HC Deb 19 May 1952 vol 501 cc37-92

3.34 p.m.

Captain J. A. L. Duncan (South Angus)

I beg to move, in page 13, line 9, to leave out "and sixpence."

I could make my entire speech on this Amendment in the words recorded in the OFFICIAL REPORT from the speeches of my hon. and right hon. Friends on the Front Bench during the last Parliament. I shall not do that because I do not wish to make too long a speech, but I am sure that if I had done so I should not have embarrassed them because, even if the Government cannot do anything this year, they will agree in the main with what I shall say.

National expenditure is so large now that in the interests of all classes of the community it is essential that it should be reduced. Some 40 per cent. of the total national income is being raised by taxation. Of the total of £4,500 million, £1,800 million, according to the Budget estimates in the White Paper, is being raised by Income Tax, which is over one-third of the total amount raised in the Budget. This is a very high proportion of the national income to be taken from the pockets of the taxpayers every year.

Mr. Sydney Silverman (Nelson and Colne)

Can the hon. and gallant Gentle-say how much it would cost to accept his Amendment?

Captain Duncan

If the hon. Gentleman will have a little patience, I will deal with that point, but I do not want to detain the Committee too long. A reduction in the standard rate would affect every Income Tax payer. It must not be thought that this Amendment would have an effect only on those who pay the standard rate. It would affect also those who pay the reduced rate, because the corollary of a reduction in the standard rate would be that there would be a reduction in the rates for those who pay the reduced rates: so that it would benefit every Income Tax payer in the country. That is part of my intention, although I admit that in this Amendment I cannot cover that point.

Mr. Eric Fletcher (Islington, East)

Will the hon. and gallant Gentleman say whether he really means that? If so, presumably he would have put down the necessary consequential Amendments to carry that into effect.

Captain Duncan

I have explained that, although I have not done so, it is part of the scheme that would result if this Amendment were accepted.

Mr. Roy Jenkins (Birmingham, Stechford) rose

Captain Duncan

I am sorry I cannot give way again. The high rate of Income Tax has four main effects. First, it is a disincentive to hard work. My right hon. Friend the Chancellor of the Exchequer has done a good deal to help overtime amongst those who are earning £1,000 a year and less, but there are others in this country: lawyers, business men, professional men, civil servants—the brain workers of this country. Those people, I submit, deserve just as much consideration as anybody else if this country is to survive as a business and trading nation. It will he within the experience of everyone who is in touch with lawyers, doctors, dentists, professional men and people in business generally that the present high rate of taxation is making people think that, as they have to work for so many months for the Government, when they have made that amount they will not put in extra effort to work a little longer.

Secondly, it is a disincentive to saving. During the last two years there has been a reduction in national savings, that is to say, more has been taken out than has been put in. Take the year 1951. To 31st March, 1951, there was a loss of £90 million. In the year to the end of March, 1952, there was a loss of £85 million in national savings. I submit that the very high rate of taxation for those who pay Surtax as well makes it virtually impossible for them to save at all and, taking a long view, I submit that that is not in the interests of the country.

The third disincentive, in my submission, is to risk capital. It seems to me that what we face in the future is a tremendous shortage of risk capital for industry, and we have to provide from savings, which is the only way in which it can be provided, the money to be made available for new enterprises, new development, new inventions, and so on.

I have deliberately not quoted anybody so far, but at this stage I feel I must quote the former Economic Secretary to the Treasury who said, in a speech which he made on 6th June last year: I want also to ask the Committee to consider what will be the effect of taxation of this kind upon people who would have been inclined to take a risk in developing a new enterprise, or, if they did not want to run one of their own, to take a bit of a risk in providing equity capital for industry rather than fixed obligation capital. If we are at a rate at which they are paying something like three-quarters of any additional income in taxation, what does it mean if they are considering whether they will take a risk? The country's interest really requires that if there is an opportunity for progress where the chances of profit are, let us say, double the risk of loss, that opportunity clearly ought to be seized, but in these circumstances it will not be seized if the prospects of profits are doubled or even trebled; they require to be fourfold. In those circumstances, we cannot expect that this country will hold its way in a changing world and in competition with other countries."—[OFFICIAL REPORT, 6th June, 1951; Vol. 488, c. 1104.] I submit that that is the case. We shall have, as we are bound to have in the next few years, enormous demands on industry for new capital, which will be inevitable if we are to keep in the van of progress and to maintain our position in this changing world. If we are to do that, we must make money available through the savings of the people. We must do this in a form which will encourage people to risk their money in developing new enterprises and new inventions.

Lastly—and here I believe many economists will not agree with me, but I do not pretend to deal in economics—I believe that this high rate of taxation is inflationary. The very fact that such a high rate of taxation has to be deducted from, let us say, company profits is bound to have the effect of increasing the price of the goods which are sold. It seems to me that if we are to be able to compete in the world as exporters in the future, we must keep our prices down so that we can sell our goods at competitive prices.

I conclude with two extracts from speeches by the Chancellor of the Exchequer, because I am sure he will agree with what I have been saying. First of all, speaking on 30th April in the debate on the Petrol Tax, my right hon. Friend said: I hope that I am a healthy Chancellor of the Exchequer when I say I regard all taxation as bad. There are only different degrees of evil in the incidence of any particular levy. This particular tax"— that is, the Petrol Tax— has the advantage of being … thinly spread and widely borne."—[OFFICIAL REPORT, 30th April, 1952; Vol. 499, c. 1539.] In my submission, Income Tax is widely borne but it is not so thinly spread and it has, therefore, a bigger handicap than the Petrol Tax.

My second quotation is from "The Times" of 5th May, reporting a speech which my right hon. Friend made in his own constituency, or at any rate in Essex. He said: If the Government plans for keeping down expenditure are successful, as we hope they will be, given time, then taxes can be reduced and savings will increase, and this in turn will mean that the Government will need a smaller surplus. We must break the vicious circle of high taxation leading to low savings which themselves require more taxation. … I have moved the Amendment for all those reasons, and although I do not expect to get very much change from my right hon. Friend this year, I rely on the Government to do something for the general body of taxpayers next year.

Mr. E. Fletcher

Before the hon. and gallant Gentleman sits down, will he answer, as he promised, the question put by my hon. Friend the Member for Nelson and Colne (Mr. S. Silverman)—how much would this proposal cost?

Captain Duncan

I apologise. I failed to do so only because I did not want to take up too much time. It will cost about £88 million in a full year.

3.45 p.m.

Mr. S. Silverman

I do not think the Committee need be greatly surprised that some such proposal as this has come from the opposite benches in the course of our discussions in Committee on the Finance Bill. While I need not conceal from the hon. and gallant Member for Angus, South (Captain Duncan), that I do not agree with a word he said, nevertheless I think I can concede that he put his proposal before the Committee with considerable moderation of language and restraint.

I wish I could share that restraint, but I am afraid I cannot, because it seems to me that the proposal which he has made in the present national circumstances is about as callous and cynical and brutal a proposal as I have heard in all the years I have been a Member of the House. What does the proposal do? He proposes to take from the Chancellor of the Exchequer £88 million, and he proposes to give it to precisely that class of taxpayers which demonstrably needs it least.

Captain Duncan


Mr. Silverman

Let us examine it.

Mr. Niall Macpherson (Dumfries)

It is their own money.

Mr. Silverman

It is one's own money that is spent in all kinds of expenditure, whether it is spent on the butcher or the baker or in taxation. It is one's own money which one disperses to the tax collector in just the same way.

Mr. R. Jennings (Sheffield, Hallam) rose

Mr. Silverman

I cannot give way yet. It is nothing to the purpose to say that it is a man's own money. All taxation is that. I do not know that I differ very greatly from the economists of old who said that all taxation was robbery. Of course, if the State is taking money which belongs to an individual and using it for purposes of which the individual who supplies the money may or may not approve, that question is bound to be raised. If he does not approve, he does not like paying the money—and sometimes if he does approve he does not like paying it either. But we cannot run a modern society without taxation. That is obvious.

What we are concerned with is a proposal to use the present national crisis—and the Government are never tired of telling us about it—as the occasion for reducing the national revenue by £88 million in a full year and giving that amount to precisely that class of taxpayer which, as things now stand, is best off. That is the proposal which the Committee is being asked to consider.

Look at the situation. We have just very substantially reduced the food subsidies. I am not arguing now whether that was a good or bad thing to do, but nobody denies that it has raised the cost of living very considerably precisely among those sections of the population who live in the main on rationed, subsidised foods. There is not an old age pensioner in the country who is not making a very substantial inequitable contribution to the alleged financial needs of the country because of the withdrawal of the food susidies.

I know that it is sometimes argued, "Oh, we are giving it back; we are only taking it out of one pocket and putting it into another." The people who use that argument always forget that the pockets out of which they are taking the money do not belong to the same people as the pockets into which they are paying a compensating payment. They are taking money from the poorest and giving it, in the main, to the richest.

I dare say that the hon. and gallant Member does not like explaining to old age pensioners in his constituency why they have to pay so much for their bacon, cheese, butter, tea and bread. Let him go and explain, at the same time as he explains that, that he wants to give something to the richest people in the constituency, those who pay the full rate of Income Tax. One has to have a very substantial income nowadays before paying the full rate of Income Tax. In those circumstances, when the old age pensioner is being called upon to cut down his food in order to make his contribution, it is proposed to give a substantial sum of money every year to the people who have already been benefited.

Mr. Peter Roberts (Sheffield, Heeley)

I hope the hon. Member will not continue this line of argument. This reduction of Income Tax would not take money from one person's pocket and give it to another. The hon. Member will remember that there is a surplus of £500 million in my right hon. Friend's Budget. I do not think the hon. Member is being fair to the Committee when he deals with the question of old age pensioners, and says they cannot be assisted by this Amendment. We are talking about putting more money in the hands of people, and I suggest that it should come from the Budget surplus.

Mr. Silverman

If the hon. Member will take the trouble to think two steps at a time—two very short steps—he will see how irrelevant is his intervention. I am not suggesting for the moment that there is anything in the proposal of the hon. and gallant Member for Angus, South, to take £88 million from the Chancellor of the Exchequer and give it back to the taxpayer, which necessarily in itself would be taking it from someone else's pockets. That is so obvious that it is hardly necessary to make the point.

Mr. Roberts

I did so to save time.

Mr. Silverman

If the hon. Member wants to save time, he would do better not to interrupt. The point, as I am sure he realises and had realised before he interrupted but which he hoped I had not seen—not a very great compliment—is that these people have been called upon to bear these sacrifices, and not have them made up to them in some other way, on the plea that the Chancellor needs to retain undisturbed and unaffected his present surplus.

Mr. Roberts

indicated dissent.

Mr. Silverman

The hon. Member shakes his head. I am tempted to remind him of a learned friend in court who, seeing his learned friend shaking his head, reminded the court that when his learned friend was shaking his head, there was really nothing in it. It is no good the hon. Member shaking his head about it. The fact is that we have heard the Financial Secretary to the Treasury and the Chancellor of the Exchequer time after time during recent debates explaining that it is quite a false point to ask the Chancellor to give up this, or that, or to do this, that or the other because of his surplus, for the reason that he needs to retain every penny of that surplus.

Mr. Roberts

indicated dissent.

Mr. Silverman

If the hon. Member still dissents, may I ask whether he still thinks that it is not necessary to retain the surplus?

Mr. Roberts

I hope that if I catch your eye, Sir Charles, I may argue that point.

Mr. Silverman

May we take it, without waiting for the argument, that what the hon. Member is saying is that it is not necessary for the Chancellor to retain this surplus?

