfectly sincere when he said that, and I am being equally sincere when I say that profits are a minor side to the question of maintaining industry and therefore maintaining full employment for the people of this country.

The hon. and learned Member for Kettering (Mr. Mitchison) stated it was far better to give the Government the opportunity of capital expenditure rather than that industry should have it, and he cited the case of sewerage, telephones and many other things of that type which are necessary and vital. But they have to be paid for and how can they be installed if industry, which is the biggest taxpayer, both direct and indirect, is not allowed to be efficient? Therefore I hope that the Committee will agree to a substantial reduction of this tax on undistributed profits. It is in the interests of every section of the community that this tax should be reduced, and I hope that, in the not too distant future, it will be done away with entirely.

I ask hon. Members opposite to realise that there is no sinister intention behind such a statement and that there is no idea of vastly increasing the dividends that will be distributed as a result. The average manufacturer in this country and the executives of firms all realise that they must keep their companies efficient, and I assure hon. Members opposite that they are less interested in earning larger dividends, upon which they would have to pay a high rate of taxation, than they are in keeping their businesses sound. Full employment should be the keynote of policy on all sides of this Committee, but full employment can only be maintained if industry is allowed to be efficient, and it can only be efficient if it has sufficient money ploughed back into its operations.

Mr. John McKay (Wallsend)

I have listened with great attention to this discussion, and I have noted particularly that the Conservative Party has emphasised, and rightly in some respects, that this is one of the vital new Clauses to this Finance Bill and that it is absolutely essential, at the present time, that something should be done on these lines to enable industry to obtain greater supplies of new capital. The Opposition are attempting to emphasise that it is not only necessary, for capital itself and private companies to get on with their job, but they coupled with that proposition the suggestion that, unless we have industry producing, and producing well, the whole of the country is not likely to be in the best possible condition. Therefore, it is on a national basis that they are making this appeal.

It is right to say that, if any great political party puts forward some suggestion which they think it is absolutely essential, not only in its own interests but in the interests of the country to propound, it is in the general interests of the country that that suggestion should be considered. One might have expected, however, that, if this idea was so vital, instead of attempting to weaken the position of the Exchequer, so that there might be a better possibility of extracting this vital relief which they suggest, they would have concentrated on that point alone, but what do we find? We find that in every proposal or suggestion which the Opposition have put forward in the last few days, they have always been asking for more money to come out of the Treasury, and, to the extent that they might have succeeded, they would have been weakening the position of the Treasury to grant the relief for which they asked.

I was reading in HANSARD the other day that a certain policy was being suggested and defended by the Opposition Front Bench when, in my view, the speakers were quite unaware of the financial liability to the Exchequer of what they were proposing. The Financial Secretary had to inform them that the proposal which they put forward was going to add a liability of £103 million to the Exchequer. It appears to me that there must be a tremendous amount of inconsistency about the policy of the Conservative Party at the present time.

Let us see what this proposal means and what it implies. All the speeches from the benches opposite have painted a picture of industrial conditions in this country as being so difficult and so hard that industry ought at this time to receive some special relief not granted to any other section of the community. I do not pretend to be a financial expert. [Laughter.] Many hon. Members who are now laughing are perhaps not financiers, either. I have read the "Economist" weekly for several years. What has been the particular point which it has emphasised? It has been the question of profits and wages, the differences that have developed between the one and the other, and a comparison of wages with profits. We always notice a tearful tone about any discussion of the Excess Profits Tax, and how handicapped industry is on account of it.

The "Economist" has been painting that picture year by year, indicating that, while wages were rising, so were profits, and it used to compare the rise in wages with the profits after taxation had been paid. Even then, it was advocated that the profits had been increasing month by month and year by year, after taxation had been paid. That was the general picture throughout the last few years—that profits have been increasing—and at the end of last year the "Economist" was telling us that, as far as it could calculate, profits had reached their peak.

Now, it is explaining, after analysing the situation, that profits are still rising and have still not yet reached their peak. At this time, when we have any amount of difficulties arising out of the war, when we are buying new machinery in order to improve the productive power of industry—and this is a fact that no one will deny—we are paying very much more for these capital goods than we used to do. It is one of the difficulties we have to face.

The chief point we have to consider, however, is that we have been striving for several years now in order to balance the position between the owners of industry and the other capital which is invested in industry—the human capital. We have been attempting so to balance the position and to give satisfaction, not only to the owners of industry, but, by means of taxation itself, to retain the balance and preserve some security for the people who work in industry.

That is necessary in order that we, as trade union leaders, may go back to the industrial workers and explain to them, not only the national position, but also the reasons why we see the necessity for even better conditions for the wage earners. We have to say that unfortunately the national position is such that we recommend the workers to try to keep down their demands and to keep the wheels of production moving. That is a great national necessity.

6.0 p.m.

Yet at this very time the Conservative Party is continuously making suggestions which, in the main, tend to help people who are in a much better condition than the ordinary workers. Now they make this special suggestion asking the Comittee, at this stage in our battle for improvement and national balance, to give £60 million special relief to industry. It is not to be given to the workers, the human capital, but to investors in the economic field. What should we, as Socialists, tell our people if we agreed to that?

What is £60 million spread over the whole of the investments of the country? Undoubtedly it would be a relief, but is that the only kind of relief that is needed? No. [Laughter.] That is something to laugh at, is it not? What could £60 million do for our aged people? It could give them 5s. a week extra income. Would not that be more beneficial than giving the money to industries which are in a prosperous condition? This suggestion is not made because industry is in a bad condition. How could it be? How could hon. Gentlemen opposite show to the ordinary intelligent citizen that there is some great special need to give relief to companies when the whole trend of the figures indicates that they are in a prosperous-condition?

We must consider the psychological outlook of our people. We must be careful that we do not upset the workers in industry in such a way that they overrule their advisers and begin demanding reliefs because of what we are doing in this Committee. If we agree to this new Clause, we shall overbalance the position and upset the workers. They will make demands. They will say, "If you as politicians are prepared to do this now, and yet want men who are getting £4 12s. a week to continue at that wage and to keep silent"—

The Deputy-Chairman (Colonel Sir Charles MacAndrew)

Order. I have allowed the hon. Member a great deal of latitude. I think that he is going rather beyond the new Clause now.

Mr. McKay

I think that I have emphasised sufficiently the point I wanted to drive home. This is not the time for a move of this sort when, despite all difficulties, industry is in a prosperous condition. The question of supplying capital can be met if the companies, instead of paying big dividends, reduce them and put the money into the business.

Mr. Lyttelton

I shall not follow in all its intricacies the argument which has been deployed by the hon. Member for Wallsend (Mr. McKay), but I think I shall show in the course of my remarks that the objects which he has in mind, and which are shared by everybody in the Committee—namely, that we should have high wages and a highly prosperous country—will be promoted by this new Clause. I was very glad to hear the speech of the hon. Member for Rotherham (Mr. Jack Jones) which was entirely devoted to arguments in favour of this Clause. He spent most of his speech complaining that capital re-equipment in certain parts of the country was insufficient. The object of this Clause is precisely to facilitate that re-equipment.

Mr. Jack Jones

I spent a little while explaining why those who are responsible for capital re-equipment did not do it—not because it should not be done or could not be done, but why they did not do it.

Mr. Lyttelton

That is what I was saying. The idea behind this Clause is to facilitate capital re-equipment. I am so glad that I carry the hon. Member for Rotherham with me on this occasion, as I did so often when we were considering the Iron and Steel Bill.

I should like to put some serious arguments. First, it is clear that we are very short of labour at the moment. That is a situation which I find very agreeable on the human side, because many of our human problems are solved by it. But underlying all that is the need for productivity, with which we all agree. It appears to me that there are only three ways by which we can get increased productivity—longer hours, harder work during working hours, and greater mechanisation and greater use of power at the bench and the lathe. This Clause is concerned with the third of those means of raising productivity.

I have just received some figures which are remarkable. I received them from what I might call an unofficial Anglo-American team on productivity. They are accurate figures. I should like hon. Members to consider them. They show that on a particular product the British cost was 65 per cent. below the American cost, but the man-hours worked in Britain were over 90 per cent. above those worked on an almost identical product in the United States—65 per cent. lower cost and 90 per cent. higher man-hours. How are these differences made up? This is in a highly efficient production, and the difference is made up by the fact that the American operative takes home at the end of the week four times the wage of the British worker in the comparable industry, although the British worker is highly paid by our standards.

That underlines what I want to say. It is a total illusion to suppose, as did the hon. Member for Wallsend, the hon. Member for Oldham, West (Mr. Leslie Hale), and I think the hon. Member for Rotherham, that there is a conflict between the needs of capital re-equipment and the needs of the workers.

Mr. Leslie Hale

Surely, the right hon. Gentleman will not pass that by without saying that the American Press today is making it clear that £25 a week is about the minimum sum on which it is possible for an artisan to live in an American industrial town?

Mr. Lyttelton

I have never seen that in the American Press, nor is there a shadow of economic support for it. That is not germane to the argument. I think that I should carry the whole Committee with me in saying that it surely must be a national objective to equip the most skilful body of workpeople in the world with the very best tools which we can provide. If any hon. Member dissents from that, I will give way to him. I should have thought that was obvious, and I am surprised that the hon. Member for Oldham, West should try and prove something else.

