Clause 29.—(RELATION OF PROFITS TAX TO INCOME TAX, RATES OF PROFITS TAX, ETC.)

HC Deb 26 May 1952 vol 501 cc1068-111

Mr. R. A. Butler

I beg to move, in page 32, line 26, to leave out "seventeen," and to insert "twenty-two."

It might be for the general convenience of the Committee if we had a general discussion on this Clause, since all the Amendments relate to either the raising or lowering of the Profits Tax and I think the issue is the same. I am in the hands of the Committee, however, and I might add that in the end it will come to much the same thing.

For instance, my hon. Friend the Member for Farnham (Mr. Nicholson) has an Amendment which raises the possibility of lowering the tax on undistributed profits—that is, profits put to reserve. I should in any case be mentioning that matter, and I do not think he would be inconvenienced if we discussed this generally, because he will be able to put his point and either I or one of the other Ministers concerned will answer the debate. I trust that what I have suggested will not preclude any Member of the Opposition putting the matter to the vote on any of their Amendments, for that can be done.

The Temporary Chairman (Mr. Frank Bowles)

The only Amendments that have been selected on Clause 29 are those in the name of the Chancellor of the Exchequer. Those in the names of Members of the Opposition have not been selected.

Mr. Butler

I have foreseen the wisdom of the way in which the affairs of this Committee are conducted to give an opportunity to hon. Members to express their opinion.

The object of this Amendment and that to line 28, follows on my decision to make certain amendments to the Excess Profits Levy. I decided that it was necessary in certain circumstances to restore the rate of Profits Tax to 22½ per cent. in order to deal with the problem involved for the Exchequer as a result of the Amendments made in the Excess Profits Levy. That means that the Profits Tax, although considerably below what it was under the late administration, will now stand at a level of 22½ per cent. on distributed profits; on the other hand, the level on undistributed profits will be 2½ per cent., which is half the level under the previous administration. That in itself is an indication of the attitude of the Government to the burden of the Profits Tax both on distributed and undistributed profits.

In the case of undistributed profits the tax is now only half of what it was under the late administration, and that points to our belief that it is important that profits should be put to reserve to give industries an opportunity to face the real difficulties with which they are confronted. I should now like to acknowledge the difficulties which they have to undergo when facing the matter of replacement and other problems today.

The tax would be at the rate of 22½ per cent. on distributed profits as against 26¼ per cent., which in itself is a reduction. I hope hon. Members and those outside the Committee will observe this. This means that the tax on distributed profits will be at a fairly high level, and to that extent will, in the event of distribution of dividends, affect the policy in that direction.

In all sincerity I think that this is the best course to take considering the position with which we are faced at the present time. I shall give before I conclude the general balance-sheet of these operations even though I have given it previously. The position is that we have now an additional burden on industry of some £80 million compared with approximately £100 million which I stated in my Budget speech.

9.30 p.m.

The rates of Profits Tax have been reduced by nearly £70 million, and by the reliefs the general level of the E.P.L. has been reduced from about £200 million to £140 million. The general balance-sheet therefore works out at £80 million, which will come into the Revenue next year. We are not dealing with this year's Revenue but with next year's. This is a general arrangement which is, at any rate, conceived in equity. I do not think, in face of the national position. I could have taken any other decision.

Originally, when the Excess Profits Levy was drafted, I coupled with it a proposal for a reduction in the Profits Tax rates. I cannot possibly commit this Government or any other Government about what will happen when the Excess Profits Levy is ended. I have already indicated to the Committee that it is not proposed that this shall be a permanent tax. It should be a clear indication to industry that when the Excess Profits Levy is removed, at such a date as is suitable, consistent with the reasons and motives which prompted its introduction—that is to say, it was to be related to the injection of re-armament into our economy—there will be a Profits Tax level which I hope will not be an undue burden on industry.

It should give some indication to my hon. Friends on this side of the Committee, to hon. Gentlemen on that side of the Committee who are interested in the burdens of taxation on industry, and to people outside, that we sincerely understand this problem and that we believe that the needs of production are of paramount importance to the country and to any Government. We could not possibly subscribe to the view that company taxation should be continued indefinitely at its present level. That must be a constant preoccupation of anybody holding the high office which I do.

I had to consider Revenue considerations in deciding the extent to which a reduction in Profits Tax could be made. I have given the Committee already the general sum which was involved in my calculations. The Committee have now run through the general rate and nature of the tax, with the exception of the new Clauses on the Excess Profits Levy. They will therefore see that the Amendments which I am moving will not take back the total relief which has been given under the legitimate Amendments relating to Excess Profits Levy. At the same time it gives to the Revenue a certainty in the coming year.

My hon. Friend the Member for Farnham has on the Order Paper an Amendment for the complete abolition of the tax on undistributed profits. While it was in our election address and also in our manifesto that it would be a very good thing to reduce taxation on profits ploughed back into industry, I must tell my hon. Friend that a concession for the abolition of the remaining 2½ per cent. would work out at some £50 million, which it would be impossible for me to consider in the present national situation. I feel sure he will agree, now we are on his side, in his desire to reduce the burden on undistributed profits, that a bill of such a nature would be too much for us to contemplate at the present time.

Mr. Horobin

Would not the £50 million come into next year and not into the present year?

Mr. Butler

Yes, as I have already indicated, the position is related to next year because of the period which has to elapse before the computation of the tax can be made. Nevertheless, I do not think anyone examining the situation of our national economy would be so unwise as to take only a few months' outlook. It is essential for anybody in my position to look ahead and to advise the Committee accordingly. I am giving the Committee my considered advice that a concession of that character would be a very severe one at this time.

I hope, however, that a little more attention may be given in the Committee and outside to the considerable relief that I have already given to undistributed profits. This amounts to a figure approaching £50 million and is an indication of the fundamental attitude of the Government towards the taxation of industry.

Now the question will be raised whether industry can afford the figures which we have suggested. There has undoubtedly been a rise in industrial profits. The figure for 1949 was about £2,100 million. Taking the general figures I can extract, in 1950 this went up to £2,450 million and for 1951 the figure is estimated at £3,050 million.

I mention these figures to show that there is some justification for the attitude I have adopted in regard to the taxation of profits. I think there is some justification, therefore, for the attitude of the Government. I am trying to be as moderate and sensible in my language as I can in order to convince those who have been very critical indeed of the action taken by the Government. I think they will find that the basis on which we stand is a sensible one, and at any rate is conceived with a spirit of great responsibility, and that if there are sacrifices to be made we have tried our best, in the case of the undistributed profits, to give a relief to industry.

I have already stated my opinion in the Committee this evening that this is one of our major national problems. Throughout the administration which I hope we shall carry out, the needs of productive industry will be put first. Nevertheless, having given this undertaking in our election manifesto that there should be an Excess Profits Levy, the course I have taken under the circumstances is the only one that can be taken by a responsible person.

In the position as I see it, we have taken a course which is inevitable at the present time and I believe that if hon. Members will apply their minds to what I have said they will realise that this is the only thing we can do. I am hoping that we shall come to the point when the burdens of industry will be relieved, and in moving this Amendment I look forward to the day when we shall have got out of a period of national emergency and when there will be no further need for the Excess Profits Levy.

I am obliged to the Committee for the spirit in which they have considered the detailed points concerned with the levy. I am moving the Amendment in the same spirit in which we have considered our previous work, and in the belief that those who have said that I was not stiff enough in the Budget will conceive that, looking ahead, I could not possibly have conceded any more revenue than I have done, and that those who say that I was too stiff in the Budget will understand that under the circumstances I have made a balance between the needs of the nation and the needs of productive industry.