Mr. Roberts

indicated assent.

Mr. Silverman

Correct? Well the mover of the Amendment has a worse case than I thought he had. He is now saying that the Chancellor of the Exchequer is retaining hundreds of millions of pounds in the Revenue which he does not need and that some part of it ought to be taken. He does not say it should be given to the old-age pensioner, or in reduction of the price of food, or in various reliefs from Purchase Tax on textiles, for instance—which would mean a very great immediate alleviation, although no doubt not a permanent cure, of the slump in the textile market—or used for the purpose of the various proposals made so far and which will be made before we reach the end of the Committee stage. All of these will be resisted on the ground that the surplus must be retained.

Hon. Members opposite believe that the surplus must not be retained, but the only proposal they have on the Order Paper for giving back any part of it is to give the payer of the full rate of Income Tax a relief which is denied to every other section of the community. — [HON. MEMBERS: "No."] That is the situation. The hon. Member for Heeley (Mr. P. Roberts) has interrupted me twice in order to explain that very point. I could not believe it; I did not believe it. I did not base my argument on that to begin with, but I am forced to accept it from the hon. Member now that their view is that it is not necessary for the Exchequer to retain all this money.

Look at what could be done with it. There is very much that could be done to make life easier for millions of fellow citizens suffering through the financial policy of the Government today and who would be entitled to have relief very greatly in priority to those who pay Income Tax at the full rate.

It is characteristic of hon. Members opposite that in thinking on these subjects their first thoughts go to the man who pays Income Tax at the full rate and their thoughts, having gone there, stop there. They have not time to think of other people whose needs are much greater. It is this which has always made the Conservative Party what the Prime Minister called them so long ago, the party of the rich against the poor.

Mr. P. Roberts

I am very glad to have this opportunity of replying to the hon. Member for Nelson and Colne (Mr. S. Silverman). Some of his argument I did not follow, with most of it I did not agree, and I particularly disliked the suggestion of impure motives. I hope that by the time I have finished my intervention, he will have a different idea about that.

I believe that this Amendment is vital to our economy at the present time for the reason that we must stimulate demand. I think that is now necessary. We have had arguments in this Committee earlier about the textile trade, about shoes and clothing and the falling off in demand. I believe we have now come to the position when relief of Purchase Tax is not a stimulation of demand. The Front Bench explained at length that 75 per cent. of textiles have no Purchase Tax on them and that it is a lack of demand which is keeping people from the shops. Therefore, I believe that by a direct reduction in taxation we may try to stimulate this demand.

This I also think is a Liberal principle and those of us who are Members of the Liberal-Conservative group—[Interruption.] I am very proud to be a member of a group which has Liberal and Conservative support—think we are fully entitled to press this point of view in the Committee. Why do I believe this argument to be unanswerable? There has been a definite change in the financial atmosphere of the country. In the last six years there was a lusty demand which was created by the need for capital expenditure after the war; there was a lusty demand created by increased commodity prices, by the building up of homes and by the gratuities paid to soldiers when they returned. There was a lusty demand created by capital and Government expenditure over the last six years. All that was inflation.

4.0 p.m.

When I sat on the benches opposite I listened to speech after speech by Socialist Chancellors of the Exchequer. One which impressed me most was by the right hon. Member for Leeds, South (Mr. Gaitskell), when he was talking about the Budget surplus. His whole argument was that the Budget surplus was something which must be creamed off in order to reduce demand. That was a disinflationary activity. Nevertheless, because of other factors of Socialist extravagance—their Government expenditure and overspending of the national purse—we ran into the financial crisis of 1951, and the present Chancellor of the Exchequer was consequently faced with a picture of serious inflation.

We know that two consequences can flow from that. One is a state of national bankruptcy such as occurred in Germany after the 1914–18 war. The other, if that is avoided, is a return to a falling-off in demand, and what we used to call industrial depression. We can congratulate the Government on the steps they have taken to avoid the first alternative of national bankruptcy. Has not their brave and courageous attitude in cutting down imports and raising the Bank rate had the result of warding off that alternative?

Mr. S. Silverman

What was brave about raising the Bank rate?

Mr. Roberts

It was an unpopular thing to do, and it was twisted by hon. and right hon. Gentlemen opposite in order to try to gain political advantage.

I do not believe that we can escape the other alternative of six years of Socialism, that is, the depression which is now coming upon us.

Mr. Frederick Mulley (Sheffield, Park)

Before the hon. Member leaves the point about lack of demand, will he equate what he has just said with the Chancellor's request to the trade unions for wage restraint? Surely that is the opposite of what the hon. Member is saying.

Mr. Roberts

I am coming to that point. There are two ways of stimulating demand. The first is, as the hon. Member for Sheffield, Park (Mr. Mulley) has just said, by increasing wages. But increasing wages without increased production is in itself inflationary. [Interruption.] If I can put my argument I am sure that hon. Members will eventually agree with me. The alternative is to reduce direct taxation.

Mr. Silverman

Why is that not inflationary?

Mr. Roberts

If the hon. Member will allow me to develop my argument, I hope that I shall be able to convince him.

The Government have taken three steps, all of which are deflationary and which are having the result of slowing down demand. That is the basis of the argument which I wish to pose. We cannot avoid the depression which, by their policies over the last four or five years, hon. and right hon. Gentlemen opposite are bringing upon the country.

Mr. Silverman

Before the hon. Member leaves that part—

Mr. Roberts

I will give way when I have finished this section of my argument. I have been interrupted so much that I am having difficulty in putting the argument consecutively. The argument which I am putting forward is that as a result, for instance, of the very high prices of wool more than a year ago the finished article now in the shops is too highly priced for people to buy—the high price of the wool now being reflected in the price of the finished article in the shop. One can follow that process in the case of timber, fuel and many other commodities.

As a result we are now finding what must always happen when there is inflation. I am surprised that hon. Members opposite cannot see the point. In an inflation all prices rise and eventually become too high for the man and woman in the street to be able to buy what he or she wants. I am suggesting that we have avoided national bankruptcy but are still faced with the second alternative of shop prices being too high for people to be able to buy the goods. When in office hon. Members admitted this principle when talking about Marshall Aid. They said that without Marshall Aid at a certain time there would have been two million unemployed, for the same reason as I am putting to the Committee.

I have now, I hope, made clear the argument I am trying to advance, that we are avoiding the national bankruptcy alternative but are facing the rising price and depression alternative, and that we have to take steps to try to avoid that.

Mr. Silverman

I thank the hon. Member for giving way in the exposition of what I agree with him is a difficult argument. What I cannot follow about his argument is this: he says that if we try, by raising workers' wages, to increase their ability to buy goods in the shops which at present are priced beyond their reach, that would be inflationary because they would be getting increased purchasing power without any additional goods. I follow that part of his argument. Why is it not doing exactly the same thing if we increase the purchasing power of another section of the population by reducing the amount which that section pays in taxation? Is not that equally increasing the purchasing power of those people without increasing the amount of goods available?

Mr. Roberts

I had assumed that the hon. Member had listened carefully to the speech of my hon. Friend, who showed that one of the main arguments which we are trying to put forward concerns increased incentive and increased productivity. In fact, the whole object of the Amendment is based on increased production. I thought that the most important part of the Budget speech was when the Chancellor explained that he was relying on increased production in order to maintain the balance of his Budget. I am trying to argue that unless we get that increased production, unless we get things flowing again, my right hon. Friend will not be able to achieve his Budget aim.

Mr. Silverman rose

Mr. Roberts

I really must get on.

There are all sorts of alternatives available to deal with this problem. The hon. Member for Nelson and Colne (Mr. S. Silverman) has put forward one suggestion. I am putting forward another suggestion which I hope is in order on this Clause.

Mr. Silverman

What is the answer to the point I put?

Sir Herbert Williams (Croydon, East)

Leave the hon. Member alone.

Mr. Roberts

There are various alternatives. We have already seen that the reduction of Purchase Tax does not in itself stimulate demand. The question of increased allowances to which the hon. Member referred is merely a re-distribution of income within the national purse.

Mr. Silverman

So is this.

Mr. Roberts

The second point is that the Excess Profits Levy, which we shall soon discuss, is also deflationary. We are to take away a further £100 million from the demand which would otherwise be exercised on the capital investment scheme. I maintain that the reduction of tax which this Amendment seeks is the easiest and most effective way of stimulating the demand which we need.

This proposal will cost between £85 million and £95 million a year. I come to the question of how that is to be found. I believe that it is not now necessary to have the Budget surplus for which my right hon. Friend has budgeted. That is the argument that I want to put to the Committee. I apologise for the delay in reaching that point, but a lot of the blame must be attributed to the hon. Member for Nelson and Colne.

The argument which I wish to put to the Committee is that in the last six years of inflation the budgetary surplus was used as a deflationary measure in order to take away this surplus demand. I believe that at the present time we do not need that extra surplus. I believe that the scales have now tipped over to such an extent that we have come to the position outlined in the 1944 White Paper on full employment. I would remind hon. Members of what that very interesting document states when dealing with the question of timing. It says that, … the crucial moment for intervention is at the first onset of a depression. A corrective applied then may arrest the whole decline; once the decline has spread and gathered momentum, intervention on a much greater scale would be required—and at that stage might not be effective. It is a question of judgment, and as the right hon. Member for Leeds, South, said, eventually all Budget arguments come down to a question of judgment. Hon. Members opposite may not think this is the time to start applying the policy on full employment contained in the White Paper of 1944. I maintain that it is, for the following reason. In the last three or four months we have seen the results of the profits of companies operating in the last year of the inflationary period. They are now appearing day by day in the various financial newspapers. I should say that in a large number of cases they are up; and that the Chancellor, when he comes to find his final surplus at the end of the year, will be faced with a higher figure than £500 million. This is a further argument which adds force to the one I am now putting forward.

I do not believe that at this present stage in our financial position we should take revenue in order to finance under-the-line expenditure. I believe the Chancellor would be wiser to deal with some of the under-the-line expenditure, such as borrowing by local authorities, by loan. I think the time has come to do that. I do not think it would hurt the financial position of the country to do so. I believe the time for this increased Budget surplus is passing.

I hope the Committee will agree that the whole of my argument is directed to an attempt to stimulate demand, in order to recreate employment in the textile industries and elsewhere. By this method we shall stimulate demand in most of the activities in which the individual best puts his money. I believe that the right way to deal with unwanted demand is through Purchase Tax or through the allocation of raw material schemes which we have operating at the present time.

If there is, for example, a television set into which it is considered not right to put materials, there are two ways in which the problem may be tackled. The Purchase Tax may be increased or the raw materials may be directed away from that form of manufacture. Coming from Sheffield, I know how much direction there is of scrap, coke, and all the other raw materials necessary to the main industrial life of the country; and those are the right methods to divert demand.

I come back to the main point of my speech, which is this question of timing—when we are to move from the theory of the Budget surplus to the theory of the creation of extra demand. At the present time we must do what we can in order to stimulate and increase production. This Amendment is designed to secure that effect. Unless we use the Budget as an instrument of production, as was outlined in the 1944 White Paper, I believe we are missing a great and a grave opportunity.

As I go about the back streets of the industrial town from which I come, I find increasingly, week by week, this drying up of demand. We find it in the small shops and in the houses, where there may be a man and wife who are finding things difficult. They may find that the curtains in their home need renewing but they consider this is not the time to buy, because they have not the money in their pockets. That goes right through the whole country.

4.15 p.m.