Before I come to this tax on undistributed profits, let me say that re-equipment on modern lines is not a sort of once-for-all operation. It must be a continuous process from month to month, and from year to year. We cannot make great spurts and then imagine that we can get into a period of comparative ease. It has to go on all the time. This is a tax on undistributed profits; it is a tax upon new tools and new handling, and, with regard to trading concerns, it is a tax upon the ability of that trade to try and finance new stock, because undistributed profits are almost always money invested in the business, except in companies which are declining or which are only static.

I do not want to follow the rather tortuous arguments of the hon. and learned Member for Kettering (Mr. Mitchison), whom I am glad to see in his place, but I wish to refer to them before going on to something else. He was really at cross-purposes with the whole thing when he said that the Government—and he used the instance of the telephone—ought to have this money because they ought to invest it. But the Government do not really make telephones. Private companies do that, and the object of this Clause is that the telephone companies may be able to have new plant in order to accelerate the manufacture of telephones.

I must, I am afraid, bore the Committee with some figures and technicalities. I think we should all agree that plant—cranes, boilers, motors, machines, lathes, planers, borers, millers, and so forth—have gone up in cost since the war by from 200 to 300 per cent., and, of course, foreign imported machinery has gone up even more since devaluation. Depreciation and wear and tear allowances are allowed on what is now called "historical cost." Therefore, businesses have to provide, whenever they replace tools, the difference between the original cost—written down, of course, in the meanwhile—and the replacement cost. But the real point is that this has to be done out of taxed profits. This is why I say that the tax is a tax on replacement, and is uneconomic in every respect. It is just as much against the interest of the workpeople as against the interest of the general economic picture.

I apologise deeply for wearying the Committee with figures, and we have, perhaps, got some way from them this afternoon. But I should like the Committee to visualise a company with a capital of £100,000, £80,000 of which represents plant and machinery at 1938 prices. Since 1938, it will have received in depreciation allowances, wear and tear allowances, about £60,000 and will have written down its plant to about £20,000. But it is now, let us suppose, faced with the need to replace the whole of its plant during the next five years. This will cost it about £200,000 at today's prices, and, on the assumption that it has been able to put aside the £60,000 I have mentioned, it will have to find £140,000 for the new plant.

Mr. John Lewis (Bolton, West)

The right hon. Gentleman has not taken into account that there are five more years' depreciation.

Mr. Lyttelton

I am taking it up to this point. The hon. Gentleman will find that the argument is perfectly accurate, if he will allow me to continue. The company has to find £140,000 during the next five years. It is quite true that once it has spent the money, depreciation allowances tend to go up. That is a perfectly fair point, and it might get another £10,000 when it sells its old plant as scrap.

Let us suppose that in 1949 the company makes the high rate of a profit of £35,000 a year gross on its capital of £100,000, and pays a dividend of, say, 10 per cent., which absorbs £10,000. I have calculated that its Profits Tax and Income Tax will amount to about £17,000, so that after paying its net dividend it will be left with an undistributed profit of £12,500. This means that it will take 10 years instead of five to replace the plant, although there is some alteration in the calculation in the future as the hon. Gentleman said. Therefore, the company is really faced with one of two alternatives, either to work for 10 years with plant which ought to be replaced in five, or to raise new capital.

6.15 p.m.

The point was touched on by the hon. Member for Edmonton (M. Albu) that the burden of these taxes bears far more heavily upon the new small developing businesses than upon the well matured ones which have had a long time in which to accumulate reserves in other days at lower rates of tax, and have been able to write down their plant. In his remarks he made some reference to absentee shareholders. I hoped that in a very thoughtful speech which was intended to make a contribution to our Debate, he would get away from those catch phrases. Of course, shareholders are absentees. We might just as well complain of shareholders being absent as to complain here about absentee constituents. It would be very difficult to conduct the Business of this House if we brought our constituents with us all the time.

Mr. Albu

I think we agree that we are all elected by our constituents, but I think it is a fact that in most public joint stock companies the shareholders play no part at all. They very rarely vote, and have very little influence on the directors. I am talking of the large joint stock companies.

Mr. Lyttelton

I must say that the hon. Gentleman has the most fantastic ideas about joint stock companies, the Companies Act, and what shareholders do. It is quite true, of course, that where they are satisfied with the management of the company, they do not vote, but if I were to propose the election of certain Members of this House to my own company, I should hear very serious protests from a great many shareholders.

As I say, these taxes bear very heavily upon the small business which is trying to develop, because it takes out of its undistributed profits those sums which would go towards its expansion. Hon. Members are, of course, correct—I think the hon. Member for Wallsend was on this point—when they say that profits have risen very greatly since 1938. They declined a little from the peak in 1949, and it may be that with the American boom they are on the upgrade again. They are multiplied by about two and a half. Of course, this is really only a way of saying that the value of money has gone down. I would particularly like to remind the hon. Member for Wallsend that, although dividends and interest payments have risen by 43 per cent. since 1938, the national wage bill has gone up by 140 per cent.

Mr. McKay

There are more workers.

Mr. Lyttelton

Perhaps so, and I regard that as a highly desirable thing. The only point I am trying to make, and to make very seriously, is that the hon. Member is in a deep fallacy when he imagines that profits, as my hon. Friend the Member for Chippenham (Mr. Eccles) was saying, and wages are two conflicting things. He has only to look—

Mr. McKay

I did not say that.

Mr. Lyttelton

Perhaps I misunderstood the hon. Gentleman, but I think that was the burden of his argument all the same. The outstanding feature of our industrial economy at the moment is the depletion of industrial capital due to the swingeing rates of tax levied, which will make, over a period, the re-equipment of British industry lag far behind what is necessary. As I have said, re-equipment is a continuous process. It must be carried on month by month, all the more so in 1950 because methods, processes and machines become much more quickly obsolete in the 1950's than they did in the 1900's.

The tax on undistributed profits is really a stupid tax because it is drying up the very sources from which increased revenue and increased wages can be drawn year by year. May I, on a much broader theme, implore hon. Members in all parts of the Committee to try and believe in a high wages, high production country. That is what we want. The longer we go on promulgating this idea that money put in plant and equipment of an industrial country comes out of the pockets of the workers, the less likely we are to get into a really prosperous condition. If the Chancellor wants to get some golden eggs he must be very careful what taxes and burdens he puts on the oviparous parts of the goose. It is beside the point on this Clause to make a calculation of the loss of revenue. Theoretically, it is £58 million or £60 million. If the Committee accepts my contention that a tax on undistributed profits is a tax on capital equipment, then the loss of revenue will be progressively made good by increased taxable profits and increased personal income which the increased productivity from reinvestment of this capital will bring in its train. That must be taken into account when looking at this kind of measure.

I have expressed the fear before, and it is present in my mind now, that it is part of Socialist policy—and I detected it in the speeches of the hon. and learned Member for Kettering and the hon. Member for Edmonton—deliberately to reduce the availability of capital for industrial undertakings in order to create a situation in future when the Government will say that industry has not the necessary capital with which to re-equip itself.

Mr. Ellis Smith

That is nonsense.

Mr. Lyttelton

The hon. Member, who has a deep industrial knowledge, evidently disagrees, but if he reads the speeches of the hon. Member for Edmonton and the hon. and learned Member for Kettering, he will see that the burden of their song was that none of the undistributed profits should be left in the hands of the shareholders, but ought to be taken by the Government and invested in some Government scheme.

Mr. Mitchison

I did not say so.

Mr. Lyttelton

We shall see in HANSARD. This is the insidious method of getting at the doctrine, temporarily interned at Dorking, that the object of Socialism is to get at all methods of production, distribution and exchange. This tax is vicious for the reasons I have shown, and I ask the Committee to accept the new Clause.

The Minister of State for Economic Affairs (Mr. Gaitskell)

We have had a quiet and interesting Debate for the main part. The subject is undoubtedly complex, and if we had been in a state of political excitement throughout, it would have been more difficult to think clearly.

The direct consequence of this new Clause is to transfer just over £60 million to companies and, therefore, to their shareholders, their proprietors. I do not think the Opposition are likely to argue—and I do not think they have argued—that this is a case where they feel that hardship is the sort of plea they should put forward. They are not asking us to deprive the Revenue of some funds in order to relieve hardship or to meet the necessities of some individuals. They are not saying that there is anything particularly meritorious in transferring from the rest of the community this fairly large sum of money to shareholders.

Their case has been based almost entirely on the production argument They have based it on the argument that if this change were made, despite the loss to the Revenue, there would be a corresponding, or even more than a corresponding, improvement in productivity, and that therefore from the longer point of view, neither the Revenue nor the rest of the community would suffer. I think that is a fair presentation and summary of the Opposition's argument.

All of us agree on the importance of increasing productivity. There is no dispute about that. The Chancellor has certainly made a great many speeches on that subject, and so have right hon. Gentlemen on both sides of the Committee. The question is whether it is really so certain that the change here proposed would have the consequences on production which the Opposition claim. Looking at the situation today, there seems to me extremely little evidence that that would be the case. Certainly when one asks what are the factors which prevent increasing productivity today, I very seldom come across any suggestion that it is lack of finance. Obviously, I do not wish to go into detail on what are the difficulties still to be overcome in that field.