Mr. Crosland

The Amendments which the Chancellor is putting forward constitute the climax to the sad story of changes, blunders and mistakes that we have had ever since this Bill was first introduced. These Amendments represent the most important change in a Finance Bill which could possibly be conceived—a major shift in the emphasis from one tax to another—and we are put in the somewhat humiliating position of considering this major change at a very late stage in the whole progress of the Bill.

The Chancellor has moved the first of his Amendments in a very non-controversial speech, and I should just like to sketch in outline what, I think, will be the attitude of most Members on this side. You are not proposing, Mr. Bowles, to call any of the Amendments which we on this side have tabled, so that it is not open to me to move those Amendments, but I can say that our general attitude on this side of the Committee is that the Profits Tax should have been put back to the level where it stood before the Chancellor introduced his Budget on 11th March.

The Temporary Chairman

Perhaps I should explain that what I said was that those Amendments fall if the Government Amendments are carried. If, of course, the present Amendment is not carried, the right hon. Member for Leeds, South (Mr. Gaitskell) will be able to move his Amendment. The assumption on which the Chairman made his selection obviously was that the Government Amendment would be carried.

Mr. Gaitskell

As you will see from the Order Paper, Mr. Bowles, our first proposal is, in effect, that the reduction in the rate of tax on distributed profits should be greater than is proposed in the Chancellor's Amendment. Is there really no way by which we may discuss that Amendment? There is a very important distinction. I think that everybody understands the difference, and we are in a very difficult position if the Amendment is not called.

The Temporary Chairman

Perhaps the right hon. Gentleman will allow me to consider this. I am only temporarily in the Chair, and have no say in the matter of selection. I will consider the point, but at the moment the debate will continue on the Chancellor's Amendment.

Mr. Gaitskell

We have, of course, no objection to the debate going on on the various Amendments together.

The Temporary Chairman

I will inquire what the Chairman has to say.

Mr. Crosland

Pending that consideration, perhaps I can continue with the general statement of our attitude on this side of the Committee. If, as you have said, Mr. Bowles, it will be in order for us to move our Amendments in the event of the Chancellor's Amendment being defeated, we merely look forward to the next Division and to a substantial victory on this side, and then the whole technical problem will be settled.

The Temporary Chairman

There is no objection to the hon. Member talking about his own figures in discussing the Chancellor's Amendment. The question is whether, when the times comes, his Amendment will have fallen.

Mr. Crosland

Our argument as far as the figures are concerned is that the figures for the distributed Profits Tax should be put up to where they stood before the Chancellor introduced his Budget. That figure is 26¼ per cent.—that is, the old figure of 50 per cent. when Profits Tax could be made a deduction for Income Tax purposes. So far as undistributed profits are concerned, we hold that they should go back also to the previous figure.

There is logic for our saying that. We on this side have taken the view right from the start that it would have been much better not to have reduced the Profits Tax in the first place and at the same time, not to have imposed the Excess Profits Levy. We have made it clear from this side again and again that we think that the Excess Profits Levy is a wholly undesirable kind of tax. We would much prefer, therefore, not to have heard anything of the E.P.L. and at the same time not to have had the reductions in the Profits Tax which the Chancellor announced in his Budget.

Had we been discussing these Clauses in their proper position in the Bill—that is to say, as Clauses 29 and 30—before we came to the Excess Profits Levy, we would then have argued against any reduction in the Profits Tax, and then, when we came to the E.P.L., we should have argued against that in addition. In fact, as hon. Members know, for the convenience of the Committee it was decided to take the Excess Profits Levy first, at the urgent request of the Chancellor, and we are now in the position where the Committee has decided to accept the E.P.L.

Had E.P.L. been passed by the Committee with virtually no Amendments, and had the yield from it been expected to be the original figure which the Chancellor gave in his Budget speech, it then might have been somewhat harsh on industry if we from this side had still proposed that none of the Profits Tax reductions should have been made.

9.45 p.m.

But that, of course, is not the position because the Chancellor has made a number of very important concessions during the discussions on the Excess Profits Levy. As a result of that the expected yield from E.P.L. is reduced by about £40 million to £50 million, as compared with the original figure of the Chancellor. By these concessions on E.P.L. the Chancellor himself has taken the opportunity to restore a considerable part of the cuts he made at the same time in the Profits Tax.

As he has just said, he has not, by eliminating part of the Profits Tax concession, got back the whole of the money which he gave away by his E.P.L. concessions. Not only is he losing money on balance, but we have had an enormous number of subjects which the Solicitor-General, or the Financial Secretary or whoever it may be, has promised to look at between now and Report stage; and it will be surprising indeed if a number of further concessions are not made on Report stage. If that is so, there will be a very significant fall in the yield of E.P.L., possibly by as much as one half, and that will be a very different E.P.L. from the one originally announced by the Chancellor.

If there is to be a fall in the yield of E.P.L. by as much as one half, already it is over one quarter, we hold the view that the proper thing to do with the Purchase Tax is to restore it precisely to where it stood before and not make any Profits Tax concession whatsoever. That is the suggestion of the Amendments which may or may not, according to how the debate on procedure goes, be moved from this side of the Committee.

The Temporary Chairman

I think the hon. Member should give me an opportunity to make the position clear to the Committee. It seems that both sides of the Committee wish to leave out the word "seventeen." It is usual for the Chancellor's Amendment to come before any other Amendment on the Order Paper, at that place by matter of custom. Therefore the next vote, if there is a vote at all, will be that the words "twenty-two" be inserted in the Clause. If it is, there is no room in the Clause to put in any other figure. If that is defeated it is open to any other hon. Gentleman to move that another figure be there inserted such as "twenty-six." I hope that is clear to the Committee; I think it is procedurally correct.

Mr. Crosland

To move the Amendment we must wait until the Government are defeated, but I take it that I am perfectly in order in arguing on the figure in our Amendment.

The reason why we take this view that these figures should be put back to where they were before in view of the nature of the concessions in the Excess Profits Levy are these. It is still the case, taking E.P.L. and the concessions which the Chancellor is making over the Purchase Tax that a great number of companies who will pay under E.P.L., because their profits were no higher than in the standard year, will have their total profits taxation reduced as compared with the previous position. We do not consider that those companies whose profits are no higher during the chargeable period than during the standard years are deserving well of the country.

We think it illogical and unjust that those companies who had no increase in profits since the standard years should actually find the total rate of taxation on their profits reduced at a time when companies which have substantially increased their profits are now paying an enormous proportion of that increase to the Exchequer. This seems a wholly undesirable principle which has neither logic nor justice in it. It applies to companies whose profits have not increased in the standard period, companies who have taken no notice of the appeals of the previous Government for restraint and have distributed all that they could in higher profits. Even though it is a company which has played its part in the restraint urged on it over the last few years it will be in a better position as a result of this fall in E.P.L. plus reduction in the Purchase Tax. That seems unjustifiable in a situation like the present one.

In addition, we are concerned with anything which reduces the bias against distributed profits. Many hon. Members on this side of the Committee will agree that when hon. Gentlemen opposite argue about the taxation of undistributed profits there is obviously an important point in what they say. When they argue about how important it is to watch that there is the ability in industry to modernise and expand plant, and that obviously undistributed profits are necessary, nobody on this side of the Committee disputes that.