Hon. Members may not agree, but I ask whether this is not a further sign that we are moving slowly from the period which I have called the period of lusty demand to a period when people are finding things difficult. If we are prepared to take this figure of £100 million from the Budget surplus which because of increased profit may not even reduce the total Budget surplus at the end of the year, and if we are prepared to do that now, I believe we shall be re-creating the demand we need in order to produce employment in areas in Yorkshire—and even in the area represented by the hon. Member for Nelson and Colne, who is treating me with such levity.

Mr. S. Silverman

Will the hon. Member give way?

The Chairman

If the hon. Member for Sheffield, Heeley (Mr. P. Roberts) does not give way, the hon. Member for Nelson and Colne (Mr. S. Silverman) must resume his seat.

Mr. Silverman

All the same—[Interruption.]—On a point of order—

The Chairman

I think I made the position perfectly clear. The hon. Member for Sheffield, Heeley is unwilling to give way, and therefore the hon. Member for Nelson and Colne must resume his seat. I think that is perfectly clear, and that is my Ruling.

Mr. Silverman

Of course I accept your Ruling, Sir Charles. My point of order was on quite a different matter. It is that if an hon. Member, while making his speech goes out of his way to misrepresent something—

The Chairman

That is not a point of order; it is a debating point.

Mr. Roberts

The point I am trying to make is a vitally serious matter to all our constituents, and I was a little surprised that the hon. Member for Nelson and Colne should think it was nonsense and not a matter of importance to his constituents.

What we have to do at this time is to say whether or not this is the particular moment at which to increase demand. As I have suggested, if the momentum of deflation comes, it comes quickly, and I believe it is already upon us. If we have to wait until next year, much more stringent Amendments may have to be put down in order to try to deal with what we are endeavouring to deal with now.

I apologise to the Committee for being so long, but I have been much interrupted. The motive behind this Amendment is a sincere desire to stimulate demand over the whole range of commodities and goods throughout the country. I believe it must be done through the whole range. The next Amendment on the Order Paper in my name—I do not know whether or not it will be called—deals particularly with earned income. If this proposal is not agreed to by the Government, there are other methods which we may utilise to do what we are trying to do. I do not know whether hon. Members are prepared to support an Amendment to reduce Income Tax, but they may be. I hope that hon. Members opposite have seen the light, although they have not been in that frame of mind in recent years.

I am quite certain that sooner or later a policy of the kind we are endeavouring to put before the Committee this afternoon will have to be adopted. It is only the Government, with the full facts before them, who can decide exactly when is the moment. It may be they are not convinced that it has arrived, and I shall listen with interest to the Financial Secretary when he replies. But I believe that the signs are such that every Member in this Committee must seriously consider whether or not we should begin to implement the whole structure as outlined in the White Paper of 1944, and use the Budget as an instrument for increasing production.

Mr. Roy Jenkins

The hon. Member for Heeley (Mr. P. Roberts) has made a most remarkable speech to the Committee. He managed to do two rather surprising things. First, he launched a wholesale attack upon the whole Budget of his right hon. Friend the Chancellor of the Exchequer. It was not merely a question of one tax being wrong; it was the whole concept of the Budget, which his right hon. Friend said was to reduce demand, that was wrong. It is impossible to imagine a more sweeping condemnation of his right hon. Friend's Budget.

He also completely contradicted the main point made by his hon. and gallant Friend the Member for Angus, South (Captain Duncan), which was that this remission in taxation was desirable because it would stimulate savings. The main point made by the hon. Member for Heeley was that what we wanted at present was a great increase in expenditure. Therefore, of course, on the showing of his hon. and gallant Friend, there could be no remission in taxation which could be less well calculated to do what he said was necessary than a remission which might lead to a large increase in savings. There are many points which one could develop in reply to the speech he put forward. I see that the hon. Gentleman is muttering away quietly to himself—

Mr. P. Roberts

I was muttering away quietly to myself, because I really could not see the inconsistency which the hon. Gentleman was trying to put to the Committee. What we are trying to say is that this will cover the whole range of our financial life. If those who need new curtains use the money to buy new curtains, as I hope they will, that is a form of saving in itself. I believe that it is better to use one's savings to build up the capital in one's home than it may be to put them into a bank. All I say is that one person will deal with it in one way, and another will deal with it in another way.

Mr. Jenkins

I can well understand that the hon. Member is mentally a little exhausted after his speech, but I cannot understand him being quite so intellectually prostrate as one would believe from the reply he has just made.

Certainly his hon. and right hon. Friends on the Front Bench would tell him that there was a very sharp difference between something which would increase the amount of purchasing power, which was to be withdrawn from circulation, and something which would increase the amount of spending and thereby stimulate demand and, if he is right in his analysis, help to keep us out of the deflation in which he said we were at present.

I come back to the speech of the hon. and gallant Member for Angus, South. He started by telling us that his Amendment really meant something entirely different from what it said. He said "I really intended to have other Amendments down to make other reductions, but I forgot to put them down." This does not seem to be a serious way to come along with an Amendment which would cost £88 million. One does not even know whether the Amendment by itself would cost £88 million, or whether it would cost that amount if some other Amendments, which ought to have been on the Order Paper but are not, were accepted.

Captain Duncan

It would cost £88 million.

Mr. Jenkins

This Amendment would cost £88 million. Really, I do not understand. As the hon. and gallant Gentleman said that we ought to be discussing not only this but two other Amendments which went with this one, he ought to have told us what the three would cost. If this Amendment alone would cost £88 million then what we have to discuss has nothing at all to do with other rates of tax. It is something affecting only the standard rate of 9s. 6d.

Let us be clear who this affects so far as individuals are concerned. It affects, in the case of a married man with two children, people earning £19 10s. a week and above. So far as even a single man is concerned it affects people earning £13 6s. and above. Therefore, there is no doubt at all that this is a proposal for giving away £88 million which would go to a very limited class of people who are already very much better off than the average run of people in the country.

The argument is perhaps that this ought to be done none the less because of the great effect it would have upon incentive. Nobody will argue that something which helps incentive is not in itself good. But, of course, one cannot possibly argue that today without also looking at the other consequences in the form of the effect upon the distribution of income which such a proposal may have. One must weigh one consideration against the other. One must remember that this form of giving incentive would give a substantial amount more to people who under the Chancellor's Budget have already had a substantial concession—who have already had, at a time when the Chancellor is appealing to the T.U.C. for wage restraint, a wage increase of about 25s. a week without even applying for it.

Also, from an incentive point of view, one should not underestimate the disincentive which there can be in giving to the people generally a feeling that benefits are not being fairly distributed. That would certainly be one of the results which would follow. The party opposite have always greatly exaggerated the connection which there is between high taxation and, they say, a general condition of disincentive. They always completely ignore the fact that, during the days of the Labour Government, when, I admit, there was extremely high taxation, there was none the less extremely buoyant production.

One cannot assume that there is this direct connection between giving incentive and high production. We have had the Chancellor's Budget and we are now in the first post-war Tory financial year. It was a Budget which he and some of his hon. Friends described as an incentive-Budget. Yet, for the first time since 1946, we are in a position in which production is going down. I do not say that that is due to the Budget, but that it ought to make a lot of hon. Members opposite think that they can put much too closely the connection between high production and incentive in the form of low taxation.

The other point on which this bears is its effect upon company profits. A remission of 6d. on the standard rate of Income Tax would affect not only individuals but, very much indeed, company profits—the amount of their profits which companies were able to retain. The hon. and gallant Member for Angus, South, devoted a good deal of his speech to saying how difficult it was becoming to get risk capital and that we ought to encourage a great flow of risk capital into our industry. He also said that he thought on these matters that there was not too much between him and his right hon. Friend, but that it was just a matter of finding that maybe this year his right hon. Friend could not help although perhaps next year he could.

The hon. and gallant Member must remember that this is a Finance Bill which contains the proposals for the Excess Profits Levy. I presume that the hon. and gallant Member will be marching through the Lobbies in a day or two's time in support of the Excess Profits Levy. For him to come along today to ask for 6d. off the Income Tax at the same time as he is supporting an Excess Profits Tax, which is a far more disincentive tax on risk capital than is Income Tax, is really nonsense.

The two hon. Gentlemen are in an absolutely hopeless position. I do not like the Excess Profits Levy, but I am in favour of getting a lot of taxation from profits. They are not, apparently, in favour of that. They are in favour of reducing Income Tax at the same time as they support a Budget which introduces a new tax which is as disincentive as possible. The Amendment has been put forward in an extremely muddled way. It is in itself at present a highly undesirable proposition, and I hope that the Chancellor will not accept it.

4.30 p.m.

Mr. Jennings

I make not apology for supporting this Amendment, because when hon. Members opposite were sitting on this side of the House I supported a similar Amendment. I support this Amendment today for one or two simple reasons.

The first reason is that, from my knowledge of taxation generally, I believe that this country is now suffering under a penal system of taxation, and that it is high time that it was reduced. I believe that, from the point of view of the private individual, it is becoming increasingly difficult to maintain his home and educate his children, and that is particularly true of the professional classes. I can speak of many kinds of professional people who are suffering severely under this system of taxation and who should be given some relief immediately.

I do not put forward this argument on a party line, because I adopted the same course when I was in Opposition, but the expenditure in our Budget today has reached a vast amount and no Chancellor of the Exchequer for years past has even thought about economy. I do not know whether I speak for many of my hon. Friends on this side, but I take the view that it is high time that this Government instituted some inquiry into the reduction of taxation and the cutting down of Government expenditure generally, because that is what the country wants. I am perfectly sure that it could be done.

I should like to refer to company Profits Tax which has been mentioned by my hon. Friends who have spoken in support of this Amendment, and I would like to quote from a first-class article in the "Sheffield Telegraph" which appeared over the name of the City Editor on 13th May: Portals, makers of the paper for the Bank of England's notes, needed an extra £21,721 to maintain their plant. To get it they had to increase their profits by £120,000. The extra profits of £100,000 went down the tax drain. The Committee will see from that quotation what a vicious system this is, and how it is having the effect of increasing prices to such an extent that firms may be able to retain sufficient money to keep their plant and machinery going. I make no apology for saying that, up and down the country, every chairman of a substantial company at annual meetings has said the same thing.

Turning to the subject of shipping, I should like to quote from the speech of Mr. F. A. Bates, chairman of the Cunard Steamship Company, the owners of the famous "Queens": Computation of profit for tax purposes opens a tax draincock through which capital assets are irretrievably lost. That is the position today. We are not taking profits from these companies, but taking their capital, because we are not leaving sufficient in the business for the maintenance of plant and machinery. In my profession, I see it every day. The liquid position is getting worse, and many companies are being forced to try to do what the Chancellor has made almost impossible for them, and go to the bank and try to get some liquidity from the bankers, with the result that plant is not being renewed and is not even being properly maintained, while efficiency is also being affected. I believe that one of the greatest spurts to efficiency could be given if some relief could be obtained, not only for private individuals but for these companies as well.

I believe that the present Government now have a grand opportunity of starting what the great mass of the people now think they ought to do, and that is to cut down all Government expenditure in a big way and to provide for some taxation relief. People generally are not satisfied, and I personally am not satisfied, that the Government have done all they ought to have done in the shape of cutting down expenditure in order to provide some relief of taxation. This penal system of taxation is a most serious thing, and it is now almost as high as it was during the worst years of the war.

It is dreadful that the mass of the people and industrial companies have to be drained by high taxation while the Chancellor is hanging on to a surplus of £500 million. I think that most of that money should be allowed to fructify in the pockets of the people. [HON. MEMBERS: "Hear, hear."] I know why some hon. Members opposite are cheering; it is because they are looking forward to some share of the £500 million.