Mr. Lyttelton

It is very courteous of the right hon. Gentleman to give way, but when somebody like the hon. Member for Rotherham (Mr. Jack Jones) points to the shortage of electrical power in this country, that is really because there is a shortage of capital Power could be greatly increased if that were not so.

Mr. Gaitskell

The right hon. Gentleman could not have given a better example of the point I am trying to make. The reasons there is a shortage of electrical power are, first, that during the war we were unable to build power stations, and secondly, that since then the amount of our resources that we have been able to devote to building and equipping generating stations has necessarily been limited, not by finance, but by the fact that our physical resources are limited.

I am astonished at the right hon. Gentleman. Surely he understands that our difficulty in this field is one of restricting investment, of controlling investment and preventing it from getting out of hand and creating an inflationary situation. That is what the Government have been constantly concerned to do; and it has been extremely difficult to handle. I thought the right hon. Gentleman understood that, and I am surprised. Is he really suggesting that the British Electricity Authority cannot build power stations and instal equipment today because they are short of finance?

Mr. Lyttelton

The British Electricity Authority cannot get on with their job now because there are insufficient savings, in the view of the Government, to reinvest over the whole programme; and they have been forbidden to carry out the programme they think is necessary. The right hon. Gentleman must not misunderstand me. When one talks about finance, one has to relate it to what it represents in materials, and so on.

Mr. Gaitskell

The right hon. Gentleman is shifting his ground. He is now saying this is not wholly because of finance but because total saving is not as large as it should be. These are different things. I will come to that and the consequences that this Clause might have on new saving.

I repeat that, so far as the present situation is concerned, it is really useless to pretend that individual companies are short of finance with which to purchase equipment. There is a long queue of people wishing to proceed with investment. There is ample finance, but physical resources are not so easy. That is quite natural in a time of full employment, when we are trying to build our export trade, to restore our trade balance and to recover from the war.

The right hon. Member for Warwick and Leamington (Mr. Eden), and I think the right hon. Member for Aldershot (Mr. Lyttelton), made considerable play of the argument that owing to the rise in cost of capital equipment, depreciation allowances were insufficient to cover the cost of the new equipment at the new prices. All I would say is that it is an extremely complicated matter. I could produce another sum, rather different from the one that the right hon. Member for Aldershot produced, showing that, with the new initial allowance granted last year, we really had met any possible complaint on that score. If I do not do it, it is because I do not want to worry the Committee. The plain fact is that, according to the assumptions one takes in this matter, one can produce a different result.

The right hon. Member for Aldershot happened to take a case where the price of equipment had risen exceptionally highly. He ignored the scrap value, as my hon. Friend the Member for Bolton, West (Mr. J. Lewis), pointed out, and he did not refer to the initial allowance which would be available in the new year as soon as the equipment was installed. I merely want to state that, as far as the Government are concerned, we believe that in that change which was made last year we have substantially met that argument, and I may tell the right hon. Member for Warwick and Leamington that we were not unimpressed by the argument of people such as Mr. Chambers, whose article was written before the change was made.

6.30 p.m.

However, at the same time I should like to say this. While nobody would dissent from the view that a high rate of company reserves was desirable, and that clearly in the circumstances of today, when admittedly we can no longer expect to rely to the same extent on savings from wealthy private individuals—that is not in dispute between us—there should be a high rate of company saving, nevertheless there are limits to this. As I think the hon. Member for Chippenham (Mr. Eccles) said, there are other arguments against concentrating savings through this channel alone. There is certainly very much less flexibility in the capital market, if indeed anything goes into the capital market, and we must certainly bear that in mind as well.

I should like to turn to the other, and I think the more important, question of the consequence of this new Clause on the rate of saving, which is quite a different thing from the rate of interest. As I have said, the immediate consequence is to transfer £60 million from the Exchequer. Other things being equal, one would say that unless that was balanced by increased taxation in other directions there would be inflationary consequences. As I understand it, the argument of the Opposition is that that will not be so in this case because all of that £60 million will, in fact, remain to reserve, as it were, as it would have been if the 10 per cent. tax had not been levied at all in the first instance. The right hon. Member for Warwick and Leamington said that the new Clause did attempt to secure that that would be the consequence, as I understood him. All I can say is that I have read the new Clause carefully and I have sought the advice of my right hon. and learned Friend the Solicitor-General, and I cannot see that it leaves the matter there at all. On the contrary, one cannot say whether the £60 million which the Exchequer would have to give up would or would not be saved.

May I give the Committee a simple example, because it is the easiest way of putting my point? Suppose that a company has net profits of £200,000, and suppose that before the new Clause is considered the company puts £100,000 to reserve, less the 10 per cent. tax which is due on undistributed profits; that is to say, it puts to reserve £90,000 net. Suppose, then, that the other £100,000, less the £30,000 tax, is distributed to shareholders in dividends; that is to say, £70,000 is paid out in dividends. The question that arises is: supposing the £10,000 which was deducted for taxation from the £100,000 undistributed profits is given back to the company, what will they do with it?

I cannot see that there is any particularly convincing reason to suppose that they will simply raise the amount of undistributed profits to £100,000 from £90,000. Of course, they might do that, but they might have taken the view that all they needed to put to reserve was £90,000 in the first instance, and they might say "We have got this back again, and now we will distribute to the shareholders the whole of it, less the tax that we would have to pay on it." Or they might take an intermediate position. But I cannot see any argument which would lead one to suppose that the money might be saved. Some might be saved, none might be saved, but there is no reason to see why it should be saved.

Mr. Lyttelton

I thank the right hon. Gentleman for giving way. I should like him to deal with this point. This may not be the best way, as my right hon. Friend has said, but in relation to the refund of E.P.T. the Government have devised a system, with which they are apparently satisfied, by which the refund of E.P.T. cannot be distributed. Therefore, the problem is not insoluble, on the Government's own showing.

Mr. Gaitskell

All I can say is that, as far as this new Clause is concerned, it is impossible to assert that this money will be put to reserve. Indeed, other hon. Members opposite have admitted that they cannot guarantee that that will be the case, and that a certain amount of it or possibly the whole of it, less tax, might be paid out in dividends. I quite agree that the existence of a differential between tax on distributed and undistributed profits is itself an incentive to a company to put more to reserve, and I support that principle absolutely.

Of course, by raising the rate of Profits Tax on distributed profits we increased the differential last autumn, though I am sorry to say that on that occasion hon. Members opposite did not give us their support. But that is the important point—the relationship between the tax on the two—and I would say straight away that if the Opposition were saying we ought to have a look and see whether, taking the Profits Tax as a whole, we had not better adjust it in such a way as to increase the differential, I would have said that that is something worth considering. The argument, of course, would have been different and the consequence would have been different so far as the shareholders are concerned.

However, even if the Opposition's argument were sound and if in fact all of this money which is to be given back were put to reserve, there are still difficulties about it. Several of my hon. Friends have made the point—it is a perfectly valid point, and I do not think the right hon. Gentleman has answered it at all—that in taking out this money for taxation and using it for a Budget surplus we are in effect producing community saving even if we are reducing private saving. That may or may not be a good thing, but it certainly is not diminishing savings.

I should be inclined to take the view that in present circumstances, where the distribution of wealth is extremely uneven, though we have gone far to produce a much more equal distribution of income, there is not a great deal to be said for handing back to the community these funds merely to swell the investments of private individuals. It may be argued, "But you are forgetting that by taking it away for the Exchequer you are diminishing investment." I contest that very strongly. I am not going to take the line that the Government take this money and invest it themselves. What is likely to happen is that the Government will use this surplus to repay a debt; the money physically, so to speak, will get into the hands of the banks, insurance companies, and other holders of Government bonds, and will be available for investment again in that way.

I think this is not the method to control the direction of investment. There are other ways of doing that—the Development Area Acts and so on—but what is perfectly clear is that there is no reason why investments should diminish. All that it means is that the company, instead of being able to draw on its own accumulated reserves for expansion, to that extent has to go to the market and borrow. I do not say that there is anything very wrong with that if at the same time we achieve, as we shall have achieved, a more even distribution of wealth in the community.

Mr. Bracken

But will the market be there?

Mr. Gaitskell

Certainly. It must be there, as there is a Budget surplus and funds are available. It may come from the insurance companies, it may come from the banks or it may come from the Government, but there is no reason at all to suppose that there will be any difficulty in their borrowing. I will concede one point to the hon. Member for Chippenham. I think he has a point here, and I grant it to him. If one does change the direction of savings in this way, or rather modify the direction in which they have been going—because they have been going more and more in the direction of corporate savings, or company reserves—and if one does divert them to other channels, through the Budget surplus, then there may be consequences on the supply of capital ready to take very serious risks—risk-bearing capital.

I would concede this point: I think it is desirable that we should build up institutions which are prepared to invest money in risk-bearing enterprises which find difficulty in getting the funds from other sources. That is a very general problem and it has not been mentioned here for the first time. As I think the hon. Member for Chippenham mentioned, there are some institutions in this country of that kind and we shall have to go a long way further.