We hold strongly that it is necessary to differentiate most sharply between distributed and undistributed profits. We hold that different considerations apply in these two cases. We are against anything which reduces the bias against distributed as opposed to undistributed profits. These are our reasons for disliking this reduction in Profits Tax combined with the imposition of E.P.L.

This change comes at a most unfortunate moment for the Government. We read in the Press that the Chancellor recently met the trade union leaders. It is assumed from what we read that he has asked for restraint. He has made a number of references during the proceedings on the Finance Bill to various matters in the Bill which he personally hopes might encourage a tendency to restraint on their part.

But surely at such a moment, above all, he should not put himself in the position, as he is doing with these two taxes, of reducing taxation precisely on the most stagnant companies—the companies which have not expanded their profits at all. It is also the last moment that he should choose to diminish in any way the bias between distributed and undistributed profits. If he wishes restraint from their side, he must watch this point.

Mr. R. A. Butler

On the question of distributed profits—the change from 17½ per cent. to 22½ per cent.—I cannot follow the hon. Gentleman's argument.

Mr. Crosland

I was not talking merely of the increase from 17½ per cent. to 22½ per cent., but of the position as far as profits taxation as a whole is concerned. I was referring not only to changes in Profits Tax, but also to the imposition of E.P.L. which, broadly speaking, is nondiscriminatory between distributed and undistributed profits. I know that there is the question of under-distribution but, broadly speaking, it is non-discriminatory. It is clear that, taking the E.P.L. and the Profits Tax changes together, there is less bias against distributed profits now than there was before the Chancellor introduced the Budget in March.

Mr. Butler

If the hon. Gentleman is sincerely actuated, as I believe he is, by a desire to improve the balance of payments position, he will realise that most of the changes concerned with E.P.L. have had to do with developing enterprising and exporting companies, and so on, which are most important to our balance of payments. I do not think that he is doing justice to my remarks.

Mr. Crosland

I certainly have not tried to impugn the sincerity of the right hon. Gentleman in the slightest. We on this side of the Committee have approved right from the start almost all the Amendments which the Chancellor has tabled to E.P.L. especially the one he has just mentioned which is designed to help exporting raw material producing companies. I admit that E.P.L. is a much better tax now than it was a fortnight ago. But, in spite of that Amendment, I think that the sum total of changes in E.P.L. and Profits Tax taken together give a position which, although not nearly so damaging as it was when the Finance Bill was first published, is, nevertheless, still damaging as compared with the previous state of affairs.

I wish to conclude with a few remarks on the question of giving away money from the Budget surplus. The Chancellor has given away a certain amount of money by the E.P.L. concessions which he has made in the last few days. I do not believe that the argument against giving away money need be taken too literally and too seriously at the moment. What we should still like the Chancellor to do would be to scrap the E.P.L. and put the rate of Profits Tax back to where it was before. It might be that by doing this he would still lose a certain amount of money, but we must get this question of a Budget surplus in perspective.

The Chancellor, in his Budget speech, was naturally and rightly diffident about making any dogmatic prognostications whether we were in for inflation or deflation in the coming year. I think he was quite right to be diffident, because it was never harder than it was then to see the economic outlook. Looking back, however, it is now clear from what has happened since that the Budget was, if anything, too disinflationary, and not too inflationary.

Unemployment has tended to increase since the Budget, and the general signs of deflation are stronger than they were a few months ago, while any signs of inflation are much less strong. This is proved by the amount of time which we have spent in this House and in Committee on problems such as unemployment in the textile industry, and so on. Therefore, I do not think we need take that particular argument too seriously.

Our theme on this Excess Profits Levy has remained absolutely consistent right from the start. We have never liked E.P.L., and we have always thought that it would penalise not mainly the firms whom the Chancellor wanted to penalise—the firms making high profits out of re-armament. What we said right from the start was that it would penalise the efficient and—

Mr. P. Roberts

Before the hon. Gentleman leaves the question of the Budget surplus, may I ask him if he is suggesting that, because there is this deflationary tendency, there is, therefore, no need to maintain the Budget surplus at the £500 million at which it was fixed in the Budget?

Mr. Crosland

Certainly, I am suggesting that. I agree, in general terms, though I would not go so far as he did, with the remarks which the hon. Member for Heeley (Mr. P. Roberts) made a few days ago. In view of this increasing deflationary tendency and the growing signs of unemployment, the Chancellor has had more room for manoeuvre in his Budget than a Chancellor normally has.

I was concluding by saying that we have been against E.P.L. from the start. We think it is a wholly unsatisfactory tax, particularly when it is combined with a reduction in the Profits Tax, and, in particular, a reduction in the taxation on distributed profits. Taking these two things together, we have a state of affairs which, even after the improvements which the Chancellor has introduced, is bad both for industrial efficiency and for the distribution of income in the country, and, if we get something which is bad from both those points of view, it is bad indeed.

Mr. Nicholson

I am sorry that the hon. Member for Gloucestershire, South (Mr. Crosland) should attack the Chancellor of the Exchequer for making concessions in this Budget. It seems to me that my right hon. Friend has acted with perfect propriety. He has shown himself open to reason, and has encouraged the Committee to help him, and I wish to pay my tribute to the skill and charm with which he has conducted the debates. We on this side of the Committee appreciate his attitude very much indeed. We believe that, with our help and advice, to which, in many cases, he has graciously yielded, this will be a much better Bill when it leaves the Committee than when it came before us.

I wish to deal with the comparatively restricted question of tax on undistributed profits. I think the Chancellor, in his remarks, showed a true appreciation of the nature of the problem, and we have to thank him, as we do most appreciatively, for having reduced the taxation on undistributed profits. But, holding the views that I do on this question, I think it is not merely a question of expediency but one of principle, I feel bound once again to voice my protest against there being any tax at all on undistributed profits.

The Chancellor has given convincing reasons, I admit, why he cannot do away with the tax on undistributed profits this year. He says it will cost him £50 million, and that at the moment he cannot afford it. But I do not think this Committee or the public generally ought to conceal from themselves that a tax on undistributed profits is the most meretricious method of living on capital that can be imagined. The reserves of businesses are the industrial life-blood of this country. They are its true wealth. I would rather see an increase in the reserves of companies than a larger Budget surplus, and I think my right hon. Friend would agree with that.

10.0 p.m.

The purpose of reserves in industry is twofold. First, it is to finance the day to day needs of industry at a time of rising prices; and, after all, the amount of the increase in profits, to which the Chancellor has referred, can largely be seen in the increased valuation of inventories. Second, reserves are the only means by which industry can recreate and renew itself and expand, whether by new ventures, new factories and new plant or by new undertakings in foreign countries which may have an element of speculation in them.

I hope that hon. Members will not delude themselves into thinking that under any circumstances whatever there can be any merit or virtue, anything but the greatest fiscal sin, in taxing money placed to reserve. During the early stages of the Bill I used the homely and much overworked simile of killing the goose that lays the golden eggs. The present tax does not kill the goose, but gravely injures it. One should not pull the feathers from the goose one by one until it loses them altogether and, in an excess of modesty, expires.

I hope that the Chancellor will not pay too much attention to the increase in company profits. Most of the companies that have been showing increased profits come under a comparatively few headings and I think it will be found that most small and medium-sized companies are not increasing their profits and it should not be forgotten that most of these increased profits go to the day to day financing of business.