For these simple, and, I think, fair and honourable reasons, the Chancellor should have another look at the present system of taxation. If he cannot accept this Amendment, then let him say that he will see that great economies are, in fact, made during the next year, so that, on another occasion, he will be able to offer the people the remission of taxation which they require, and ensure that the drain that is now going on will be stopped. If he does so, he will find that industry will be able to maintain its plant and machinery; will be able to hold up its head, and, what is more important, compete in the export markets of the world.

Mr. Douglas Jay (Battersea, North)

The hon. Member for Hallam (Mr. Jennings) has delivered another formidable stab in the back at the Government.

Mr. Jennings

I was stabbing the Opposition in the back, not the Government.

Mr. Jay

No doubt the hon. Gentleman will be voting against the Excess Profits Levy when we come to have a look at it in a few days' time.

The hon. and gallant Member for Angus, South (Captain Duncan), and his hon. Friend the Member for Heeley (Mr. P. Roberts), if they agreed on nothing else, both supported this Amendment on the ground that it would have a beneficial effect on the incentives of active workers, and, therefore, on production and productivity. The hon. Member for Heeley said that the whole Budget had been based upon that argument, and there I agree with him.

For that reason, it might be convenient to have a short discussion on this very important issue about incentives, which really does go to the root of the whole of the Chancellor's Budget, and, of course, is also relevant, not merely to the proposed reduction in taxation which, strictly, we are now debating, but also to the proposal which the Chancellor himself brought forward.

That argument was that a reduction in Income Tax, for the sake of which the Chancellor really made his cuts in the food subsidies, would have so stimulating an effect on incentives and on production as to play a major part in easing our balance of payments problem. This was supposed to justify the Chancellor's Budget. These grounds were supposed to justify the massive transfer of income which the Chancellor made mainly for the benefit of fairly well off people and at the expense of those at the bottom of the scale.

The Chancellor has told us that, of his Income Tax reliefs, £50 million went to people earning £20 a week. He has, of course, already discovered the dangers of the consequences of his policy on prices and wages, and, at a later stage, on exports, of which he was warned by the T.U.C. both before and after the Budget, and also from these benches during the Budget debate itself. They are now beginning to appear in reality, and are pushing up this wage-price spiral. [Interruption.] I do not know whether the hon. Member thinks that prices shown in the retail price index are falling at the moment; as a matter of fact, they have risen. Well, we will wait and see.

The Chancellor now finds himself forced into the position of arguing that those who earn over £20 a week need an incentive by way of tax relief, while those earning under £10 per week must be more highly taxed by the rise in food prices, and, in those circumstances, he is perplexed to find that he really has no moral authority for asking for wage restraint.

Captain Duncan

I hate to interrupt the right hon. Gentleman, but while the Chancellor said that £50 million of his relief went to higher paid people it is fair to point out that £178 million went to those earning less than £1,000 a year.

Mr. Jay

That is a piece of arithmetic, but surely it is relevant to point out that benefits which we consider unnecessary are going to those who earn £20 a week. We cannot, however, follow out this argument fully on this Clause, but we should examine the basic question whether reductions in direct taxation have a major effect on incentives, and, therefore, on the production of the community. Let us try to follow the argument briefly, step by step.

Mr. Jennings

Will the right hon. Gentleman answer the argument about Portals, who make the paper for the Bank of England, and the replacement of their plant and machinery? Will he deal with that one, if he can?

Mr. Jay

I gather that the hon. Gentleman is complaining that it is difficult to replace machinery at existing rates of taxation, but it is, of course, the policy of his Government that on account of rearmament there is to be some delay in re-equipping generally at the present time. Broadly speaking, I think that most agree with that, but it was not the issue I was attempting to argue.

Looking at this issue of incentives, the first fact that emerges is that a very large part of the community are not in a position to earn incomes which vary with work done, but are getting fixed weekly or monthly payments. That applies, of course, not merely to hundreds of thousands of civil servants, clerical workers, and so on, but also to very large numbers of railwaymen and postal workers, and hosts of others. It is probably only a minority of employed people who can, in fact, earn more by working harder.

But even among those who can nominally earn more by piece rates, overtime, and so forth, in practice at the present time a further quite large proportion cannot do so. In the textile industry, for instance, it is not lack of effort, but lack of orders which is limiting production. Again, in the case of a large part of the engineering, iron and steel and other metal industries, it is not lack of effort either, but lack of materials. That accounts for quite a large part of manufacturing industry and leaves us with a still smaller number of people for whom the Chancellor's basic argument may perhaps be relevant. The remainder includes the very important coal and building industries, and there, I think, the Chancellor's argument certainly has some weight.

Thirdly, even within that minority, it does not for one moment followߞand I think this is what hon. Members opposite almost always forgetߞthat everybody who can earn more by working harder will necessarily do so when direct taxation is reduced. Some will, of course, but some will not, and it is very hard to say how many fall into each of those two groups. There are, after all, a large number of people whose main anxiety is to earn enough net income to maintain their family, and the effect on them of higher taxation may well be to increase their effort and their will to work, and of a lower tax actually to decrease their effort.

I have often heard it said in the last few yearsߞI have no idea how far it is trueߞthat even in the coalmining industry an increase in wages will not, in fact, mean greater effort and greater output because many coal miners seek to earn a particular net income each week and are not interested in earning any more. If that is so, and in so far as that is true, of course, this reduction in Income Tax will not increase output, but will actually diminish it.

Mr. Beverley Baxter (Southgate)

Did the right hon. Gentleman say what he is now saying when the Socialist Government reduced the standard rate of Income Tax from 10s. to 9s.?

Mr. Jay

The hon. Gentleman is not following very carefully what I am saying. I am not arguing, of course, that there is nothing at all to be gained by way of incentive as a result of a reduction in direct taxation. I am merely trying to establish dispassionately how important this influence is so that we can weigh it against the disadvantages of taking this action. I think that what I have said is perfectly accurate.

4.45 p.m.

I was trying to argue that there are some peopleߞit may be a minorityߞwho do not, in fact, work harder as a result of changes in taxation. Let us also rememberߞthough this may not be very importantߞthat 50 years ago in this country there was a small class of people living on unearned incomes who did very little work at all. Very nearly all those people today have been added to the working population of the country. What is the reason for that? It is, of course, direct taxation which has brought that not very numerous group of people into the working community of the country.

I only say that to suggest that a change in direct taxation does not wholly influence the amount of work done in one direction, but that both tendencies operate, and in reaching a fair judgment on this we ought to take both those tendencies into account. However, on this particular point, let us give the benefit of the doubt to the Chancellorߞand I hope this will satisfy the hon. Member for Southgate (Mr. Baxter)ߞand assume that within the minority for whom this tendency operates at all, the majority of them, though certainly not all, will tend to work harder if direct taxation is reduced.

Even so, having made all these deductions we are now clearly reduced to a quite small minority of workers in the country whose output might be increased by tax changes. But, of course, there is still one further deduction we have to make, and that is of the people who are not subject to Income Tax at all. This argument is rather like the 10 little nigger boys, but there is. I believe, substance in it.

Having made these deductions, let us finally look at the minority of people actually affected and consider the mathematical effect of the Chancellor's original proposals and, mutatis mutandis, those the hon. and gallant Gentleman is proposing today. The Chancellor had an argument with my hon. Friend the Member for Reading, South (Mr. Mikardo), about the figures, and in reply to my hon. Friend the right hon. Gentleman admitted that the effect of his Budget on some people, if they were prepared to work harder and to earn an extra pound or two, would be a few pence.

But he said that was exceptional, and I fully accept his arithmetic. He instanced as typicalߞand I also accept this for the sake of the argumentߞthat if we take a married man with two children living wholly on earned income and receiving a wage of £8 a week, on £2 which he earned over and above that £8 he would have his tax reduced by this Budget from 5s. 1d. to 1s. I think the Chancellor will recall that that is right.

That, I think, is a case rather favourable to the Chancellor's argument, as was the 2d.to that of my hon. Friend's. The average case is probably 3s. or 4s. But, taking the Chancellor's case, that means that out of the final £2 earned in the £10, this particular worker will retain 39s. instead of 35s. Can it seriously be contendedߞand this is what I want to put to the Committee todayߞthat that prospective small differenceߞand it is small in £10ߞin net earnings, affecting what is clearly a small minority of workers, can have any major influence on our total national output? I should have thought that the only possible honest answer is that it cannot.

My hon. Friend the Member for Stechford (Mr. Roy Jenkins) pointed to the fact that actually there has not been any increase in production, rather the reverse, since the Chancellor's Budget. That is a post hoc propter hoc argument which he did not press too far. I suggest that the consideration I have advanced would indicate exactly the same conclusion.

The Chancellor of the Exchequer (Mr. R. A. Butler)

Would the right hon. Gentleman agree that his argument is somewhat difficult to follow owing to the fact that the reliefs we are discussing have not yet come into operation? If those reliefs are not attached, the question whether there is more production or not would not make a fair argument.

Mr. Jay

I think that, at the time, the right hon. Gentleman said that the prospect of these reliefs would have a good psychological effect, but I do not rest upon this post hoc propter hoc argument at all. I suggest the Chancellor's argument is greatly exaggerated and cannot be pressed nearly as far as the Chancellor pressed it. When one really examines that argument it dwindles almost to the point of disappearance.

The Chancellor is now simultaneously asking for wage restraints and giving tax reliefs of £1 a week and upwards to those with four-figure incomes. His only defence of thatߞI think he will agreeߞis really that these bonuses to Surtax payers are part of the Income Tax reliefs necessary to give incentive to wage earners at lower levels. Even then it is not true that to give benefits lower down one has to give them higher up at the same time. Indeed, reliefs in Income Tax were given in our 1951 Budget which benefited all those with families up to a certain level but imposed higher taxation upon those above that level. That is perfectly possible. For instance, by that Budget a married couple with two children and an income all earned were better off up to about £20 a week and worse off above that level. Thus Income Tax is quite flexible enough to produce that dual effect if it is one's purpose to do so.

Therefore, I say, in reference to this Amendment thatߞif one really followed the argument logicallyߞthough we all agree that, other things being equal, any reduction in any tax is desirable, nevertheless no case can be made out at all on the ground of incentive or on the technical ground of practicability in the structure of Income Tax, either for the proposals put forward in this Amendment or for the unfair distribution of income by taxation and food subsidies which the Chancellor wilfully carried out this year.

The Financial Secretary to the Treasury (Mr. John Boyd-Carpenter)

We have really had two debates on this Amendment. First, we have had a debate on the narrow terms of the Amendment, that is to say a discussion on a proposal to reduce the standard rate of Income Tax by 6d. And we have now had from the right hon. Gentleman the Member for Battersea, North (Mr. Jay) his criticisms of various adjustments of the tax which, in point of fact, are more precisely set out in a Clause which we have not yet reached. So, in a sense, we have had two debates.

If he will allow me to say so, the right hon. Gentleman the Member for Battersea, North, has never been awfully clear on this subject of incentive. He revealed that, for example, at Question time last Thursday. He suggested then that it was a debatable and doubtful proposition, that if one paid less tax on one's earnings one kept more to spend on oneself. His doubt on that, which to most of us is not a very difficult proposition, has affected the whole of his very interesting argument today.

Mr. Jay

That is not a reflection of what I said at Question time. The hon. Gentleman has misunderstood it and is making a debating point.