That is the only point in this argument which, as far as I can see, has any validity whatever. There may be a few arguments in favour of the Clause but I must ask right hon. and hon. Gentlemen opposite to consider very seriously whether in present circumstances they do not think that a change of this kind would have most serious consequences on the wage situation. I know that the right hon. Member for Warwick and Leamington is prepared to consider this seriously. Whatever hon. Members opposite may say, those of us who have had to discuss this matter with the trade unions always come up against this argument: why do you not do something about profits?

For the moment, let us leave aside the question of how valid that argument is. We must understand that it is there and that it is something very strongly felt indeed in present circumstances. That is not surprising because, if we take the distribution of the national income between profits and wages and the way it has changed since 1938, before taxation, it is of course fairly striking. The increase in profits prior to taxation is just about three times—an increase from £568 million in 1938 to £1,730 million in 1949; whereas the increase in wages is about 2½ times—from £1,735 million in 1938 to £4,280 million in 1949.

Mr. Molson (The High Peak)

Why should the right hon. Gentleman take the figure of profits before deduction of tax?

Mr. Gaitskell

Because we are discussing whether or not a tax is to remain, and obviously that is the relevant figure. I am bound to say, in view of all the circumstances and in view of the fact that we are still in a fairly inflationary condition, that it seems to me obvious that there would be the greatest possible danger in adopting these proposals.

Mr. Molson

Surely it would only be relevant to quote the figures for profits and wages before tax has been deducted if it were being proposed from this side of the Committee today that we should do away with all taxation altogether. We are merely referring to one particularly onerous form of taxation which, in our submission, bears upon that part of profits which is most productive.

Mr. Gaitskell

Obviously, if one were to bring in taxation one would have to bring in taxation on wages, indirect taxation and so on. I think my argument is a perfectly valid one. Prior to taxation there has been a relatively greater increase in profits than in wages. I do not deny for a moment that profits are taxed heavily. I have been saying it repeatedly and it is most important that everybody should understand it. Nevertheless, we must appreciate the background, which is this relative increase in profits.

There is another point to which, I think, a good deal of importance must be attached. We have been trying to keep inflation in check, on the one hand by inviting the trade unions to exercise restraint in putting forward wage claims, and, on the other hand, by inviting companies to exercise restrain in the payment of dividends. On the whole, I think the Committee will agree that both sides, the unions and the companies, have played pretty fair in this matter and there has been a good deal of restrain exercised. But here is a point which frequently arises in discussions with the unions.

It is one thing, they say, to invite us, the wage earners, to forgo any increase in wages; that means that we forgo them for ever. It means that we do not get the 5s. or the 10s. or the £1 extra a week. It is different in the case of the shareholders, who are being asked to forgo an increase in dividends. All you are saying to them, in fact, is, "Please do not consume it now, you will get it later." I am afraid that is inescapably the fact because we are not saying to them, "Please forgo your profits." We are saying to them, "Please forgo your dividends." It is precisely because the tax imposed on profits corrects this position that we regard it as having considerable value in this connection.

6.45 p.m.

Mr. Eccles

I think this is an interesting point. Does the Minister maintain that the improvement in the assets due to the investment of profits ploughed back into the industry is not also of benefit to those who are employed in the business? I think the benefit is shared. Of course, it is a total loss to the worker who does not get a rise in his wages, but it is not a total gain to the shareholder if the profit is ploughed back. Part of the gain goes, of course, to the shareholder but part to the worker, if it is well done.

Mr. Gaitskell

Nobody would deny that if one looks at the matter in a very broad way then, of course, the additional investment which eventually takes place raises productivity and no doubt benefits the community as a whole, but the plain comparison remains—the comparison between the man who is asked to give up his extra 5s. a week and who is simply deprived of that money and the shareholder who is asked to give up maybe only a few pounds a year or maybe a few hundred pounds a year. That few pounds a year or that few hundred pounds a year is simply chalked up to his capital, so to speak, and, of course, in due course there is an appreciation in the value of his shares of which he has the benefit. I do not think that can be denied.

I do not want to make too much of it but this is really a difficult point which we meet in the arguments we have with our trade union friends. Any attempt in the present circumstances to reduce the taxation on profits, even on undistributed profits, is in my view certain to have the gravest consequences. I say, therefore, that this new Clause—

Mr. Eden

This is a very important question. Will the right hon. Gentleman tell me how he explains the Swedish trade union attitude which I put to him earlier this afternoon, where it seemed possible not only to explain the situation to these people but for themselves to ask for this particular fiscal measure in order that there might be greater efficiency in the years which lie ahead? Why is it so much more difficult for us to explain this matter than apparently it has been for the trade unions to explain the matter in Sweden?

Mr. Gaitskell

Obviously, without notice, and without investigating the precise position in Sweden, I could not answer that question. There may be all sorts of possibilities. Wages may have gone up, it may be part of a deal by which wages went up at the same time. Further, the exact terms of the proposal would, of course, be of immense importance.

Whatever may be the position in Sweden, however, in this country this proposal is likely in present circumstances to produce very serious consequences in two ways. On the one side, it will lead to some extent to increased dividends and increased expenditure by shareholders and, on the other hand, it will also lead almost certainly, I am afraid, if it is passed, to increased demands for wages which it would be extremely difficult to resist. This double influence would have very serious consequences to our country in the present circumstances. It would have very serious consequences to our prospects of not merely achieving—because we have really got past that stage—but of maintaining our balance of payments, of solving our dollar problem and of

avoiding the danger of inflation which undoubtedly still threatens us. I must, therefore, ask the Committee to reject the Clause.

Mr. R. J. Taylor (Lord Commissioner of the Treasury)

rose in his place, and claimed to move, "That the Question be now put."

Question put. "That the Question be now put."

The Committee divided: Ayes, 296; Noes, 283.