Today, business is like the Red Queen in "Alice Through The Looking Glass." She and Alice had to run very hard for about 20 minutes to stay where they were, and businesses—which the hon. Member for Gloucestershire, South (Mr. Crosland) sneers at for making a profit—have to make more and more profits to stay where they are. That is always what happens in a period of rising prices.

We on this side of the Committee think that profits are a good thing. Hon. Members opposite think they are something to be apologised for and to be penalised. That is their fundamental weakness. [Interruption.] If the hon. Member will come through the looking glass to this side of the Committee he will see the truth. The Conservative view and the commonsense view on undistributed profits is that it is wrong to tax them and that they represent the economic life of the country.

We had a short debate on undistributed profits on a previous stage of the Bill and we learned the views of hon. Members opposite, notably those of the hon. Member for Edmonton (Mr. Albu). His view on the taxation of profits placed to reserve was that taking a little of those profits did not matter since they were already high enough. That is really the argument of the little boy who goes to the larder to steal his mother's jam and says, "Mother has so much jam that it will not matter if I steal a spoonful or two." His view, and the view of the former Chancellor of the Exchequer, the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), also was that it was a good thing to prevent companies piling up reserves because it increased the share value of those companies on the Stock Exchange and so brought wealth into the pockets of the shareholders.

Because of their belief in their political theory that that sort of increase of wealth is wrong, they are prepared seriously to argue in favour of living on the capital of the nation and of taxing what I have already described as the industrial life-blood of the country. I beseech them not to submit the whole industrial future of the country—because nothing more or less than that is represented in this question of undistributed profits—to the test of such a flimsy political theory.

I have already said that in my view the Chancellor cannot grant this concession this year because it would cost £50 million, but I want to say one word on the question of the economies necessary to enable him to take a more correct fiscal view next year. I do not think it is any good for us on this side of the Committee, or for anybody else, to say that to bring about economies one has to lop off whole branches of national expenditure. Economies are found by pruning twigs and shoots and leaves, here and there, and not by lopping off whole branches.

At the end of his Finance Bill I believe that my right hon. Friend will be well advised to investigate two questions, among many others. First, there is the question of the measure of reality which exists behind the theory of Treasury control. I think that Treasury control is far more tenuous than most people care to think. Secondly there is the question of investigating the expenditure of local authorities to see how much is forced upon them by administrative acts of central Departments, which are quite outside the control of this House or of the Treasury. I think that this £50 million can be found.

I am grateful to the Chancellor for the fact that he fully appreciates the deep matters of principle which lie behind this question. I note with approval his desire to lead a better and a purer fiscal life, and I hope that when next year comes round he will be able to relieve undistributed profits of any tax whatever.

Mr. Jay

I thought the Chancellor was in not merely a conciliatory but a very contrite mood tonight. He was almost plaintive in the apology he made for his present policy. However, I thought his defence was an exceedingly lame one. What is the truth about the position in which we now find ourselves? First of all, the party opposite made a rash and ill-considered promise. Indeed, the Chancellor virtually said, "I have been landed with this thing and there it is; I cannot help it."

Mr. Butler

The right hon. Gentleman's power of analysis and exegesis is rather exaggerated. I do not think he can read that into the script which I have placed before him.

Mr. Jay

The right hon. Gentleman can look at the words tomorrow. That was the impression I got at that stage. However, at the time of the Budget he introduced what was, in fact, an imprac- tical scheme of taxation. It was almost universally condemned by the critics. Then, last week, he virtually withdrew his original scheme and introduced what was almost a new Budget; certainly, a quite different series of tax arrangements. He was almost as universally condemned, by most of the Press during the weekend, for this extraordinary series of vacillations.

Now, however, having made all these changes and having abandoned his original scheme and his original case, he still has not quite the courage to sweep away the whole thing. Therefore, after this record of indecision—which is, I suppose, to save face—we are still left with the main evil of this tax. Incidentally, I will not refer to some of the points raised by the hon. Member for Farnham (Mr. Nicholson) at the end of his speech.

I was going to say that we lay down two propositions on this subject of the relative merits of the different forms of profits taxation. First of all, we say that there should not be a large cut in the total of revenue raised in profits taxation. I should have thought that the Chancellor would agree that, in the existing position of the country, and with the obvious need for restraint and stability in prices and wages, the case was overwhelming for not making any net cut in profits taxation. I believe he agrees with that.

Secondly, we say that to raise the necessary revenue from industrial profits, the Profits Tax, which we are discussing, is vastly superior to E.P.L. or to any form of Excess Profits Tax. Since this point does not seem to have occurred to the party opposite at the time of the election, I should like to add to what my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) said about what has been our consistent view. I would add this comment: it has been our consistent view ever since, in October, 1945, my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) swept away the war-time Excess Profits Duty.

Mr. Hugh Dalton (Bishop Auckland)

April, 1946.

Mr. Jay

For exactly the same reason, and consistently, in 1947 and 1949 and 1951, instead of imposing this sort of tax, we raised the straight Profits Tax.

I want, therefore, to sum up the reasons why it seemed to us that the Profits Tax was a comparatively good tax and why it seems to us that E.P.L. is a bad tax. First of all, it is better to have two taxes on profits rather than three. It is much simpler—and surely simplicity is one of the greatest virtues in the administration of taxation. It saves an enormous amount of work for everybody concerned to have two taxes instead of three.

Secondly, with the Profits Tax we can take the ascertainment of profits already made for Income Tax purposes and can save a vast amount of trouble which will arise in all this computation of a standard. Surely that is a very important point. Thirdly—and this has always seemed a most important consideration to me—with the Profits Tax we can discriminate against distributed profits in a way which cannot be done so effectively either by E.P.L. or Income Tax. The Profits Tax, more than Income Tax, or indeed any other tax, is an instrument which can be used to encourage saving, and surely that is another very great advantage.

Next, it does not penalise, to the extent that this sort of levy does, efficiency or expansion or enterprise, because it falls less heavily on the expanding business. Surely this, too, is another advantage—it enables one to raise or lower the taxation on companies without raising or lowering, at the same time, the taxation on individuals. It is often inconvenient for a Chancellor, when constructing a Budget, to be in a position, such as he was under the old Income Tax, of knowing that if he alters the standard rate of Income Tax to raise more taxation from company profits, he will also raise the tax on individuals. He may not wish to do that, and that has always seemed to me another reason why the Profits Tax is a good tax because, if we wish to alter taxation on company profits and not on the ordinary individual Income Tax payer, it enables us to do so.

Further, it is a good tax in an inflationary period because it falls on the equity shareholder and not on the other members of the community, which is what we want at a time when the equity shareholder is making gains and other people are losing through higher prices. It is worth our taking note of these solid reasons for preferring the Profits Tax, which is now under discussion. It is for all these reasons that we should much prefer to see the Chancellor raise that tax rather than proceed further with his Excess Profits Levy.

10.15 p.m.

I will summarise very briefly what seem to us the main disadvantages on the other side of the E.P.L. The first is surely the appalling complications. As soon as we have the standard year conception introduced into the tax we get the problem of the capital standard and the dilemma about the nominal capital, on the one hand, and the capital used in business, on the other, and all the complications that proceed from that. That is the first obvious objection.

The second is, of course—as is universally admitted—that it penalises the expanding and efficient firm. The third is that it causes an enormous burden of unnecessary and exceedingly unprofitable work—if I may so call it—both for firms and the Inland Revenue. Finally, it still is, of course, in spite of all these changes—and I agree that we have made it a better job than it was a month or a week ago—exceedingly arbitrary between one company and another. It still remains that, even after the changes that have been made.