Mr. Boyd-Carpenter

I shall not press it too far, but the right hon. Gentleman did appear to regard as controversial a proposition which most of us would have criticised only on the ground that it was an obvious platitude. But I am not at all clear from his argument today whether the right hon. Gentleman regards tax reductions, in the form in which my right hon. Friend has brought them forward, as stimulating or not. He qualified and cross-qualified his views on the subject so that he left a far from clear impression on the Committee of where he stands on this matter.

But he thought incentives did not, or alternatively should not, arise in a case of people with more than £1,000 a year. That was the one theme that reappeared throughout the texture of his speech. I find myself completely at variance with the right hon. Gentleman on that. Many of the people in that category are people doing extremely useful, difficult and responsible work under trying conditions, and it really would seem that, if one once acceptsߞas I think in his heart the right hon. Gentleman does acceptߞthat it is to some degree encouraging to be allowed to retain a fair proportion or a larger proportion of one's gross earnings, one must accept that one cannot limit the application of that figure to £1,000 a year. Nor, to give credit where credit is due, has that been the line which the right hon. Gentleman's right hon. Friends have adopted in the past.

Indeed they have gone much further in that respect than has my right hon. Friend. The right hon. Gentleman the Member for Battersea, North will recall that, taking a person whom he regards as even a less admirable citizen than the £1,000 a year manߞdoubly less admirable in his viewߞthe £2,000 a year man with a wife and children, his right hon. Friend the Member for Bishop Auckland (Mr. Dalton) in 1945 relieved that man of taxation to the extent of £98. The late Sir Stafford Cripps did very nearly the same thing when he relieved him to the extent of £86. To give the background of the matter, I should add that the right hon. Gentleman the Member for Bishop Auckland in that same year relieved the £20,000 a year man of no less than £324 of taxation. The right hon. Friends of the right hon. Gentleman the Member for Battersea, North have done better in the past than the right hon. Gentleman has done in his speech this afternoon.

Mr. Jay

The hon. Gentleman always attempts to conceal that in those two years, so far from reducing food subsidies and taxing people who were lower down the scale, we actually raised the food subsidies. Our complaint now is that a reduction is made in the tax and at the same time those below tax level are being made worse off. Surely the hon. Gentleman must have grasped that point by now.

Mr. Boyd-Carpenter

Perhaps the right hon. Gentleman has grasped the point that in both those years, as indeed in all years for which his right hon. Friends were responsible the level of prices was rising steadily. They may say that they did not mean that to happen and that they could not help it. That may be so, but if the right hon. Gentleman is putting in this context my right hon. Friend's readjustments of food subsidies, then, for the purposes of true comparison, he must remember that under the administration of his right hon. Friends, whatever may have been their policy on food subsidies, general prices affecting the necessities of life were rising during those two years. Therefore, the right hon. Gentleman is not entitled to make anything of that argument.

I want to follow the right hon. Gentleman a little further on this very question of the effect upon the lower level of taxpayers. That whole of the right hon. Gentleman's argument equated Income Tax and food subsidies. They were the two factors to which he referred. I do not know to what extent food subsidies are in order on this Amendment. If they are in order and are therefore a material matter for the Committee to consider, I must remind the right hon. Gentleman that they are not the only factors in this calculation.

5.0 p.m.

If he wants to make a calculation of the effect on the lower levels of taxpayer he is compelled to take into account the various improvements in the social services to which my right hon. Friend referred in his Budget speech, particularly the increased family allowances and the increased health and unemployment benefits and old age pensions.

If the right hon. Gentleman is simply going to do a little sum on a bit of paper and say that this person gets no relief in Income Tax, generally for the very good reason that he does not pay Income Tax anyhow and it is not easy to relieve a man of tax if he does not pay it, he must put on his bit of paper the reliefs in the form of social benefits which the person is gaining. That is the only fair way to make the calculation which I know he enjoys making.

We do not accept the implication in the right hon. Gentleman's speech that it is wrong to give the incentive of tax reduction to people because they happen to earn more than £20 a week, though I would remind the Committee that we have made no special provision for that. It is only in the same bands of income that the adjustments apply. All we have done is not take countervailing measures to deny them reliefs which the people at the lower levels are getting, and, in our view, that is right.

I would point out very respectfully to the right hon. Gentleman that if he is going to do any more of these calculations as to the effects upon individuals at the lower end of the scale he really must, in the language so often used from this Bench, take all relevant considerations into account in making his calculations, and if on the one hand he is including food subsidies, the relevant considerations are bounds to include social service improvements on the other hand.

I now turn to what was said by my hon. and gallant Friend the Member for Angus, South (Captain Duncan), whose Amendmentߞperhaps for a few moments the Committee has forgotten itߞwe are discussing. From very much of what he said, I do not dissent. In the realms of general principle, in his admirable speech he gave a very balanced exposition of certain very important aspects of the matter.

Mr. Roy Jenkins

Would the hon. Gentleman also apply those remarks to the speech of his hon. Friend the Member for Heeley (Mr. P. Roberts)?

Mr. Boyd-Carpenter

Apparently the hon. Gentleman is seeking a bouquet for himself; but I realty must be allowed to decide the distribution of bouquets without the hon. Member's assistance. I would remind him that it is the Amendment of my hon. and gallant Friend the Member for Angus, South that we are discussing, a reminder which, as I have said, most of us perhaps rather need.

My hon. and gallant Friend the Member for Angus, South will appreciate that we have recognised a great deal of the force of what he said by the reductions in Income Tax liability which we have provided in this year's Finance Bill. I must not particularise, Mr. Bowles, or you will, I am certain, point out to me that they arise not on this Amendment or Clause, but subsequently. However, my hon. and gallant Friend will appreciate that concessions on Income Tax amounting in all to £180 million in the current year are made in the financial proposals now before the Committee. His proposalsߞI think he will find the figures convenientߞwould add a further £83 million this year, or £95 million in a full year. That would be a figure over and above the £180 million in the current year.

Mr. William Keenan (Liverpool, Kirkdale)

Would the effect of the Amendment be £83 million only? Would it not have some effect upon adjustments of Surtax later as a consequence?

Mr. Boyd-Carpenter

The total cost of the Amendment would be the figures I have given. I can assure the hon. Member of that.

My hon. and gallant Friend indicated in his speech that he did not really expect that it would be possible for my right hon. Friend in this year's proposals to go further than that, and, apart altogether from the detailed questions on the merits of his proposal, I am afraid that the additional cost in respect of Income Tax concessions is one which it is not possible for my right hon. Friend to accept. However, in his own speech my hon. and gallant Friend made it clear that no one would be more surprised than he had I, when I rose to speak, indicated, at any rate this year, any other line. Equally, he will realise that much of the reasoning behind his speech carried with it very solid confirmation of what my right hon. Friend has been able to do in the proposals before the Committee.

Mr. Mulley

With the penetrating wisdom that he often brings to our discussion, the Financial Secretary to the Treasury said that it is impossible to relieve a man of tax if he does not pay tax. It is true that it is impossible to relieve people of Income Tax if they do not pay it, and, therefore, the Income Tax alterations in the Finance Bill, as an incentive, do not affect a great number of people.

But the Chancellor does not also take the line that it is impossible to put on people a burden that they cannot bear. Fundamentally, our criticism of the Budget is that in order to provide Income Tax reliefs, the incentive effect of which at best is speculative, as my right hon. Friend the Member for Battersea, North (Mr. Jay), has shown, great burdens have been put on the lower income groups.

We have had a very remarkable series of arguments from hon. Members opposite in support of the Amendment. I believe the main reason is that the sponsors of the Amendment cannot put succinctly the real reason why the Amendment comes forward. I believe the real reason is that they feel that they are under an obligation to do something more for their wealthy friends.

I hope the citizens of Sheffield will note that their two Liberal-Conservative hon. Members have entertained the Committee this afternoon with a proposal which will not benefit a single person earning less than £650 a year and will not put a halfpenny into the pocket of a married man with two children unless his income is over £1,000 a year. As the hon. Member for Hallam (Mr. Jennings) said, the main advantage of the proposition is not for the ordinary taxpayer but is for private and public companies, and they would be relieved of a substantial amount of taxation. As my hon. Friend the Member for Stechford (Mr. Roy Jenkins) said, that is a remarkable proposition at a time when we are asked to consider an Excess Profits Levy on industry.

The Opposition would like to see an even greater amount of taxation imposed upon company profits. Indeed, the hon. Member for Heeley (Mr. P. Roberts) said that the thing which interested him was that at the present time, with accounts coming forward, facts which the Chancellor could not have known when the Budget was prepared, show vastly increased company profits for the last financial year. I hope the Financial Secretary will have noted his hon. Friend's remark and will again look at profits taxation from that angle, not for the purpose of relieving companies of Income Tax but, as the Opposition will propose later, in order to re-impose Profits Tax at its former level. One feature of the proposal before the Committee is the very unsatisfactory effect it will have on company profits taxation should it be passed.

I now wish to make a brief reference to what I think is the crux of these Finance Bill debates, which was put into words by the hon. Member for Heeley, who said that he knows the problem of the lack of demand as measured in the shops in the back streets of Sheffield. I think I know at least as well, and probably better, the back streets to which he refers since his constituency and mine adjoin in such a neighbourhood. He may also have cause to reflect on the municipal election results in the ward bearing the name of his constituency, which may indicate the conclusion his constituents are drawing as to the reason for the tightness of money in the shops and back streets of Sheffield.

The reason, of course, is not because the standard level of Income Tax is 9s. 6d. in the £ and not 9s. The reason is that, taking the Budget as a whole, the spending power of the ordinary workingman and woman has been severely limited by the increased cost of living as a result of the food subsidy cut, the failure of the Government to implement their electoral promise to reduce the cost of living, increased fares due to the increased Petrol Duty, and the D scheme which brings clothing not formerly taxed into the Purchase Tax range.

It is for these reasons, because the ordinary man and woman has to spend more for the basic necessities of life, that there is a shortage of demand in the shops to which he referred.

Mr. P. Roberts

The hon. Gentleman is putting the wrong emphasis on this. These things are the inevitable result of the inflation under the late Government over the last three or four years.

Mr. Mulley

I do not want to detain the Committee while the hon. Gentleman and I have a long Sheffield argument, but those Members of the Committee who were present when the hon. Gentleman spoke will recollect that, far from criticising the six years of Labour Government he referred to them as six years of "lusty demand," which I understood to mean, measured in the back streets of Sheffield, six years of prosperity as compared with the beginnings of depression which the ordinary working-man and woman are now beginning to feel.

It is absurd and, I venture to say, politically dishonest for hon. Members opposite to come here with these complaints about the lack of purchasing power and the lack of demand at the present time when their own Front Bench have made it their consistent financial policy to bring about a situation of deflation. They cannot increase the Bank rate, tighten up on money generally, have a restriction on higher purchase arrangements and then come along and say "There is a surplus of £500 million. Let us have this and that concession."

If there is a case for reducing the Budget surplusߞalthough I do not think this is the time or the place to examine that argument in detailߞthe very last and the worst way of doing it is to reduce the standard rate of Income Tax. It would be far better to reduce the allowances, as we hope to propose later in the debate, when we shall hope to have the full support of hon. Members opposite in the Lobbies if necessary. It would be much better to do it by exempting a further number of people from the Income Tax range altogether. Both from the individual's point of view and from the national point of view it would be much better if the food subsidy cuts were restored; if something were done to cut down the cost of transport—ߞ

Sir H. Williams

By cutting down railwaymen's wages?

5.15 p.m.