Division No. 39.]	AYES	[6.49 p.m.
Acland, Sir Richard	Davies, S. O. (Merthyr)	Hughes, Emrys (S. Ayr)
Adams, Richard	de Freitas, Geoffrey	Hughes, Hector (Aberdeen, N.)
Albu, A. H.	Deer, G.	Hughes, Moelwyn (Islington, N.)
Allen, A. C. (Bosworth)	Delargy, H. J.	Hynd, H. (Accrington)
Anderson, F. (Whitehaven)	Dodds, N. N.	Hynd, J. B. (Attercliffe)
Attlee, Rt. Hon. C. R.	Donnelly, D.	Irvine, A. J. (Edge Hill)
Awbery, S. S.	Driberg, T. E. N.	Irving, W. J. (Wood Green)
Ayles, W. H.	Dugdale, Rt. Hon. J. (W. Bromwich)	Isaacs, Rt. Hon. G. A.
Bacon, Miss A.	Dye, S.	Janner, B.
Baird, J.	Ede, Rt. Hon. J. C.	Jay, D. P. T.
Balfour, A.	Edelman, M.	Jeger, G. (Goole)
Barnes, Rt. Hon. A. J.	Edwards, John (Brighouse)	Jeger, Dr. S. W (St. Pancras, S.)
Bartley, P.	Edwards, Rt. Hon. N. (Caerphilly)	Jenkins, R. H.
Bellenger, Rt. Hon. F. J.	Edwards, W. J. (Stepney)	Johnson, Jemes (Rugby)
Benson, G.	Evans, Albert (Islington, S. W.)	Johnston, Douglas (Paisley)
Beswick, F.	Evans, E. (Lowestoft)	Jones, D. T. (Hartlepool)
Bevan, Rt. Hon. A. (Ebbw Vale)	Evans, S. N. (Wednesbury)	Jones, Frederick Elwyn (West Ham, S.)
Bing, G. H. C.	Ewart, R.	Jones, Jack (Rotherham)
Blackburn, A. R.	Fernyhough, E.	Jones, William Elwyn (Conway)
Blenkinsop, A.	Field, Capt. W. J.	Keenan, W.
Boardman, H.	Finch, H. J.	Kenyon, C.
Booth, A.	Fletcher, E. G. M. (Islington, E.)	Key, Rt. Hon. C. W.
Bottomley, A. G.	Follick, M.	King, H. M.
Bowden, H. W.	Forman, J. C.	Kinley, J.
Bowles, F. G. (Nuneaton)	Fraser, T. (Hamilton)	Kirkwood, Rt. Hon. D.
Braddock, Mrs. E. M.	Freeman, J. (Watford)	Lang, Rev. G.
Brockway, A. Fenner	Freeman, Peter (Newport)	Lee, F. (Newton)
Brook, D. (Halifax)	Gaitskell, Rt. Hon. H T N	Lee, Mist J. (Cannock)
Brooks, T. J. (Normanton)	Ganley, Mrs. C. S.	Lever, L. M. (Ardwick)
Broughton, Dr. A. D. D.	Gibson, C. W.	Lever, N. H. (Cheetham)
Brown, George (Belper)	Gilzean, A.	Lewis, A. W. J. (West Ham, N.)
Brown, T. J. (Ince)	Glanville, J. E. (Consett)	Lewis, J. (Bolton, W.)
Burke, W. A.	Gooch, E. G.	Lindgren, G. S.
Burton, Miss E.	Gordon, Walker, Rt. Hon. P. C.	Lipton, Lt.-Col. M
Butler, H. W. (Hackney, S.)	Greenwood, A. W. J. (Rossendale)	Logan, D. G
Callaghan, James	Greenwood, Rt. Hn. Arthur (Wakefield)	Longden, F. (Small Heath)
Carmichael, James	Grenfell, D. R.	McAllister, G.
Castle, Mrs. B. A.	Grey, C. F.	MacColl, J. E.
Champion, A. J.	Griffiths, D. (Rother Valley)	McGhee, H. G
Chetwynd, G. R.	Griffiths, Rt. Hon. J. (Llanelly)	McInnes, J.
Clunie, J.	Griffiths, W. D. (Exchange)	Mack, J. D.
Cocks, F. S.	Gunter, R. J.	McKay, J. (Wallsend)
Coldrick, W.	Hale, J. (Rochdale)	Mackay, R W. G. (Reading, N.)
Collick, P.	Hale, Leslie (Oldham. W.)	McLeavy, F.
Collindridge, F.	Hall, J. (Gateshead, W.)	MacMillan, M. K. (Western Isles)
Cook, T. F.	Hall, Rt. Hn. W. Glenvil (Colne V'll'y)	McNeil, Rt. Hon. H.
Cooper, G (Middlesbrough, W.)	Hamilton, W. W.	MacPherson, Malcolm (Stirling)
Cooper, J. (Deptford)	Hardman, D. R.	Mainwaring, W. H.
Corbet, Mrs. F. K. (Peckham)	Hardy, E. A.	Mallalieu, E. L. (Brigg)
Cove, W. G.	Hargreaves, A.	Mallalieu, J. P. W. (Huddersfield, E.)
Craddock, George (Bradford, S.)	Harrison, J.	Mann, Mrs. J.
Crawley, A.	Hastings, Dr. Somervilie	Manuel, A. C.
Cripps, Rt. Hon. Sir S.	Hayman, F. H.	Marquand, Rt. Hon. H A
Crosland, C. A. R.	Henderson, Rt. Hon. A. (Rowley Regis)	Mathers, Rt. Hon. George
Crossman, R. H. S	Herbison, Miss M.	Hellish, R. J.
Cullen, Mrs. A.	Hewitson, Capt. M.	Messer, F.
Daggar, G.	Hobson, C. R.	Middleton, Mrs. L
Daines, P.	Holman, P.	Mikardo, Ian
Darling, G. (Hillsboro')	Holmes, H. E (Hemsworth)	Mitchison, G. R.
Davies, A. Edward (Stoke, N.)	Houghton, Douglas	Moeran, E. W
Davies, Ernest (Enfield, E.)	Hoy, J.	Monslow, W.
Davies, Harold (Leek)	Hubbard, T.	Moody, A. S
Davies, R. J. (Westhoughton)	Hudson, J. H. (Ealing, N.)	Morgan, Dr. H. B.
Morley, R.	Roberts, Goronwy (Caernarvonshire)	Turner-Samuels, M
Morris, P. (Swansea, W.)	Robertson, J. J. (Berwick)	Usborne, Henry
Morrison, Rt. Hon. H. (Lewisham, S.)	Robinson, Kenneth (St. Pancras, N.)	Vernon, Maj. W. F.
Mort, D. L.	Rogers, G. H. R. (Kensington, N.)	Viant, S. P.
Moyle, A.	Ross, William (Kilmarnock)	Wallace, H. W.
Mulley, F. W.	Royle, C.	Watkins, T. E.
Murray, J. D	Shackleton, E. A. A.	Webb, Rt. Hon. M. (Bradford. C.)
Nally, W.	Shawcross, Rt. Hon. Sir H.	Weitzman, D.
Neal, H.	Shinwell, Rt. Hon. E.	Wells, P L. (Faversham)
Noel-Baker, Rt. Hon. P. J	Shurmer, P. L. E.	Wells, W. T. (Walsall)
Oldfield, W. H.	Silverman, J. (Erdington)	West, D. G.
Oliver, G. H	Silverman, S. S. (Nelson)	Wheatley, Rt. Hn. John (Edinb'gh, E.)
Orbach, M.	Simmons, C. J.	White, Mrs. E. (E. Flint)
Padley, W. E.	Slater, J	White, H. (Derbyshire, N. E.)
Paling, Rt. Hon. Wilfred (Dearne V'lly)	Smith, Ellis (Stoke, S.)	Whiteley, Rt. Hon. W.
Paling, Will T. (Dewsbury)	Snow, J. W.	Wigg, George
Pannell, T. C.	Sorensen, R. W.	Wilcock, Group-Capt. C. A. B
Pargiter, G. A.	Soskice, Rt. Hon. Sir F.	Wilkes, L.
Parker, J.	Sparks, J. A.	Willey, F. T (Sunderland)
Paton, J.	Steele, T.	Willey, O. G. (Cleveland)
Pearson, A	Stewart, Michael (Fulham, E.)	Williams, D. J. (Neath)
Peart, T. F.	Strachey, Rt. Hon. J.	Williams, Ronald (Wigan)
Poole, Cecil	Strauss, Rt. Hon. G. R. (Vauxhall)	Williams, Rt. Hon. T. (Don Valley)
Popplewell, E	Stross, Dr. B.	Williams, W. T. (Hammersmith, S.)
Porter, G.	Summerskill, Rt. Hon. Edith	Wilson, Rt. Hon. J. H. (Huyton)
Price, M. Philips (Gloucestershire, W.)	Sylvester, G. O.	Winterbottom, I. (Nottingham, C.)
Proctor, W. T.	Taylor, H. B. (Mansfield)	Winterbottom, R. E. (Brightside)
Pryde, D. J.	Taylor, R. J. (Morpeth)	Wise, Major F. J.
Pursey, Comdr. H	Thomas, D. E. (Abordare)	Woodburn, Rt. Hon. A.
Rankin, J.	Thomas, George (Cardiff)	Woods, Rev. G. S.
Rees, Mrs. D	Thomas, I. O. (Wrekin)	Wyatt, W L.
Reeves, J	Thomas, I R. (Rhondda, W.)	Yates, V. F.
Reid, T. (Swindon)	Thorneycroft, Harry (Clayton)	Younger, Hon. Kenneth
Reid, W. (Camlachie)	Thurtle, Ernest
Rhodes, H.	Timmons, J.	TELLERS FOR THE AYES:
Richards, R	Tomlinson, Rt. Hon. G.	Mr. Hannan and Mr. Wilkins.
Robens, A	Tomney, F.
NOES
Aitken, W. T.	Conant, Maj. R. J. E.	George, Lady M. Lloyd
Alport, C. J. M.	Cooper, A. E. (Ilford, S.)	Glyn, Sir R.
Amery, J. (Preston, N.)	Cooper-Key, E. M.	Gomme-Duncan, Col. A.
Amory, D. Heathcoat (Tiverton)	Corbett, Lieut.-Col. U. (Ludlow)	Granville, E. (Eye)
Arbuthnot, John	Craddock, G. B. (Spelthorne)	Gridley, Sir A.
Ashton, H. (Chelmsford)	Cranborne, Viscount	Grimond, J.
Assheton, Rt. Hon. R. (Blackburn, W)	Cross, Rt. Hon. Sir R.	Grimston, Hon. J. (St. Albans)
Astor, Hon. M	Crosthwaite-Eyre, Col. O. E	Grimston, R. V. (Westbury)
Baker, P.	Crouch, R. F.	Harden, J. R. E.
Baldock, J M	Crowder, F. P. (Rulslip-Northwood)	Hare, Hon J. H. (Woodbridge)
Baldwin, A E.	Crowder, Capt. John F. E. (Finchley)	Harris, F. W. (Croydon, N.)
Banks, Col. C.	Cundiff, F. W.	Harris, R. R. (Heston)
Baxter, A. B.	Cuthbert, W. N.	Harvey, Air-Codre. A. V. (Macclesfield)
Beamish, Maj. T. V. H.	Darling, Sir W. Y. (Edinburgh, S.)	Harvey, I. (Harrow, E.)
Bell, R. M.	Davidson, Viscountess	Hay, John
Bennett, Sir P. (Edgbaston)	Davies, Rt. Hn. Clement (Montgomery)	Head, Brig. A. H.
Bennett, R. F. B. (Gosport)	Davies, Nigel (Epping)	Heald, L. F.
Bennett, W. G. (Woodside)	de Chair, S.	Heath, Col. E. R.
Bevins, J. R. (Liverpool, Toxteth)	De la Bère, R.	Henderson, John (Cathcart)
Birch, Nigel	Deedes, W. F.	Hicks-Beach, Maj. W. W.
Bishop, F. P.	Digby, S. Wingfield	Higgs, J. M. C.
Black, C. W.	Dodds-Parker, A. D.	Hill, Mrs. E. (Wythenshawe)
Boles, Lt.-Col. D. C. (Wells)	Donner, P. W.	Hill, Dr. C. (Luton)
Boothby, R.	Douglas-Hamilton Lord M.	Hinchingbrooke, Viscount
Bossom, A. C.	Drayson, G. B	Hirst, Geoffrey
Bowen, R.	Drewe, C.	Hogg, Hon. Q.
Bower, N	Dugdale, Mai. Sir T. (Richmond)	Hollis, M. C.
Boyd-Carpenter, J. A.	Duncan, Capt. J. A. L.	Holmes, Sir J. Stanley (Harwich)
Bracken, Rt. Hon. Brendan	Dunglass, Lord	Hope, Lord J.
Braine, B.	Duthie, W. S.	Hopkinson H. L. D'A.
Braithwaite, Lt.-Comdr. J. G	Eccles, D. M.	Hornsby-Smith, Miss P.
Brooke, H. (Hampstead)	Eden, Rt. Hon. A.	Horsbrugh, Miss F.
Browne, J. N. (Govan)	Elliot, Lieut.-Col. Rt. Hon. Walter	Howard, G. R. (St. Ives)
Buchan-Hepburn, P. G. T	Erroll, F. J.	Howard, S. G, (Cambridgeshire)
Bullock, Capt. M.	Fisher, Nigel	Hudson, Sir Austin (Lewisham, N.)
Bullus, Wing-Commander E. E.	Fletcher, W. (Bury)	Hudson, Rt. Hon. R. S. (Southport)
Burden, Squadron-Leader F. A.	Fort, R.	Hudson, W. R. A. (Hull, N.)
Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n)	Foster, J. G.	Hulbert, Wing-Cdr. N. J.
Carr, L. R. (Mitcham)	Fraser, Hon. H. C. P. (Stone)	Hurd, A. R.
Carson, Hon. E.	Fraser, Sir I. (Lonsdale)	Hutchinson, Geoffrey (Ilford, N.)
Channon, H.	Galbraith, Cmdr. T. D (Pollok)	Hutchison, Lt.-Com. Clark (E'b'rgh W.)
Clarke, Col. R. S. (East Grinstead)	Galbraith, T. G. D. (Hillhead)	Hyde, H. M.
Clarke, Brig. T. H. (Portsmouth, W.)	Gammans, L. D.	Hylton-Foster, H. B.
Clyde, J. L.	Garner-Evans, E. H. (Denbigh)	Jeffreys, General Sir G.
	Gates, Maj. E. E.	Johnson, Howard S. (Kemptown)