I should, therefore, like to ask whoever is to reply to the debate on behalf of the Government—if anybody is—this question. We have reached now the point at which—the other night—the Chancellor admitted that it is not possible by E.P.L. to single out what he himself called profits made out of re-armament. Surely, now that we have that admission, there is really no shred of reason left for saying that the famous pledge in the Election manifesto can be implemented only by an Excess Profits Levy.

Why could it not be equally implemented now by raising the Profits Tax? Of course, it is true that the Profits Tax falls on companies other than those engaged in armaments; but now that the Chancellor himself admits that the Excess Profits Levy will do that, too, what reason is there left for saying, even on the grounds of his pledge, that he is compelled to proceed with a tax which we all recognise to be inefficient and wasteful in every way?

Surely even on his own logic he would be perfectly justified now in saying, "I gave this pledge to impose a tax on profits in a wide sense because of the general economic conditions of re-armament. I propose to do that by increasing the Profits Tax." It will fall, as fairly as taxation can, on all companies in that position, and will be far more efficient and easy to work and far more acceptable both to industry and to Parliament, than the tax he is still forcing on the Committee.

Mr. Ralph Assheton (Blackburn, West)

It is very seldom that I agree with anything that the right hon. Gentleman the Member for Battersea, North (Mr. Jay) says, but there were one or two words in his last speech with which I did agree. I should like to start by saying how profoundly glad many of us are on this side of the Committee to hear what the Chancellor of the Exchequer had to say with regard to the future taxation of profits. He made it quite clear that in his view the taxation of profits was too high. I should also like to thank him for the various Amendments which he has accepted or put forward to the Excess Profits Levy, which have certainly made it a rather more workable job than it was before.

However, I am bound to say I am puzzled and critical of the proposition that he has put to the Committee—the proposition that the Profits Tax should be re-increased. I would draw my right hon. Friend's attention to some sentences in today's "Times." I think they express my views better than I could put them. The Chancellor's decision to re-increase the distributed rate"— "The Times" says— to be quite precise, to reduce the amount of his original decrease—inevitably brings the business taxation aspects of his Budget under fresh review; it was not unfairly said that his changes 'amounted to a section of a new Budget speech.' It goes on later to say this: It was conceded from the first that the E.P.L. was intended for a general and ethical purpose and not for the purpose of raising revenue. It should be limited to that purpose, fallacious though it may be, for there is no case for increasing the already punitive tax burden on industry beyond what it was before Mr. Butler's budget. That is the gravamen of the criticisms from this side of the Committee. We are puzzled to know why the Chancellor thinks it necessary to impose greater taxation on profits than were imposed by the previous Socialist Government.

There have been arguments on the other side of the Committee, particularly from the hon. Member for Gloucestershire, South (Mr. Crosland), with regard to the desirability of taxing distributed profits rather than undistributed profits, and my hon. Friend the Member for Farnham (Mr. Nicholson) has made a speech against the taxation of retained profits with which, I think, most members on this side of the Committee agree.

I would, however, draw the atention of hon. Members opposite to the fact that tax on distributed profits also is paid at the expense of reserves. It is a mistake to think that any taxation which a company has to find is not made at the expense of reserves which might otherwise be made, and it is possible to exaggerate very much the case put by the hon. Member for Gloucestershire, South.

I agreed with my hon. Friend the Member for Farnham that many of the profits we have recently been seeing are quite unrealistic. They are not profits in the sense that there is cash in the till. In many cases much of the profit that there is is the result of rising stock valuations or because adequate depreciation is not allowed, and when one looks for the cash in the company's balance-sheet it just is not there. Many of our greatest companies now have no cash at all and are greatly in debt to the banks. One cannot pay money to the Chancellor unless one can have the cash available or borrows it from the banks. I am afraid that a great deal of tax to be paid in the next 12 months is going to be paid by borrowing from the banks. That is a very unsatisfactory position.

I have pointed out, more than once, that the Chancellor is raising a greater amount in taxation this year than any Chancellor has ever raised before. I think that is deplorable. Four thousand five hundred million pounds is being raised, a greater amount than ever before, and the Chancellor, quite rightly, says that £2,000 million of that is for defence and for payment of interest on the National Debt; but there is a great deal beyond that, and he must find ways and means before next year's Budget of greatly reducing our total expenditure, because unless we do so, I can assure him that this country will not get out of its financial difficulty and we shall not be able to balance our overseas accounts.

There is a close relationship between overspending at home and our overseas balances which must never be forgotten. Some hon. Members have said that sacrifices will fall upon industry, but I would remind the Committee that when sacrifices fall upon industry they fall upon the workers just as much as upon the employers, and very often more so. Therefore, if we over-tax industry, we are going to create dangers for the workers who are just as likely to be unemployed as a result of excessive taxation as the employers are to find themselves in difficulties. I hope that hon. Members on both sides of the Committee will not forget that.

Mr. Houghton

The right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), and the hon. Gentleman the Member for Farnham (Mr. Nicholson) have not told us what we on this side of the Committee have been anxious to know, and that is whether they are satisfied with the tax structure that we have now come to in this Bill. Nor has the Chancellor of the Exchequer told us whether he would have got to where he is had he not been encumbered by the pledge given in the Conservative manifesto about the introduction of some form of excess profits tax.

The Chancellor addressed the Committee a short while ago with his usual sincerity and candour. He told us that it was the only thing that a Minister in his position of responsibility could do, but he did not tell us whether he was the prisoner of events or the prisoner of the policy which the Conservative Party said they would follow if they were elected to Office.

All this began when my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), during the last Parliament, presented a White Paper in favour of a statutory limitation of distributed profits. The present Prime Minister, dissenting at that time from the policy of statutory restraint on distributed profits, said that he preferred some measure of excess profits taxation, and, in constructing his Budget, the Chancellor has given us a three-tier tax structure instead of the two-tier structure which we had before.

In order to fit the Excess Profits Levy into the existing tax structure, the Chancellor has moulded the Profits Tax on his E.P.L. and the E.P.L. on his Profits Tax, leaving the standard rate on profits where it was. The concessions given in E.P.L. have meant that he has had to come back to the Committee and ask for approval for the reimposition of some of the relief which he was proposing to give in the Profits Tax. Now he has to ask himself whether the position we have reached is preferable to that before he introduced his Budget.

We may ask one or two pointed questions about the present tax structure. Have we a simpler form of taxation? I feel quite certain that the Committee would unanimously agree that we have a more complex system. We have now an additional hidden tax upon industry in the fees which industry will have to pay professional men to unravel the complexities of the new E.P.L. and to advise them as to their best course of action on the various alternatives which the Bill provides.

The hon. Member for Langstone (Mr. Stevens), who is, I understand, an accountant, may be moved to get up in a moment and ask me by what authority I speak for accountants. I will reply to him straight away. I can only speak about accountants, and one thing that we all know about accountants is that they charge quite enough for their services. My great regret about the Bill is that it does not levy a tax on the excess profits of accountants who will make excess profits out of the Excess Profits Levy. They will certainly exact their return from industry for the advice which they will give.

Have we a fairer tax structure? As my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) and other hon. Members have pointed out, many companies will be directly relieved of a substantial portion of their profits taxation, leaving the yield of Revenue to be made good from the additional levy which will be imposed upon those companies liable to E.P.L. In his reflective moments during the course of the Bill, the Chancellor will probably agree that a statutory limitation of distributed profits would have been a much easier thing to explain to the trade unions than this hotch-potch of additional taxation, relief of taxation, increased allowances in Income Tax payers and slashing of the food subsidies.