Mr. Mulley

Railwaymen's wages need to be increased. In addition, remove some of the impositions on indirect taxation imposed by the party opposite. It is absurd for the Chancellor to expect the trade unions to restrain wage increase demands when, not only has the cost of living gone up very substantially, but hon. Members opposite are asking for a reduction in the standard rate of Income Tax to benefit those with large incomes ߞand I expect we shall hear pleas later on to reduce the incidence of the Excess Profits Levy. Hon. Members opposite constantly plead for the reduction of taxation on the wealthy and on corporations. While that is being done it is fantastic to expect the trade unions to sit back and ignore the real problem measured in the back streets of Sheffield.

I ask hon. Members opposite at least to be realistic. If they do not like the Budget they alone can do anything substantial about it. If they will join with us in the Division Lobbies we can begin to amend the Finance Bill. But if they say one thing and vote differently, then we on this side of the Committee, being in a minority, can only make our protest. They must bear the responsibilty for the financial policy of the Government. After all, it is their Government.

I hope we shall hear less of this talk by hon. Members opposite who merely try to get it both ways. When they were in Opposition they could always say, "We would like to reduce this tax, and to do this, that and the other," but never would they tell us what expenditure they would cut, or in which direction alternative finance could be raised. Now that they are on the Government benchesߞa position they were very keen to attain judged by the depths to which they stooped to get the electoral support to put them there—ߞ

Mr. Frederic Harris (Croydon, North)

The Socialists ran away from their responsibility.

Mr. Mulley

If the hon. Gentleman has any doubt about what I say, I ask him to reflect on the municipal election results, and to press on his own Front Bench for another General Election now.

Mr. Harris

I said the election was made possible by the Socialists running away from their responsibilities last October.

The Temporary Chairman (Mr. Bowles)

I must point out that the debate has gone very wide. I have been here listening to the debate the whole time, and it must not get any wider.

Mr. Mulley

I am afraid I was tempted into indiscretion by the interjection of the hon. Member for Croydon, North (Mr. F. Harris).

We have had a long debate, and there are many others who wish to speak, so I conclude by saying that if there is any surplus money to be given away by the Chancellor, the reduction of the standard rate of Income Tax is not the best way to do it. I hope that we shall have fewer requests by the party opposite for further relief to the rich at a time when, as the hon. Member for Sheffield, Heeley, warned them, the problem is to do something for the people in the back streets of Sheffield and other cities.

Sir H. Williams

I imagined for a time that we were debating the Gracious Speech. The debate did get very wide, and the hon. Member for Sheffield, Park (Mr. Mulley), protested that he was led astray. He was not led astray. He said that we on this side had stooped to something or other, and he provoked interruption. He, and he alone, was responsible. I shall not be led astray any more.

I did not have any luck in the Budget debate or on the Second Reading. We are between the "whips" on this side and the scorpions on the other side. I prefer the "whips" to the scorpions; therefore, I shall not embarrass the Government in the Lobby, although I may embarrass them a bit with my speech. The Chancellor has inherited a difficult situation, but he has also inherited some bad practices. I think that the late Lord Keynes and the late Sir Stafford Crippsߞboth have been dead some time nowߞdid immense harm to this country by introducing certain novel financial procedures. [An HON. MEMBER: "What about full employment?"] They did not introduce full employment. They did not invent it, nor did they think of it. It is largely an accident, anyhow.

But let us keep to the argument. Between them I think they invented the device of budgeting for more than we need to meet current expenditure. That I regard as fundamentally evil, yet it is the only argument against this concession that it will cost £83 or £88 million a year. The Financial Statement is not a very intelligible document, as a result of the past malpractices of the Chancellor's predecessors, and there are three pages here which emphasise that point.

The final page tells us that we have a surplus of something like £430,000ߞthe exact sum does not matter at all. I think it is £430,813. But if hon. Members look at pages 34 and 35 of the Financial Statement, they will see what is called the "Conventional form of Accounts"ߞnot in the least the convention by which I was brought up. On page 35, there is a table headed "Alternative classification." On these two pages the surplus is given, first, as £538 million, and, secondly, as £687 million, and then there is a footnote which says: This figure does not take account of the net charges due to the reduction of food subsidies. What this amounts to I do not know, nor do other hon. Members; and I very much doubt whether the Chancellor of the Exchequer or the Financial Secretary know. Thus, we can start on that basisߞthat this is a very unintelligible document.

We are being taxed very heavily by Income Tax in order to provide the Government with capital sums which they lend out, as usurers, to a variety of people. I do not like the system and it is because of this bad system that we have direct taxation at a level which, if persisted in, will destroy the industries of this country. Companies are regarded as wealthy corporations by hon. Gentlemen opposite. One hon. Gentleman referred to the effect of this concession on companies. But, if we want to promote the future of British industry, every company is being grossly overtaxed today. After all, only about one-quarter of what a company makes in apparent profit ever reaches the shareholders, and as a rule much less. I have worked out figures in a number of cases. Tax free in most cases, wages and salaries are about 16 times as much as dividends.

Mr. Donald Chapman (Birmingham, Northfield)

Why not?

Sir H. Williams

The hon. Gentleman says, "Why not?"; but it indicates that distributed profits have no significant influence on the cost of living. That is the real issue. Hon. Members ask, "Why not?" At the present time, persons are so heavily taxed that they are individually incapable of saving. There is no source of new capital for industry except the collective saving represented by insurance companies and a few other bodies which organise collective savings through life insurance premiums and so on. No longer can a private individual start an enterprise. The end of that policy is major disaster.

I represent a mixed constituencyߞwhat would be called a middle-class constituencyߞand many of my constituents travel to London every day. A lot of them are nicely housed, and hon. Members will say that behind the front curtains these people live in happy and contented financial circumstances. Not in the least. I have not the slightest doubt that at the end of each year, when they add things up, a very large proportion of my constituents are worse off than when they started, because their savings are gradually being dissipated.

I want this tax reduction not for any of the high-minded reasons which have been given but because I want people to be able to retain in their own pockets a larger portion of their own income. The position has become quite intolerable. A large number of hon. Members opposite would go home with songs in their hearts and smiles on their faces if they could tell their wives tonight that Income Tax had been reduced by 6d. in the £. That is true, and right hon. and hon. Gentlemen know it perfectly well. This idea that everybody is rich who earns more than a £1,000 a year is strange, because that is a very low standard of being rich from the point of view of a great many right hon. and hon. Gentlemen opposite. The then Prime Minister, now the Leader of the Opposition, thought it was extreme poverty to have £10,000 a year, all liable to tax.

Mr. S. Silverman

Is not the hon. Gentleman making a very false point? It is perfectly true that everybody who would get an advantage out of this proposal would be very pleased to get it. That is not a matter for dispute or a matter for argument. The question is whether, in all conscience, one is entitled to have it when, as the hon. Gentleman said, £1,000 is not richnessߞbut £500 or £300 is abject poverty.

Sir H. Williams

The hon. Member for Nelson and Colne (Mr. S. Silverman) has made one speech and 15 interventions. Fortunately, he went out to have a cup of tea and things went on nicely for a time. Now he has come back. After all, unless one can reward adequately the people of outstanding brains and personality and leadership, this country will go down the drain. That is the reality, that we shall lose these people. The emigrants we do not want to lose are those people of outstanding ability.

I do not know whether hon. Gentlemen opposite believe in the doctrine of equality. I do not. The crafts unions do not. They look after their differentials. I do not believe in equality and I do not believe there is any other hon. Member who does believe in it, yet all the speeches from the benches opposite are based on the doctrine of equality. That doctrine leads to disaster. They began with it in Russia, but I suppose the gentleman who presides over the affairs of Russia is now, to all intents and purposes, the richest man in the world.

The Temporary Chairman

The hon. Gentleman is going very wide. He must confine himself to the Amendment.

Sir H. Williams

I should not have said these things, Mr. Bowles, but for the fact that the doctrine of hon. Members opposite was to protest against differentials. I therefore gave an example of what happens if you push a Socialist doctrine to its logical conclusion. The basis of the interventions of the hon. Member for Nelson and Colne is that this Amendment is all for the benefit of the wealthy and is hard luck on other people.

Mr. S. Silverman

The hon. Gentleman is most courteous. He gave way to me before I even decided to intervene. Indeed, I have almost forgotten what was the point. The hon. Gentleman must try to draw a distinction. Because we say that we ought not to take £100 million from the Treasury and give it to the people who need it least instead of to those who need it most, that does not mean that our views are not perfectly consistent with accepting reasonable differentials of income. Because we object to one, it does not necessary follow that we cannot accept the other.

Sir H. Williams

I do not know what are the hourly rates of the A.E.U. and the solicitors' union, but I imagine that there is a very substantial differential. I gave way to the hon. Gentleman because I know he is always "money for jam" when one gives way to him. I do not want to take up too much time in the debate, because already it has been quite lengthy, but I want to protest in the interest of those people who, by their efforts and their talents, and by their endeavours, have built for themselves what they regard as a decent standard of living. I think they are entitled to retain a reasonable proportion of their income, while making such sacrifices as are appropriate and as are necessary because we fought a great war.

The doctrine, as I understand it, is that those people are not entitled to a higher standardߞor not a materially higher standardߞthan those who could not exist economically unless such people had a capacity for leadership. Without that leadership, this country goes to disaster. I am too old for that to matter very much to me. I am pleading for the people of the younger generation who, today, have no conceivable chance of saving enough out of their incomes ever to be able to retire on the basis of their own resources.

Mr. Norman Smith (Nottingham, South)

The hon. Member for Croydon, East (Sir H. Williams) was right in one very important particular and wrong in another, no less important, particular. He was right in putting before the Committee the issue raised by this Amendment, which he stated quite clearly. The issue is, shall we reduce the Income Tax in order to leave in the pockets of private individuals more money wherewith to finance investment? It is that, on the one hand; or, on the other hand, the alternative, which he links with the names of Cripps and Keynes, of budgeting for a surplus in order to finance capital investment in that way. He was right in putting that very clear alternative before the Committee.

Where he erred was in supposing that the Government budget for a surplus and then lend the surplus out at usury. Well, they do not. A Government budget for a surplus and use the surplus to cancel out floating debt, enabling banks to lend out usury without increasing total deposits. But let us get back to the Amendment.

5.30 p.m.

Sir H. Williams

Will the hon. Gentleman look at page 35 of the Financial Statement, where he will see particulars of all the items lent out at usury?

Mr. Smith

It is the invariable financial practice in this country that Budget surpluses are used for the purpose of reducing floating debt, and nobody has departed from that practice in recent years.

Let us get back to the Amendment moved by the hon. and gallant Gentleman the Member for Angus, South (Captain Duncan). The hon. and gallant Gentleman wanted to reduce the Income Tax, and he and his hon. Friends argued that that would leave more money in people's pocketsߞas the hon. Gentleman the Member for Heeley (Mr. P. Roberts) said, "all along the line." Well, now, having got that money those people could do one of two things with it. They could either spend it, or they could invest it. But if they invested it, they would be using their own discretion. That is the essence of the argument of the hon. Member for Heeley. I am glad to see the hon. and gallant Member for Angus, South, nodding his head. The essence of their argument was that individuals should choose at their discretion the direction of individual investment. That is one thing that the Financial Secretary and the Chancellor of the Exchequer would not for one instant allow.

I did wonder, listening to their arguments, whether there was at last a revolt on the part of the business men against financial and other controls by the Government, because it looked like that. If this Amendment were carried, if this sum of money of £83 million this year were allowed to remain in the pockets of individuals, to that extent the employing and investing classes would be independent of bank overdraftsߞand at a time when the Government have instructed the banks to tighten up on overdrafts. Surely hon. Members knew they were not going to get a concession in this direction.