Jones, A. (Hall Green)	Nabarro, G.	Spence, H. R. (Aberdeenshire, W.)
Joynson-Hicks, Hon. L. W.	Nicholls, H.	Spens, Sir P (Kensington, S.)
Kaberry, D.	Nicholson, G.	Stanley, Capt. Hon. R. (N. Fylde)
Keeling, E. H.	Nield, B. (Chester)	Stevens, G. P.
Kerr, H W. (Cambridge)	Noble, Comdr. A. H. P.	Steward, W. A. (Woolwich, W.)
Lambert, Hon. G.	Nugent, G. R. H.	Stoddart-Scott, Col. M
Lancaster, Col. C. G.	Nutting, Anthony	Storey, S.
Langford-Holt, J.	Oakshott, H. D.	Strauss, Henry (Norwich, S.)
Law, Rt. Hon. R. K.	Odey, G. W.	Stuart, Rt. Hon. J. (Moray)
Leather, E H. C.	O'Neill, Rt. Hon. Sir H.	Studholme, H. G.
Legge-Bourke, Maj. E. A. H.	Ormsby-Gore, Hon. W. D.	Summers, G. S.
Lindsay, Martin	Orr, Capt. L. P. S.	Sutcliffe, H.
Linstead, H. N	Orr-Ewing, Charles Ian (Hendon, N.)	Taylor, C. S. (Eastbourne)
Llewellyn, D.	Orr-Ewing, Ian L. (Weston-super-Mare)	Taylor, W. J. (Bradford, N.)
Lloyd, Rt. Hon. G. (King's Norton)	Osborne, C.	Teeling, William
Lloyd, Maj Guy (Renfrew, E.)	Perkins, W. R. D.	Thomas, J. P. L. (Hereford)
Lloyd, Selwyn (Wirral)	Peto, Brig. C. H. M.	Thompson, K. P. (Walton)
Lockwood, Lt.-Col. J. C.	Pickthorn, K	Thompson, R. H. M. (Croydon, W.)
Longden, G. J. M. (Herts, S. W.)	Pitman, I. J.	Thorneycroft, G E. P. (Monmouth)
Low, A R. W.	Powell, J. Enoch	Thornton-Kemsley, C. N.
Lucas, Major Sir J. (Portsmouth, S.)	Prescott, Stanley	Tilney, John
Lucas, P. B. (Brentford)	Price, H A. (Lewisham, W.)	Touche, G. C.
Lucas-Tooth, Sir H.	Prior-Palmer, Brig. O.	Turton, R. H
Lyttelton, Rt. Hon. O.	Profumo, J. D.	Tweedsmuir, Lady
McCallum, Maj. D.	Raikes, H. V.	Vane, W. M. F.
McCorquodale, Rt. Hon. M. S.	Rayner, Brig. R.	Vaughan-Morgan, J. K.
Macdonald, A. J. F. (Roxburgh)	Redmayne, M.	Vosper, D. F.
Mackeson, Brig. H. R.	Remnant, Hon. P.	Wade, D. W.
McKibbin, A.	Renton, D L. M.	Wakefield, E. B. (Derbyshire, W.)
McKie, J H. (Galloway)	Roberts, Emrys (Merioneth)	Wakefield, Sir W. W. (St. Marylebone)
Maclay, Hon. J. S.	Roberts, P. G. (Heeley)	Walker-Smith, D. C.
Maclean, F. H R.	Robertson, Sir D. (Caithness)	Ward, Hon. G R. (Worcester)
MacLeod, Iain (Enfield, W.)	Robinson, J. Roland (Blackpool, S.)	Ward, Miss I. (Tynemouth)
MacLeod, John (Ross and Cromarty)	Robson-Brown, W. (Esher)	Waterhouse, Capt. C.
Macpherson, N. (Dumfries)	Rodgers, John (Sevenoaks)	Watkinson, H.
Maitland, Comdr. J. W	Roper, Sir H.	Watt, Sir G. S. Harvie
Manningham-Buller, R. E	Ropner, Col. L.	Webbe, Sir H (London)
Marlowe, A. A. H	Ross, Sir R. D. (Londonderry)	White, J. Baker (Canterbury)
Marples, A. E	Russell, R. S.	Williams, C. (Torquay)
Marshall, D (Bodmin)	Ryder, Capt. R. E. D	Williams, Gerald (Tonbridge)
Marshall, S. H. (Sutton)	Savory, Prof. D. L.	Williams, Sir H. G. (Croydon, E.)
Maude, A. E. U. (Ealing, S.)	Scott, Donald	Wills, G.
Maude, J C. (Exeter)	Shepherd, W. S. (Cheadle)	Wilson, Geoffrey (Truro)
Maudling, R	Smiles, Lt.-Col. Sir W.	Winterton, Rt. Hon. Earl
Mellor, Sir J	Smith, E. Martin (Grantham)	Wood, Hon. R
Molson, A. H. E.	Smithers, Peter H. B. (Winchester)	York, C.
Moore, Lt.-Col Sir T.	Smithers, Sir W. (Orpington)	Young, Sir A. S. L.
Morris, R Hopkin (Carmarthen)	Smyth, Brig J. G. (Norwood)
Morrison, Maj. J. G. (Salisbury)	Snadden, W. McN.	TELLERS FOR THE NOES:
Morrison, Rt. Hon. W. S (Cirencester)	Soames, Capt. C.	Lieut.-Colonel Bromley-Davenport
Mott-Radclyffe, C. E.	Spearman, A. C. M.	and Major Wheatley.

Question put accordingly, "That the Clause be read a Second time."

The Committee divided: Ayes, 284; Noes, 295.