This medley of financial policy which the right hon. Gentleman has had to put across to the trade unions has manifestly failed in its appeal to them. In every paper we pick up we read reports of trade union conferences where hard things are being said about the Budget and which are proclaiming in strident notes a policy of wage increases. At this moment the annual delegate conference of my own organisation is in session—well, perhaps not as late as this—but even so—

10.30 p.m.

The Chairman

I think that this Amendment is only to leave out "seventeen" and insert "twenty-two."

Mr. Houghton

Yes, but all this hangs on what the right hon. Gentleman is proposing to do. We are now dealing with the consequences of the ill-considered tax he has proposed, and the great changes he has had to make in it in response—I will not say to pressure, because that offends the right hon. Gentleman—but to advice and representations which have been made to him from various sources. I am quite certain that the right hon. Gentleman cannot feel he has finished up in a satisfactory condition.

Will this three-tier structure and this alteration in the Profits Tax be less harmful to industry than was the two-tier scheme? I think we are all doubtful about that, and not a single word has been said from the benches opposite to confirm him in any belief he may hold that he has got to where he is by his own free will This is not the course the right hon. Gentleman would have chosen for himself. It is certainly not the course which would have been set for him by hon. and right hon. Gentlemen on the opposite side of the Committee. They would certainly have planned a different course for taxation.

If the right hon. Gentleman had wished to impose a form of Excess Profits Tax in a way which would have been clearly understood in the trade union movement and in the country, and in a way which I think would have made a stronger appeal to them than the present tax is ever likely to do, he should have imposed a modest surcharge on excess profits over and above the previous level of both Income Tax and Profits Tax. That, I suggest, would have been a preferable way of dealing with excess profits, if it was necessary to fulfil a pledge to deal with them at all. I feel quite certain that many difficulties will follow these proposals.

The right hon. Gentleman has been congratulated on his courage on every side. He may need still more before he is through. The main part of his revenue was there waiting to be collected by the simpler and more straight-forward tried methods of Profits Tax. I think he could still meet the wishes of the majority of the Committee by withdrawing E.P.L. altogether and introducing amendments to the Profits Tax which would restore it to its previous level.

Viscount Hinchingbrooke (Dorset, South)

I am sure an observer of this debate would conclude from the fact that so much weighty argument has been marshalled against my right hon. Friend this evening that he would inevitably have to withdraw his Amendment. Of course, that is not the case at all. We on this side of the Committee will give him his vote this evening in the knowledge that the Government of this country must be carried on and also that he will, by next year, I feel quite certain, have absorbed the advice that he has been given from all sides of the Committee.

I must frankly admit that when I saw this provision for an Excess Profits Levy in the manifesto I was horrified by it. So were a considerable number of my hon. Friends and some of my right hon. Friends. Mention of the Excess Profits Levy found no place in my personal manifesto in my division, and I therefore conclude that no votes were cast for me because of it. We all hoped that it might be possible before we reached this stage of the Finance Bill to merge the Excess Profits Levy and the Profits Tax so that adequate political provision was made for the former, and in the sum total not more would be extracted from industry than was extracted by the Socialist Government last year. But that has not proved to be the case, and we regret it very much this evening

The hon. Member for Gloucestershire, South (Mr. Crosland) spoke about the relationship of this tax to the advice that it is hoped industry would get from the trade union leaders to restrain wage demands. I think that is a connection which lies more adequately and properly between the leaders of the Socialist Party and the leaders of the trade union movement. I believe that the leaders of my own party and the leaders of the trade unions would do better for this country if they concentrated on their respective tasks. My right hon. Friend and the party on these benches ought to be determined to see that British industry is prosperous and free; that adequate finance is available for development; and that profits, both distributed and undistributed, are sufficient to take care of that.

The trade union leaders I should have thought ought to be concerned to see that their bargaining position and the ability with which they can secure increased wages all round were related to the external circumstances facing this country and the general inflationary situation at home. It does not lie so well for us to attempt to give them advice or use persuasive powers.

I do not understand the philosophy behind this tax. It seems to me to be derived from some conception of the period before the war or even from the First World War itself, when there was a great amount of unemployment to be taken up by State action through rearmament and when certain companies made undue profits. In this day and age of full employment, when there have to be transfers from one sector of the economy to another in order to produce the best possible national effort, I do not understand how the excess profits principle can possibly prevail.

Today we are in the middle of a cold war, and it will be won presumably at one stage by the armaments endeavour and at the other by an endeavour towards commercial prosperity to defeat Communism. What was there so vicious about the years 1947, 1948 and 1949 that they have to be singled out—

The Chairman

I think the noble Lord is going rather wide of the Amendment.

Viscount Hinchingbrooke

I am trying to show the Committee that both the Profits Tax and the Excess Profits Levy in this particular period from 1947 to 1950 were wrongly conceived. I am relating, if I can do so briefly, because I do not wish to detain the Committee for long, the particular political circumstances of the times. I say that the idea is misconceived and should not be applied. I hope that my right hon. Friend the Chancellor, having seen the weight of public opinion about it in the country, will excise it from the legislation of the country 12 months hence.

We on this side of the Committee believe in incentives in industry. How can we get incentives, how can we restore the prosperity of this country, get people free, independent and competitive, while there is this deadweight of taxation and when we see it increased by our own Government? It is a profound pity that it has to be produced at this particular time. I join with my hon. Friends who have pleaded for greater economy. If my right hon. Friend cannot find £50 million by transferring it from another branch of taxation, surely he can find it by a system of drastic economy in Government expenditure? We went to the polls on the issue of drastic economy in Government expenditure.

The Chairman

I must ask the noble Lord to confine himself to the Amendment.

Viscount Hinchingbrooke

I have almost concluded. I end by enjoining on my right hon. Friend that he should have respect—as I know he has, and would like to have, tied as he is by many circumstances—to the basic philosophy of our party and the issues on which we fought and won the General Election.

Mr. Albu

I am sure that the members of the trade unions will be extremely interested in the views expressed by the noble Lord, which are that they are not to be interested in how the national income is distributed as a whole, but should make a scuffling fight for the remnants they can get from the table of industry. The suggestion that the Chancellor of the Exchequer should not discuss with the trade unions these important matters, or take into consideration their views, is one which does not commend itself to this side of the Committee. The idea that the trade union movement can only be interested in the wages they are able to obtain after a great struggle with the employers, and not in the general distribution of the national income and the way it is spent, is one I thought was as dead as the dodo. But there are so many dodoes on the opposite side of the Committee that the view still exists.

Hon. and right hon. Gentlemen opposite are prone to lecture this side of the Committee and tell us that we do not understand what profits really mean and what the effects of that tax on profits really are. In the views they put forward they continually forget, overlook, or omit to state, the fact that profits retained in a business belong to individuals and are eventually paid out in distribution of dividends, even if for the time they are employed in the business.

This is, of course, one of the difficulties with which the Committee is faced year after year, because as my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) has pointed out, we are anxious to see that industry has sufficient funds at its disposal to carry out investment within the physical limits of the available resources. There is no evidence that they have not been able to do so so far, but we have to bear in mind the results of their doing so in terms of the distribution of the national income.

10.45 p.m.