It is one of those curious little coincidences that the cost of this concession would be £83 million this year, and it just so happens that £83 million by simple arithmetic, is the extra cost of Treasury bills in a full year in consequence of the increase in the Bank rate. A year ago the cost of Treasury bills was 10s. percent. Now it is 2[...] percent. The difference is 1.81, and there are £4,400 million of Treasury bills outstanding now. If we multiply 1.81 by 44, we get £83 millionߞthe extra cost of Treasury bills in a full year due to the increase in the Bank rate.

I hope the hon. and gallant Member for Angus, South, and the hon. Member for Heeley will reflect upon that. But for the increased Bank rate, they could have had this concession without loss of revenue. If the hon. and gallant Gentleman the Member for Angus, South, wants to start a revolt by leading business men against the domination of finance, let him come to me, and I will help him and will give him a few ideas for his revolutionary proposal. He and I could make common cause.

The cleverest speech in the debate today was given by that accomplished practitioner of argument, the Financial Secretary, who devoted almost the whole of his time to pouring broadsides irrelevantly into my right hon. Friend the Member for Battersea, North (Mr. Jay), while ignoring the cogent arguments of the back-benchers on the other side of the Committee. There are two ways of looking at it. Most of my hon. Friends think that, if we were to leave all this £83 million this year in the hands of the well-to-do people, many of them would increase their expenditure on luxuries, such as hunters and packs of hounds, which are still going strong in my native Wiltshire. How do we know there would not be an increase in expenditure of that sort? That might happen.

Or it might be found, as the hon. Gentleman the Member for Hallam (Mr. Jennings) very clearly argued, that with more money in their pockets people would have the wherewithal to extend capital expenditure. I think that is a weakness of all their arguments, because it is the fact that since 1945 the physical increase in the capital expenditure of this country, measured as a diversion of labour and materials from the production of consumer goods, has been higher than in any corresponding period in the whole of our history; not higher merely in financial terms, but higher in physical terms, in labour, materials, and so on. That rather does undermine the one valuable argument which they have.

Mr. P. Roberts

Is not capital expenditure now beginning to fall off?

Mr. Smith

That may well be. It is more than a pity that that is so. That arises out of certain intrinsic weaknesses of the monetary system, into which I may not go without being out of order. I hope that the hon. and gallant Member for Angus, South, will be gallant in the literal sense, that he will push his Amendment to a Division; and if he does, although I have grave reservations as to his arguments, I shall fortify his courage by going into the Lobby with him.

Sir Richard Acland (Gravesend)

The argument that has been advanced in the Committee by hon. Members in favour of the Amendment does depend absolutely on there being this £80 million or so available to the Chancellor, and on there being, therefore, no longer an inflationary danger but a deflationary danger confronting us. There could be hon. Members on the other side of the Committee who would agree that that is part of the argument put forward for this Amendment. We may concede that the Chancellor is in a position to make an £80 million or so concession.

The question then would clearly arise whether the proposed concession is the wisest one to make from the point of view of incentives to production. The question of incentives to production involves many considerations which cannot be altogether resolved by scientific or statistical data. It is a matter of opinion, to a larget extentߞa matter of one's feeling about the general sentiment of public opinion.

It seems to me that the very great difference of principle which divides hon. Members on this side of the Committee from those on the other is that we on this side have the feeling that British production depends upon the co-operation of a team which consists of some 20 million or more working men and women. We tend to look at the team as a unit and to consider what would be best to increase the total output of that total team. From that point of view a sense of insecurity, a sense of injustice, and a sense of anxiety are all things which will reduce the total output of the team.

Hon. Members opposite, on the other hand, look at our working population, not as a single team, but as 20 million or more of separate individuals. Therefore, they consider what is to be done to increase the output of each individual considered as an individual. From their point of view it may be that a certain amount of social injustice, a certain amount of a sense of anxiety, a certain amount of a sense of insecurity, far from reducing the output of the team, as we think, would tend to increase the output of each individual by stimulating him to work harder in order to overcome anxiety and to escape from insecurity. It may be that it is for that reason that they have put forward this Amendment.

I should like to correct one point made by my hon. Friend the Member for Stechford (Mr. Roy Jenkins). He said that the Amendment, if carried as it is, would not have any effect upon the rate of tax paid by those in the lower tax bands of 3s. in the £, 5s. in the £, 7s. 6d. in the £. Of course, if the Amendment were carried, it would affect even tax in the lower bands because concessions in the lower bands are worked out as a proportion of the standard rate. They are expressed in terms all relating to thirteen-nineteenths of the standard rate.

The difficulty would be that whereas thirteen-nineteenths of 9s. 6d. works out at 6s. 6d., leaving the taxpayer to pay only 3s. on his first £50ߞor, under the Chancellor's proposals, on his first £100 ߞthirteen-nineteenths of 9s. is heaven knows what. It is a most awkward sum to deal with, and it would make necessary a large number of consequential Amendments in order to prevent all sorts of people in Income Tax offices from having the most frightful headaches.

When one says that this affects people in the lower Income Tax groups, it is really a question of how much. A man with £12 a week and three children would be benefited to the extent of 5s. and a man with £10 a week and two children to the extent of 2s.ߞwhereas a man earning£50 per week would be benefited to the extent of £50 or £60 and, if he earned £10,000 a year, to the extent of at least £250. I think that such changes would increase the sense of social injustice and thereby act, not as an incentive, but as a disincentive to an increase in productivity of our whole working team.

I am glad to have an opportunity of opposing this Amendment, because if it had been in order I should have put down an Amendment to suggest that the rate of Income Tax should be increased. In that sense I should like to offer a few arguments against the proposal that it should be reduced. I hope that the wide latitude which has been afforded to other hon. Members will allow me to say that my suggestionߞwhich I should like the Financial Secretary to consider between now and the next Budgetߞis not simply to increase the rate of Income Tax and leave it at that. I should like to see the rate increased in order to increase the child allowances and family allowances and in order that there may be an opportunity of considering an allowance for the first child. I regard all those proposalsߞan increased rate, bigger child allowances in the Income Tax provisions and larger family allowances, including family allowances on the first childߞas being of a single totality.

The Temporary Chairman (Mr. Bowles)

I think the hon. Baronet is going too far. He cannot argue an increased rate of tax on an Amendment seeking to reduce the rate. The other matters he mentioned were also out of order.

Sir R. Acland

May I, nevertheless, point out what seems to me to be an injustice involved in the present Income Tax ratesߞan injustice which would be increased by the proposal which has been made by the hon. and gallant Gentleman the Member for Angus, South? As I go round my constituency, meeting people, calling at people's houses and, from time to timeߞas is the case with all hon. Membersߞbeing asked in for a talk about things in general, one thing strikes me very forcibly. There is an enormous difference in the financial circumstances of those families which have two, three, four or five children below school age and those families with two or three of those children who have passed school age and are beginning to earn money.

5.45 p.m.

I think we ought to look at the very great difference in prosperity which comes to a family as children leave school and go out to work. Just before the children go out to earn money, the family is in the gravest possible financial difficulties in all the middle and lower levels of wage earners; whereas three or four years later, when those children are going out and earning their living, the family becomes much more affluent. It may be that, on the whole, our people prefer to go through periods of very great financial stringency in order to get into periods when they are a little better off; but I should have thought that a certain amount of evening out of the difficulties, so that families with children would find things a little easier than they do nowߞeven though it would mean that families where the children had started wage earning might find things a little harderߞwould have been a wise direction for Income Tax policy to take over the next few years.

I have been looking with some care at the Income Tax tables which were so kindly printed for us and which show the different sums paid by different people at different income levels and with different numbers of children. It seems to me that the proposals put before the House by the Chancellor of the Exchequer in his Budget and this Finance Bill moved, on the whole, in a wrong direction. It is very difficult to take a typical family. There is no such thing as an average family but one can compare two individual families which are representative of a certain group.

For this purpose I have been looking at the case of two families, one consisting of a father and mother with three children who are aged 15, 13 and 11 years respectively, so that all the children are at school, and another family of the same pattern with all the children four years older, that is to say, 19, 17 and 15 years old. I do not think it is utterly unreasonable to assumeߞit would not be utterly unreasonable in my constituencyߞthat in the case of the family with children aged 19, 17 and 15 years, the boy of 19 years might be earning £5 a week and the boy of 17 might be earning £4 a week. I have considered the head of the family in each case earning different sums per week, and I have tried to find out the effect of the Chancellor's Budget on these two different families.

If the head of the family is earning £8 a weekߞand I agree with the Financial Secretary that one must take into account the increase in family allowances as well as the changes in Income Taxߞthe Chancellor's proposals benefit a family which has all its children at school to the extent of £15 per year. That is simply the increase in the family allowance for two children. If the head of the family is earning £8 a week and he has two children earning £5 and £4 a week respectivelyߞ—

The Temporary Chairman

I did warn the hon. Baronet previously that he must relate his speech to the Amendment which is before the Committee and must not go into details of family or other allowances which are included in the Budget.

Sir R. Acland

I will do my best, although I am sorry if I cannot give these figures as showing how even present arrangements with regard to Income Tax, children's allowances and family allowances are weighted now against the family which has a large number of children and which would be made worse off if the rate of tax were reduced. I am not quite sure whether you, Mr. Bowles, were in the Chair, or whether it was your predecessor, when the Financial Secretary, in answer to the right hon. Member for Battersea, North, made a considerable point in saying that one could not really get a clear picture of the situation without a passing glance at family allowances. The right hon. Member for Battersea, North, was permitted to argue that, in order to get a fair view of the picture, one ought to take account of the way in which prices have been allowed to rise by the reduction of the food subsidies.

The Temporary Chairman

I have been here the whole afternoon, and if the debate has been allowed to go fairly wide by my predecessor, I cannot narrow it, but I must stop it from getting any wider, and the hon. Baronet must confine himself to a passing allusion to family allowances.

Sir R. Acland

I quite agree. I will refer to family allowances where they only come into the picture in a rather indirect manner. The family where the wage earner is getting £12 a week and has all his children at home will receive an advantage from this Budget of something like £13 a year, taking into account all family allowances; whereas when the children are all out and earning and the average income of all the members of the family would be £4 a week or just over, as compared with £2 a week when there was only one wage earner—ߞ

The Temporary Chairman

The hon. Baronet must confine himself to the Amendment and not go into the details of family allowances and of particular wage earners earning £4 or £6 a week. It is not a question of a particular individual's Income Tax and whether it should be reduced or not.

Mr. S. Silverman

On a point of order. The Committee is being asked to approve a proposal to distribute £88 million or £100 million of revenue among certain people. Surely it is competent for an hon. Member to argue that such a proposal is inequitable or undesirable having regard to the present position; and providing that one does not go into too great details or argue the merits or demerits of the personal position, surely it is competent to remind the Committee of what is the present position in order to discuss how far it would be desirable to continue it.

The Temporary Chairman

I think that the hon. Baronet was going into too much detail. I think that a passing reference to these and other allowances is in order, but not in anything like the detail in which he has been going into them. I therefore ask him to confine himself much more closely to the Amendment.

Sir R. Acland

Your predecessor in the Chair, Mr. Bowles, intimated that this was an Amendment on which we could have a rather wide discussion of the present position of the Income Tax and children's allowance structure and on the subject of incentives, and therefore, if one wanted to make a contribution which covered one or other of these points, this would be the time to put it forward.

Mr. Jay

Perhaps I can help the hon. Baronet if I submit to you, Mr. Bowles, that incentive in connection with Income Tax has been within the ambit of this debate, and I should have thought that the hon. Baronet would have an opportunity to refer to children's allowances and family budgets on the next Amendment to be called.