Division No. 40.]	AYES	[7.2 p.m.
Aitken, W. T.	Bowen, R.	Cross, Rt. Hon. Sir R.
Alport, C. J. M.	Bower, N.	Crosthwaite-Eyre, Col. O E
Amery, J (Preston, N.)	Boyd-Carpenter, J. A.	Crouch, R. F.
Amory, D Heathcoat (Tiverton)	Bracken, Rt. Hon. Brendan	Crowder, F. P. (Ruislip-Northwood)
Arbuthnot, John	Braine, B.	Crowder, Capt. John F. E. (Finchley)
Ashton, H. (Chelmsford)	Braithwaite, Lt-Comdr. J. G	Cundiff, F. W.
Assheton, Rt. Hon. R. (Blackburn, W.)	Brooke, H (Hampstead)	Cuthbert, W. N.
Astor, Hon. M	Browne, J. N. (Govan)	Darling, Sir W. Y. (Edinburgh, S.)
Baker, P	Buchan-Hepburn, P. G. T.	Davidson, Viscountess
Baldock, J. M.	Bullock, Capt. M.	Davies, Rt. Hn. Clement (Montgomery)
Baldwin, A E.	Bullus, Wing-Commander E. E.	Davies, Nigel (Epping)
Banks, Col. C	Burden, Squadron-Leader F. A.	de Chair, S.
Baxter, A. B.	Butler, Rt. Hon. R. A. (S'ffr'n W'ld'n)	De la Bère R.
Beamish, Maj. T. V. H.	Carr, L. R. (Mitcham)	Deedes, W. F.
Bell, R. M.	Carson, Hon. E.	Digby, S. Wingfield
Bennett, Sir P. (Edgbaston)	Channon, H	Dodds-Parker, A D
Bennett, R. F. B. (Gosport)	Clarke, Col. R. S. (East Grinstead)	Donner, P W
Bennett, W. G. (Woodside)	Clarke, Brig. T. H. (Portsmouth, W.)	Douglas-Hamilton, Lord M
Bevins, J R. (Liverpool, Toxteth)	Clyde, J. L.	Drayson, G. B.
Birch, Nigel	Conant, Maj. R. J. E.	Drewe, C.
Bishop, F. P	Cooper, A. E. (Ilford, S.)	Dugdale, Maj. Sir T. (Richmond)
Black, C. W.	Cooper-Key, E. M.	Duncan, Capt. J. A. L.
Boles, Lt.-Col. D. C. (Wells)	Corbett, Lieut.-Col. U. (Ludlow)	Dunglass, Lord
Boothby, R.	Craddock, G. B. (Spelthorne)	Duthie, W. S.
Bossom, A. C.	Cranborne, Viscount	Eccles, D. M.
Eden, Rt. Hon. A.	Llewellyn, D.	Robinson, J. Roland (Blackpool, S.)
Elliot, Lieut.-Col. Rt. Hon. Walter	Lloyd, Rt. Hon. G. (King's Norton)	Robson-Brown, W. (Esher)
Erroll, F. J.	Lloyd, Maj. Guy (Renfrew, E.)	Rodgers, John (Sevenoaks)
Fisher, Nigel	Lloyd, Selwyn (Wirral)	Roper, Sir H.
Fletcher, W. (Bury)	Lockwood, Lt.-Col, J. C.	Ropner, Col. L.
Fort, R.	Longden, G. J. M. (Herts, S. W.)	Ross, Sir R. D. (Londonderry)
Foster, J. G.	Low, A. R. W.	Russell, R. S.
Fraser, Hon. H. C. P. (Stone)	Lucas, Major Sir J. (Portsmouth, S.)	Ryder, Capt. R. E. D.
Fraser, Sir I. (Lonsdale)	Lucas, P. B. (Brentford)	Savory, Prof. D. L.
Galbraith, Cmdr. T. D. (Pollok)	Lucas-Tooth, Sir H.	Scott, Donald
Gammans, L. D.	Lyttelton, Rt. Hon. O.	Shepherd, W. S. (Cheadle)
Garner-Evans, E. H. (Denbigh)	McCallum, Maj. D.	Smiles, Lt.-Col. Sir W.
Gates, Maj. E. E.	McCorquodale, Rt. Hon. M. S	Smith, E. Martin (Grantham)
George, Lady M. Lloyd	Macdonald, A. J. F. (Roxburgh)	Smithers, Peter H. B. (Winchester)
Glyn, Sir R.	Macdonald, Sir P. (I. of Wight)	Smithers, Sir W. (Orpington)
Gomme-Duncan, Col. A.	Mackeson, Brig, H. R.	Smyth, Brig. J. G. (Norwood)
Gridley, Sir A.	McKibbin, A.	Snadden, W. McN.
Grimond, J.	McKie, J. H. (Galloway)	Soames, Capt. C.
Grimston, Hon. J. (St. Albans)	Maclay, Hon. J. S.	Spearman, A. C. M.
Grimston, R. V. (Westbury)	Maclean, F. H. R.	Spence, H. R. (Aberdeenshire, W.)
Harden, J. R. E.	MacLeod, Iain (Enfield, W.)	Spens, Sir P. (Kensington, S.)
Hare, Hon. J. H. (Woodbridge)	MacLeod, John (Ross and Cromarty)	Stanley, Capt. Hon. R. (N. Fylde)
Harris, F W. (Croydon, N.)	Macpherson, N. (Dumfries)	Stevens, G. P.
Harris, R. R. (Heston)	Maitland, Comdr. J. W.	Steward, W. A. (Woolwich, W.)
Harvey, Air-Codre. A. V. (Macclesfield)	Manningham-Buller, R. E	Stoddart-Scott, Col. M.
Harvey, I. (Harrow, E.)	Marlowe, A. A. H.	Storey, S.
Hay, John	Marples, A. E.	Strauss, Henry (Norwich, S.)
Head, Brig. A. H.	Marshall, D. (Bodmin)	Stuart, Rt. Hon. J. (Moray)
Heald, L. F.	Marshall, S. H. (Sutton)	Studholme, H. G
Heath, Col. E. R.	Maude, A. E. U. (Ealing, S.)	Summers, G. S.
Henderson, John (Cathcart)	Maude, J. C. (Exeter)	Sutcliffe, H.
Hicks-Beach, Maj. W. W.	Maudling, R.	Taylor, C. S. (Eastbourne)
Higgs, J. M. C.	Mellor, Sir J.	Taylor, W. J. (Bradford, N.)
Hill, Mrs. E. (Wythenshawe)	Molson, A. H. E.	Teeling, William
Hill, Dr. C. (Luton)	Moore, Lt.-Col. Sir T.	Thomas, J. P. L. (Hereford)
Hinchingbrooke, Viscount	Morris, R. Hopkin (Carmarthen)	Thompson, K. P. (Walton)
Hirst, Geoffrey	Morrison, Maj. J. G. (Salisbury)	Thompson, R. H. M, (Croydon, W.)
Hogg, Hon. Q	Morrison, Rt. Hon. W. S. (Cirencester)	Thorneycroft, G E. P. (Monmouth)
Hollis, M. C.	Mott-Radclyffe, C. E.	Thornton-Kemsley, C. N
Holmes, Sir J. Stanley (Harwich)	Nabarro, G.	Tilney, John
Hope, Lord J.	Nicholls, H.	Touche, G. C.
Hopkinson, H. L. D'A.	Nicholson, G	Turton, R. H.
Hornsby-Smith, Miss P.	Nield, B. (Chester)	Tweedsmuir, Lady
Horsbrugh, Miss F.	Noble, Comdr. A. H. P.	Vane, W. M. F
Howard, G. R. (St. Ives)	Nugent, G. R. H.	Vaughan-Morgan, J. K.
Howard, S. G. (Cambridgeshire)	Nutting, Anthony	Vosper, D. F.
Hudson, Sir Austin (Lewisham, N.)	Oakshott, H. D.	Wade, D. W.
Hudson, Rt. Hon. R. S. (Southport)	Odey, G. W.	Wakefield, E. B. (Derbyshire, W.)
Hudson, W. R. A. (Hull, N.)	O'Neill, Rt. Hon. Sir H.	Wakefield, Sir W. W. (St. Marylebone)
Hulbort, Wing-Cdr. N. J.	Ormsby-Gore, Hon. W. D.	Walker-Smith, D. C.
Hurd, A. R.	Orr, Capt. L. P. S.	Ward, Hon. G. R. (Worcester)
Hutchinson, Geoffrey (Ilford, N.)	Orr-Ewing, Ian L. (Weston-super-Mare)	Ward, Miss I. (Tynemouth)
Hutchison, Lt.-Com. Clark (E'b'rgh W.)	Osborne, C.	Waterhouse, Capt. C.
Hyde, H. M.	Perkins, W. R. D.	Watkinson, H.
Hylton-Foster, H. B.	Peto, Brig. C. H. M.	Watt, Sir G. S. Harvie
Jeffreys, General Sir G.	Pickthorn, K.	Webbe, Sir H. (London)
Johnson, Howard S. (Kemptown)	Pitman, I. J.	Wheatley, Major M. J. (Poole)
Jones, A. (Hall Green)	Powell, J. Enoch	White, J. Baker (Canterbury)
Joynson-Hicks, Hon. L. W.	Prescott, Stanley	Williams, C. (Torquay)
Kaberry, D.	Price, H. A. (Lewisham, W.)	Williams, Gerald (Tonbridge)
Keeling, E. H.	Prior-Palmer, Brig. O.	Williams, Sir H. G. (Croydon, E.)
Kerr, H. W. (Cambridge)	Profumo, J. D.	Wills, G.
Lambert, Hon. G.	Raikes, H. V.	Wilson, Geoffrey (Truro)
Lancaster, Col. C. G.	Rayner, Brig. R.	Winterton, Rt. Hon. Earl
Langford-Holt, J.	Redmayne, M.	Wood, Hon. R.
Law, Rt. Hon. R. K.	Remnant, Hon. P.	York, C.
Leather, E. H. C.	Renton, D. L. M	Young, Sir A S. L.
Legge-Bourke, Maj. E. A. H	Roberts, Emrys (Merioneth)
Lindsay, Martin	Roberts, P. G. (Heeley)	TELLERS FOR THE AYES:
Linstead, H. N	Robertson, Sir D. (Caithness)	Lieut.-Colonel Bromley-Davenport and
		Mr. T. D. G. Galbraith.
NOES
Acland, Sir Richard	Barnes, Rt. Hon. A. J.	Bottomley, A. G.
Adams, Richard	Bartley, P.	Bowden, H. W.
Albu, A. H.	Bellenger, Rt. Hon. F. J.	Bowles, F. G. (Nuneaton)
Allen, A. C. (Bosworth)	Benson, G.	Braddock, Mrs. E. M.
Anderson, F. (Whitehaven)	Beswick, F.	Brockway, A. Fenner
Attlee, Rt. Hon. C. R.	Bevan, Rt. Hon. A. (Ebbw Vale)	Brook, D. (Halifax)
Awbery, S. S.	Bing, G. H. C.	Brooks, T. J. (Normanton)
Ayles, W. H.	Blackburn, A. R.	Broughton, Dr. A. D. D.
Bacon, Miss A.	Blenkinsop, A.	Brown, George (Belper)
Baird, J.	Boardman, H.	Brown, T. J. (Ince)
Balfour, A.	Booth, A.	Burke, W. A.