I have put this issue before the Committee in previous years. It is stated, although there has been great exaggeration about the strain to which industry has been put—generally by bank chairmen, company chairmen, or hon. Gentlemen opposite who are interested in industry—that some companies, perhaps many companies, have had to borrow money from the banks or raise extra capital in order to expand and possibly to maintain their assets. The latter I very much doubt. When I said something of this sort last year, the present Colonial Secretary, at a moment when for personal reasons I was unable to be present, delivered himself of some elephantine humour on the subject. He made very heavy weather of it indeed.

I suggest that there is nothing unjust or wrong in business having sometimes to raise additional money, either by loan or more permanent capital, to expand, and that industry has no permanent right to expand continuously out of profits. We certainly want to see a rate of return of capital such as will continue to attract savings. But there is no evidence that during the last few years that has been impossible.

There is a continuous demand opposite that there must be a great reduction in taxation, but the right hon. Member for Blackburn, West (Mr. Assheton) gave it away when he said that it made no difference whether the tax was on distributed or on undistributed profits. It is a demand that there should be a very much greater return to those who invest their money as shareholders in companies. [Interruption] I am glad to have that confirmation; it is admitted by Members opposite that what they want is a very much greater return for those who put their money into ordinary shares, the investors in equity capital.

They have first to ask themselves whether the present return is high enough or not. I suggest that in regard to a large part of the companies of this country it is not only adequate but more than adequate. It is true that the yield required from ordinary shares has been put up by the Chancellor's dear money policy, but there is no doubt that the return made to ordinary shareholders is at present sufficient to ensure an adequate flow of capital, at any rate, for the large public companies. The justice of this claim that somehow the shareholders of industry are entitled to maintain their personal investment in industry at a constant level in real terms, no matter what happens to the savings of any other members of the community, is not supported even by some of those who do not support this side of the Committee.

The hon. Member for Langstone (Mr. Stevens) will no doubt be well acquainted with the articles that have appeared in the "Economist" by a chartered accountant, Mr. H. A. Briscoe. This is the journal of the Institute of Chartered Accountants. Particularly I have in mind one of 26th April. They are directed to the point that at a time of inflation businessmen and others with money in industry have no more right than other people to maintain the real value of their wealth. If I may just quote a small portion from one of these most interesting articles, referring to the businessman in a period in which prices are rising and therefore the cost of replacement of assets and so on are rising too, the writer states: Although his income for any period is the difference between his wealth at the beginning and end of that period, this does not of necessity entitle him to calculate that wealth in real terms, and the fact that calculating it in money terms transgresses an economic law may be safely ignored because saving will make up the difference.

Mr. Stevens

The hon. Member said no ordinary shareholder is entitled to expect that he should maintain the real value of his capital. Is there any relation between that right and the right of the worker, by increases in money wages, to maintain the real value of his wages?

Mr. Albu

I see absolutely no connection whatever between them. The wages received by the worker are the return for the work he does. What does the shareholder do? He does not work. [An HON. MEMBER: "He risks."] He undergoes a risk, and I am entirely in favour of a shareholder receiving a return that covers and more than covers his risk.

Mr. Stevens

Would not the hon. Member agree that that is a reward for savings just as wages are a reward for work?

Mr. Albu

Rewards for savings and for risk should both be covered. But if any hon. Member takes the trouble to work it out over the last 25 or 50 years, he will find that the reward of the ordinary shareholder in a public company is much more than a reward for savings or a reward for risk. I have made some calculations, and many other people have made similar calculations. I am referring to shareholders in large public companies which represent a large part of the economy of this country.

Major Sydney Markham (Buckingham)

Has not the hon. Member heard of shareholders in 1,500 companies who, during the last five years, have lost their entire ordinary capital?

Mr. Albu

I have taken that into account. It is obvious that this sort of argument gets very much under the skin of hon. Members opposite because they know it is true. There is, however, a class of company, the small and expanding companies, which is most hit by the Chancellor's Excess Profits Levy, to which, of course, what I have been saying does not apply—where the owners are working in the business and it is much more difficult for them to obtain fresh capital.

I hope we shall have the support of hon. Members opposite in a new Clause which we have put down to raise the exemption from Profits Tax for these small companies from £2,000 to £5,000. But on the other hand, we should do nothing at present to make life easier for the ordinary shareholders in large public companies who have been receiving in recent years more than enough both for savings and for the risks they undergo.

Mr. Erroll

I do not propose to try and follow the intricate arguments of the hon. Member for Edmonton (Mr. Albu) as it would take too long tonight. I only wish to draw the attention of the Committee to one or two points. First, we have moved a long way from the original conception of E.P.L. We have now a reduced E.P.L. and an increased Profits Tax, and one of the main reasons given for this change is that the Revenue must be safeguarded. It was never part of the original conception that revenue was to be one of the main objects of the new taxation; and it is very dangerous to expect now that the Chancellor will obtain automatically a large, substantial revenue from an increased Profits Tax and the Excess Profits Levy.

It appears almost to be a crime to earn big profits, and now, in addition, to distribute them. Having been earned, they must not be distributed. If they are distributed, they are to be heavily taxed. I would put it to the Financial Secretary, that if these two forms of earning are to be so heavily taxed it might be better if fewer profits were earned. Is that what the hon. Gentleman wants? Would it be better if no fortuitous re-armament profits were earned? Would it suit the Chancellor's book better if fewer profits were distributed, so that the yield would fall? That is undoubtedly one of the effects of the policy being pursued.

A great deal of the discussion this evening has been largely academic. We are assuming that large profits are going to be earned. I was surprised to hear the Chancellor quoting so easily the increased profits of industrial companies for the last three or four years, which mounted until the last year. I suggest that in the current year there will be a considerable and dramatic change, and that any Chancellor who is contemplating balancing the books next year will be well-advised to count on a considerably reduced yield from profits, whether they are taxed through E.P.L., Profits Tax, or Income Tax, during the coming year.

The Chancellor referred particularly to a large increase in profits last year. One of his own White Papers says that nearly one-third of that increase came from stock appreciation, a fictitious form of profit assessment, although it has to be paid for in cash to the Inland Revenue on the due date. In many companies to-day stock values have been depreciating, producing a paper loss which is, in a sense, just as fictitious as a paper profit, but still allowed to be set off against profits.

I suggest that while the Chancellor has good reason to feel that he has improved upon the original scheme of E.P.L., by the changes he has made, he would be unwise to count on an increase in revenue from taxation of company profits in the coming year. I think that tonight we are witnessing the twilight of large company profits, with the exception of one or two of the large firms or companies quoted. The smaller, medium-sized companies are seeing the end of large profits, whether easily or hard earned.

Mr. Roy Jenkins

We have had the usual kind of debate to which we are becoming accustomed on any Clause or Amendment which raises a general principle on this part of the Finance Bill, with several hon. Members on that side of the Committee bitterly attacking the Chancellor. All three of those hon. Members—the right hon. Member for Blackburn, West (Mr. Assheton), the hon. Member for Dorset, South (Viscount Hinchingbrooke), and the hon. Member for Farnham (Mr. Nicholson)—were so overcome with distaste for the Chancellor that they have not been able to sit in the Chamber for a moment after making their speeches. The debate has followed a pattern which is becoming increasingly familiar.