The Temporary Chairman

I had that in mind. The right hon. Gentleman has an Amendment to Clause 11 on which, I think, it might be more convenient to discuss the detailed arguments which the hon. Baronet is putting forward now.

Mr. C. E. Mott-Radclyffe (Windsor)

Some of us hoped to catch your eye, Mr. Bowles, on the general question of incentives on Clause 11 and I take it that we should not be ruled out of order if we raised the question of incentives on that Amendment, if we are fortunate enough to catch your eye.

The Temporary Chairman

I may not be in the Chair myself, and I cannot bind my successor.

Sir R. Acland

I will put this in quite a general way. I think that an examination of the Income Tax tables shows that where there are families of two or three wage earners, the average income per head is much higher than the average income per head in those families where there are a large number of dependent children, even taking account of family allowances, and it will be found that the benefits conferred on the more affluent families are greater than those conferred on those who are less affluent.

I think that is taking us in a wrong direction, and to reduce the standard rate of Income Tax would have the effect of taking us further in that wrong direction, and it would be a much greater step towards social justice and towards a general sense of security amongst our population as a whole to go in the exactly opposite direction by increasing the rate of tax, so as to increase children's allowances and family allowances. This, of course, would affect adversely those families which have no dependent children and have several wage earners in the family, but it would act beneficially in regard to those families which have a large number of dependent children; and those are the families which, in my view and my experience of calling from door to door, are at this moment feeling the tightest pinch arising from the financial stringency of our country.

That is why I am glad to know that the Government are going to reject this Amendment, but I would commend to the Chancellor, during the year, if the Government should remain in power during the whole of the year, or, if not, to any other Chancellor of the Exchequer, that he should do the exact opposite of what is suggested in the Amendment before us.

Captain Duncan

We have had a very long discussion, and I have no desire that this Amendment should take up further time, so I beg to ask leave to withdraw it. I could, however, say a tremendous lot more about it if I wished to.

Several Hon. Members rose

The Temporary Chairman

At least four hon. Members have got up, and, therefore, I must rule that the hon. and gallant Gentleman has not the leave which he sought to withdraw the Amendment.

Mr. Keenan

If I can, I will get back to the Amendment before the Committee. If I remember aright a similar Amendment was put down last year by the Opposition to reduce the Income Tax by, I think, 6d. I think that the Financial Secretary had something to do with that, and I remember taking part in that debate myself. I am rather concerned because it is suggested that if the Amendment were agreed to it would represent a sum amounting to £83 million.

6.0 p.m.

I remember that last year when this matter was under discussion the Government then said that the cost of this concession would have been £80 million. That indicates that the position of those people for whom relief is being sought has not deteriorated but is improving. That is borne out by the fact that if the Government gave way on this point it would cost them more than that amount of £80 million. The mover and seconder of the Amendment stressed the point that if this concession were granted it would provide not only an incentive but an increase in purchasing power to those who would get the benefit of the reduced taxation. The implication was that this would be a further opportunity for those who would benefit to indulge in an orgy of purchasing textiles.

I agree with the hon. Baronet on this point. I am not satisfied that taxation, even though Supertax is 19s. 6d. in the £, is sufficiently high when we take into account the amounts which are retained by some people even after paying that high rate of taxation. I submit that it is asking too much to ease the burden of taxation on people earning £1,000 a year or more, which is what this Amendment seeks to do. It is an indication of what those who tabled the Amendment think about the position.

I noticed at the time of the Budget that they were not concerned about the reductions in subsidies which robbed people of a certain amount of their income and reduced the standards of the workers. The amount involved there is £160 million. In spite of that, it is sug- gested that £83 million should be found to make a further present to those who are the best off in the community.

I am rather surprised at the reply from the Government benches. I think the Financial Secretary let his friends off very lightly. I know that he was implicated last year, as he has been for many years, in an attempt to make the then Government agree to a proposal similar to this. But if there were a Division upon this Amendment I can assure him that, in spite of his attitude last year, I should not be deterred from supporting the Government in the Division Lobby on this point.

Mr. Boyd-Carpenter

I hope the Committee may be prepared to make a little progress. We have had a very interesting debate, not only on the strict subject matter of my hon. and gallant Friend's Amendment, but also on the wider issues which you, Sir Charles, in your wisdom, ruled that we might be allowed to discuss with this Amendment as a kind of peg on which they might be conveniently suspended.

We have a good deal of business to transact, and my hon. and gallant Friend is not anxious to detain the Committee unduly. We have a good many Clauses ahead of us and a good deal of business to transact, and, while I am sure that any further contributions which might be offered would be of value and assistance, I wonder whether hon. Members appreciate, as they will if they look at the Order Paper, the further agreeable opportunities which still lie ahead of them, and whether they would, therefore, be prepared to deal with this Amendment now.

I am emboldened in that request by the fact that my hon. and gallant Friend has indicated that so far as he is concerned he is prepared to seek the leave of the Committee to withdraw the Amendment. He was not, in fact, granted permission by the Committee, but I would submit that, so far, we have succeeded in making reasonable progress without undue inconvenience to anybody and I hope that this agreeable atmosphere may continue. As the majority of speeches have been made against the Amendment and the mover has indicated his willingness to withdraw it, perhaps we might be able to make further progress. I am glad to say that the absence of one hon. Member, other than the occupant of the Chair, does not inhibit the Committee from doing what in its wisdom it wishes to do.

Several Hon. Members rose

The Chairman

Surely the Committee is now ready to come to a decision. We have had two and a half hours' debate on this Amendment.

Mr. R. T. Paget (Northampton)

I have not intervened in this debate before. Sir Charles, and, in spite of the attractive plea which we have had from the Financial Secretary, perhaps I may be spared five minutes in which to make a point which I have been seeking for some time to make.

The suggestion in support of this Amendment was that it would provide an opportunity for saying, "Part of the money might be saved, but if the Amendment is accepted the whole of it is saved, because the Budget surplus is saving and is investment." My criticism of this Budget is that I think it is desperately inflationary. It is somewhat naive of the Chancellor to ask, as he did over the weekend for wage restraint from the trade unions when he has done everything in his Budget to provoke those wage demands. If he had proposed not merely to deflate bat to keep the inflationary position level, he would have had not merely to maintain the rate of Income Tax but to increase it a good deal. To accept this Amendment would be a desperately inflationary Act.

One of the devices which the right hon. Gentleman has been adopting has been to cut down investment which has been running since the war at a much higher rate than ever before in our history. But that cutting down of investment is cutting down future production. To get out of his temporary difficulties he has been eating the seed core. That is why this Budget is so improvident, and already its consequence is that the production which has saved us from one difficulty after another by steadily increasing year after year has stopped increasing. Production figures have not gone up this quarter as they have every other quarter since the war.

I appeal to the Chancellor not merely to resist an Amendment of this sort, as I feel sure he will, but to say whether he does not think that something serious has to be done to regain the level of investment and to build up production which he is losing.

Mr. Chapman

I also promise to be brief not only because of the time and the amity in which these discussions have proceeded, but also because I fear that my voice will not carry for more than a few minutes.

I wish to refer to the speech of the Financial Secretary in resisting this Amendment and the remarks of my right hon. Friend the Member for Battersea, North (Mr. Jay). The argument so far on the whole question of incentives has been that we were resisting this further concession to the higher Income Tax payers on the ground that already they have had enough out of this Budget and probably too much. The Financial Secretary said that in these circumstances, when we look at the lower income levels, we must take into account not merely the alterations in Income Tax but also some of the compensating social benefits that would arise from the Budget.

I want very briefly to look at that problem within the general context of incentives. The Financial Secretary said, in effect, that it was quite wrong to argue that the Income Tax reliefs given so far were disincentives in the sense that they were transferring from those least able to pay to those who could most afford to pay Income Tax. Let us look at the position of a man with £9 a week. It is already a fact that he has not got anything out of this Budget, and if this Amendment were accepted his position would be even worse relative to the whole of the rest of the Income Tax paying population.

A man with £9 a week and a family is at present getting out of this Budget one single relief, which is 3s. a week for the second child. He is losing 6s. a week which he is paying in increased cost of food—four people at 1s. 6d. per head; and he is getting no relief of Income Tax because he does not pay any. He has also to pay the increased cost of bus fares and of clothing under the D scheme. He is getting a total relief of 3s. and to set against that he is losing 6s. in food subsidies and extra shillings because of other factors.

It is, therefore, true—and the Financial Secretary is misleading the Committee in this matter—to say that even when the social benefits are taken into account hundreds of thousands of people, perhaps millions, including clerks, distribution workers, railway workers and people like that, who have between £5 and £9 a week, are, in effect, paying for the increased Income Tax reliefs for those with over £1,000 and £2,000 a year. That fact cannot be sufficiently stressed. The Financial Secretary got away with it too easily by saying that the social benefits had to be taken into account, for he did not take them in account at all but ran away from the whole problem.

To the person with £8 or £9 a week these reliefs make no difference. The conclusion that we on this side of the Committee have reached is that there has already been a re-distribution of purchasing power away from these lower paid workers—through the cut in the food subsidies and the alteration of Income Tax which they do not pay anyway-and that their position would be even worse through this Amendment.

Finally, I should like to say a word in reply to the arguments of the hon. Member for Heeley (Mr. P. Roberts). He was anxious that the Income Tax rate should be reduced to expand purchasing power and thus avoid the incipient deflation facing some industries. Has he reflected precisely what his proposals will mean? The industries which are on the verge of deflation are the textile industries, those engaged in the manufacture of boots and shoes, and similar consumer goods.

I am quite sure that the effect of this Amendment, were it carried, would be to release the larger amounts of purchasing power mainly among the rich. It would not really affect the class of consumer goods which is suffering through deflation, but would bring increased demand in those industries which do not so much need help. Through its effect on profits of industry, it would result in a heavier demand for more capital goods at a time when the Government are seeking to get more capital goods exported, when they are cutting the level of investment, and altering initial allowances. The whole effect would not be anti-deflationary in the industries that need that help. It would be those other industries which do not need such help and it certainly would not be in the national interest at this moment.

Amendment negatived.

Motion made, and Question proposed. "That the Clause stand part of the Bill."

6.15 p.m.

Mr. Ian Horobin (Oldham, East)

I shall not detain the Committee for more than a minute or so, but we have the Chancellor here and I want to make one observation to him for his consideration between now and next year. It has to do with the accounting which has already confused the Committee and which is known as below the line expenditure. The reason why we have to raise this enormous sum of Income Tax is tied up with the hundreds of millions of pounds, and, in particular, the £300 million which my right hon. Friend takes from the taxpayer and lends to the local authorities. That had to be done in the days when we had different interest rates because, otherwise, they would not get the money.

My right hon. Friend has most courageously and in timely fashion put that matter right, and it should be urgently considered now whether the local authorities should not take their place in the queue and borrow money from the public at the market rate. As soon as that is done it will no longer be necessary for him to raise these very large sums which have added so greatly to his difficulties. Nothing can be done this year, but the improvement in the rate of interest charged gives him the opportunity, before the next Budget, of bringing a very desirable additional weapon to his aid in making his monetary policy effective, and at the same time, reducing taxation at this point.

I do not press this now, but I earnestly hope that between now and the next Budget my right hon. Friend will look into the whole question of a return to the earlier, saner policy in these matters which he has shown his willingness to do, to the advantage of the taxpayer and the industries of this country.

Question put, and agreed to.

Clause ordered to stand part of the Bill.