Burton, Miss E.	Hewitson, Capt. M.	Paling, Rt. Hon. Wilfred (Dearne V'lly)
Butler, H. W. (Hackney, S.)	Hobson, C. R	Paling, Will T. (Dewsbury)
Callaghan, James	Holman, P.	Pannell, T. C.
Carmichael, James	Holmes, H. E. (Hemsworth)	Pargiter, G A
Castle, Mrs. B. A	Houghton, Douglas	Parker, J
Champion, A. J.	Hoy, J.	Paton, J.
Chetwynd, G. R	Hubbard, T	Pearson, A
Clunie, J.	Hudson, J. H. (Ealing, N.)	Peart, T. F.
Cocks, F. S.	Hughes, Emrys (S. Ayr)	Poole, Cecil
Coldrick, W.	Hughes, Hector (Aberdeen, N.)	Popplewell, E
Collick, P	Hughes, Moelwyn (Islington, N.)	Porter, G.
Collindridge, F.	Hynd, H. (Accrington)	Price, M. Philips (Gloucestershire, W.)
Cook, T. F.	Hynd, J B. (Attercliffe)	Proctor, W. T.
Cooper, G (Middlesbrough, W.)	Irvine, A J. (Edge Hill)	Pryde, D. J.
Cooper, J. (Deptford)	Irving, W. J. (Wood Green)	Pursey, Comdr. H.
Corbet, Mrs. F. K. (Peckham)	Isaacs, Rt. Hon. G. A.	Rankin, J
Cove, W. G.	Janner, B	Rees, Mrs. D
Craddock, George (Bradford, S.)	Jay, D. P. T	Reeves, J
Crawley, A.	Jeger, G. (Goole)	Reid, T (Swindon)
Cripps, Rt. Hon. Sir S.	Jeger, Dr. S. W. (St. Pancras, S.)	Reid, W. (Camlachie)
Crosland, C. A. R	Jenkins, R. H.	Rhodes, H
Crossman, R. H. S	Johnson, James (Rugby)	Richards, R
Cullen, Mrs. A.	Johnston, Douglas (Paisley)	Robens, A
Daggar, G.	Jones, D. T. (Hartlepool)	Roberts, Goronwy (Caernarvonshire)
Daines, P.	Jones, Frederick Elwyn (West Ham, S.)	Robertson, J J (Berwick)
Darling, G. (Hillsboro')	Janes, Jack (Rotherham)	Robinson, Kenneth (St. Pancras, N.)
Davies, A. Edward (Stoke, N.)	Jones, William Elwyn (Conway)	Rogers, G. H. R. (Kensington, N.)
Davies, Ernest (Enfield, E.)	Keenan, W	Ross, William (Kilmarnock)
Davies, Harold (Leek)	Kenyon, C.	Royle, C
Davies, R. J. (Westhoughton)	Key, Rt. Hon. C. W	Shackleton, E. A. A.
Davies, S. O. (Merthyr)	King, H. M.	Shawcross, Rt. Hon. Sir H
de Freitas, Geoffrey	Kinley, J.	Shinwell, Rt. Hon. E.
Deer, G.	Kirkwood, Rt. Hon. D.	Shurmer, P. L. E.
De argy H. J.	Lang, Rev. G.	Silverman, J. (Erdington)
Dodds, N. N.	Lee, F. (Newton)	Silverman, S S. (Nelson)
Donnelly, D.	Lee, Mitt J. (Cannock)	Simmons, C J
Driberg, T. E. N	Lever, L M. (Ardwick)	Slater, J.
Dugdale, Rt. Hon. J. (W. Bromwich)	Lever, N. H. (Cheetham)	Smith, Ellis (Stoke, S.)
Dye, S.	Lewit, A. W. J. (West Ham, N.)	Snow, J. W.
Ede, Rt. Hon. J. C.	Lewis, J. (Bolton, W.)	Sorensen, R. W
Edelman, M.	Lindgren, G. S.	Soskice, Rt. Hon. Sir F
Edwards, John (Brighouse)	Lipton, Lt.-Col. M.	Sparks, J. A
Edwards, Rt. Hon. N. (Caerphilly)	Logan, D. G.	Steele, T
Edwards, W. J. (Stepney)	Longden, F. (Small Heath)	Stewart, Michael (Fulham, E.)
Evans, Albert (Islington, S. W.)	McAllister, G.	Strachey, Rt. Hon. J.
Evans, E. (Lowestoft)	MacColl, J. E.	Strauss, Rt. Hon. G. R. (Vauxhall)
Evans, S. N. (Wednesbury)	McGhee, H. G.	Stross, Dr. B
Ewart, R.	McInnes, J.	Summerskill, Rt. Hon. Edith
Fernyhough, E.	Mack, J. D	Sylvester, G. O.
Field, Capt. W. J.	McKay, J. (Wallsend)	Taylor, H. B. (Mansfield)
Finch, H. J.	Mackay, R. W. G. (Reading, N.)	Taylor, R J. (Morpeth)
Fletcher, E. G. M. (Islington, E.)	MeLeavy, F.	Thomas, D. E. (Abordare)
Follick, M.	MacMillan, M. K. (Western Isles)	Thomas, George (Cardiff)
Forman, J. C.	McNeil, Rt. Hon. H.	Thomas, I. O. (Wrekin)
Fraser, T. (Hamilton)	MacPherson, Malcolm (Stirling)	Thomas, I R. (Rhondda, W.)
Freeman, J. (Watford)	Mainwaring, W. H.	Thorneycroft, Harry (Clayton)
Freeman, Peter (Newport)	Mallalieu, E. L. (Brigg)	Thurtle, Ernest
Gaitskell, Rt. Hon. H. T N	Mallalieu, J. P. W. (Huddersfield, E.)	Timmons, J.
Ganley, Mrs. C. S.	Mann, Mrs. J.	Tomlinson, Rt. Hon. G.
Gibson, C. W.	Manuel, A. C.	Tomney, F.
Gilzean, A.	Marquand, Rt. Hon. H A	Turner-Samuels, M.
Glanville, J. E. (Consett)	Mathers, Rt. Hon. George	Usborne, Henry
Gooch, E. G.	Mellish, R. J	Vernon, Maj. W. F
Gordon, Walker, Rt. Hon. P. C.	Messer, F.	Viant, S. P
Greenwood, A. W. J. (Rossendale)	Middleton, Mrs. L.	Wallace, H. W.
Greenwood, Rt. Hn. Arthur (Wakefield)	Mikardo, Ian	Watkins, T. E.
Grenfell, D. R.	Mitchison, G. R	Webb, Rt. Hon. M. (Bradford, C.)
Grey, C. F.	Moeran, E. W	Weitzman, D.
Griffiths, D. (Rother Valley)	Monslow, W	Wells, P. L. (Faversham)
Griffiths, Rt. Hon. J. (Llanelly)	Moody, A. S	Wells, W. T. (Walsall)
Griffiths, W. D. (Exchange)	Morgan, Dr. H. B.	West, D. G.
Gunter, R. J.	Morley, R.	Wheatley, Rt. Hn. John (Edinb'gh, E.)
Hale, J. (Rochdale)	Morris, P. (Swansea, W.)	White, Mrs. E. (E. Flint)
Hale, Leslie (Oldham, W.)	Morrison, Rt. Hon. H. (Lewisham, S.)	White, H. (Derbyshire, N. E.)
Hall, J. (Gateshead, W.)	Mort, D. L.	Whiteley, Rt. Hon. W
Hall, Rt. Hn. W. Glenvil (Colne V'll'y)	Moyle, A.	Wigg, George
Hamilton, W. W.	Mulley, F. W.	Wilcock, Group-Capt C A. B.
Hardman, D. R.	Murray, J. D.	Wilkes, L.
Hardy, E. A.	Nally, W.	Willey, F. T (Sunderland)
Hargreaves, A.	Neal, H.	Willey, O. G (Cleveland)
Harrison, J.	Noel-Baker, Rt. Hon. P. J.	Williams, D J. (Neath)
Hastings, Dr. Somerville	Oldfield, W. H.	Williams, Ronald (Wigan)
Hayman, F. H.	Oliver, G. H	Williams, W T (Hammersmith, S.)
Henderson, Rt. Hon. A. (Rowley Regis)	Orbach, M.	Wilson, Rt. Hon. J. H. (Huyton)
Herbison, Miss M.	Padley, W. E

Winterbottom, I. (Nottingham, C.)	Woods, Rev. G. S
Winterbottom, R. E. (Brightside)	Wyatt, W. L.	TELLERS FOR THE NOES:
Wise, Major F. J.	Yates, V. F	Mr. Hannan and Mr. Wilkins.
Woodburn, Rt. Hon. A	Younger, Hon. Kenneth