We on this side of the Committee have been more friendly, although we would have much preferred to have the Profits Tax kept at the level at which it stood before the Chancellor made his Budget statement on 11th March. We can see, at present, no argument for reducing the total weight of taxation on those companies which do not pay E.P.L., which is necessarily involved in any reduction of profits tax. Companies which do not attract E.P.L., are having their total weight of taxation reduced. I cannot understand what argument the Chancellor of the Exchequer can bring forward for such re-distribution of the burden.

We all know that the Chancellor is looking to the future and saying that he hopes that it will be possible to reduce the burden in the future. I should like to hear why he thinks it right that, in a situation in which he is not decreasing but actually increasing the total burden of corporate taxation, he should reduce the burden on those companies which have expanded least.

11.0 p.m.

Another thing which worries us about the changes which we are discussing is that—as my hon. Friend the Member for Edmonton (Mr. Albu) said in one of our debates on the Bill—we are having a change in the Profits Tax which will probably be a permanent one, compensated for to some extent by this Excess Profits Levy. From every speech which has been made from the other side of the Committee tonight it is very clear that the Chancellor is only just getting away with it this year, so far as his own back benches are concerned; but he has been given some very harsh warnings about the position next year unless he makes some very big concessions to profits.

I have no doubt that, if the present Chancellor is still Chancellor then, the right hon. Member for Blackburn, West, will be very difficult to get into the Division Lobby in support of the Finance Bill unless there are some big concessions made in the Profits Tax. This has been made clear time and time again. We are in a position in which, by this temporary sop in the Excess Profits Levy, we are seeing a permanent reduction in the Profits Tax.

We have had quite powerful arguments addressed to the Committee by the hon. Member for Farnham against the whole principle of taxation of undistributed profits. From a certain point of view one can see some force in those arguments; but I think that it is extremely important to remember, at the same time—as my hon. Friend the Member for Edmonton has pointed out this evening and on previous occasions—the distributory effects which are involved in the taxation of undistributed profits. I cannot understand hon. Members adopting a scornful attitude towards the serious arguments which have been put forward by my hon. Friend. Even if hon. Members opposite do not agree with them they are worthy of extremely serious consideration.

A further point which is involved in this question of the taxation of undistributed profits—though I do not suppose I shall carry hon. Members opposite with me on this—is that from the point of view of the total volume of savings available to pay for investment it does not greatly matter whether they are in the form of a Budget surplus or of undistributed profits. They are both savings and they both fulfil the same purpose of paying for investment.

Mr. Erroll

indicated dissent.

Mr. Jenkins

I should have thought that that was an elementary principle, even for the hon. Member for Altrincham and Sale (Mr. Erroll). I thought we could have started off with that simple measure of agreement and gone on to rather more difficult things.

From another point of view, however, there is a difference between the two things and that is, that if one has a larger proportion of undistributed profits and a smaller Budget surplus the amount of public control one has over the direction of investment is to that extent diminished. That is certainly a consideration which has to be taken into account. There is no form of investment more difficult to control that that which is paid for out of undistributed profits of companies.

I do not want to detain the Committee any longer, but I would put one last point to the Chancellor. We believe that the Profits Tax is much better than the Excess Profits Levy, and if the Chancellor has any general arguments for showing that the Excess Profits Levy is a better tax than the Profits Tax we should be very interested to hear them. We should much prefer the Profits Tax to be left at its previous level, and although the Chancellor's Amendments go some way to remedy the situation we do not think they go far enough.

Mr. R. A. Butler

I do not want to check the debate; but the Government feel that we must get Clause 29 tonight. After that we do not want to be unreasonable about the hour to which we should sit. I think we can make progress tomorrow; we have made good progress to-day. I feel that it should not be necessary to discuss this on the Question that Clause stand part of the Bill because we have really used this debate as a general one, and hon. Members have been generous in letting us take their Amendments as part of the general debate.

I will, therefore, answer shortly, as we have debated this subject so often before, some of the points raised. The hon. Member for Gloucestershire, South (Mr. Crosland) suggested that, owing to the manner in which we had attempted to meet the Amendment put forward, in the end the Excess Profits Levy will be reduced by half. By that, he means £100 million will be taken off. That is a great exaggeration and I do not see any chance of any such consumption being reached. There is no question that the smaller and comparatively detailed points, to which my hon. Friends, who have put up such a good show in explaining this matter to the Committee, referred, will yield that sort of amount, or that they will materially alter the sums or arithmetic I have given to the Committee.

The next main point raised was by the right hon. Gentleman the Member for Battersea, North (Mr. Jay), a point which was taken up by the hon. Member for Stechford (Mr. Roy Jenkins), and referred to by my hon. Friend the Member for Altrincham and Sale (Mr. Erroll). This was the question of the Profits Tax versus the Excess Profits Levy. Both these forms of tax have great defects. The difficulty of the Excess Profits Tax is that it falls on the just and the unjust. It falls on those who make profits and those who do not make profits.

If profits rise, it does not necessarily hit only those who make the excess profit. It hits those who are unable to make a profit. That has been part of the argumentation of right hon. Gentlemen and hon. Gentlemen opposite because they have said that, by the original proposal to reduce the profits tax, we were discriminating in favour of firms which were not adventurous. They can not have it both ways.

There is an Achilles' heel in the Excess Profits Tax and there is equally an Achilles' heel in the Excess Profits Levy. The advantage of the Excess Profits Levy over the Excess Profits Tax is that it is a tax to take the excess profit off firms who have profited by the injection of Government orders into our economy. The difficulty about the Excess Profits Levy, as the Committee knows, is its intense complexity and the difficulty we have had in making it absolutely fair. All I can say to my hon. Friend the Member for Altrincham and Sale is that if there is no increase in industrial profits the Excess Profits Levy to that extent will not operate and, therefore, if I am wrong in my figures—and I do not know whether I am or not—the Excess Profits Levy will then, in any case, not be an unfair tax.

A combination of the two forms of tax is just as likely to be as fair as the suggestion that a reliance on the Excess Profits Tax, which falls on the successful and unsuccessful, would be a fairer way of dealing with this difficult question. I accept the argument that industry has been going through difficult times and that part of the difficulty relates to stocks. Up to a certain date, the tide of industrial profit has certainly been coming in.

My right hon. Friend the Member for Blackburn, West (Mr. Assheton) put two main points. First, why there was this increased burden on industry and, second, why I have had to raise such a great burden of taxation. The latter point was taken up by my hon. Friend the Member for Dorset, South (Viscount Hinchingbrooke), who asked me to economise in Government expenditure. It would be possible for me to enter into a quarrel with my right hon. Friends and hon. Friends on this side of the Committee, but I wish to confine myself to saying this. The reason I intend, and the Government intend, to adhere to this tax and to put it through is that we told the electorate as a party that we were going to do so, and I intend to implement the decision which we told the electorate we were going to carry out. That is the only answer I shall make to the points that have been raised in that connection.

It was then suggested that I had raised a record amount of taxation. If anybody, either abroad or in this country, looks at our burdens they will realise that we are taking on an unprecedented burden in time of peace for a country of our size. We are taking on a defence programme which is the pride and envy of the world. There is no country which is doing anything like what our country is doing. There is no country in Europe so far which has carried on a defence programme anything like ours.

There is no country in the world which can boast social services such as we intend to maintain, and there is practically no country in the world which is crippled by such immense overseas expenditure, with troops in the four quarters of the globe, with our world-wide responsibilities as a great Power. Those are the burdens which our Exchequer has to carry at the present time, and, as far as I am concerned, I shall maintain the revenue so that the Exchequer at home can be sound.

Mr. P. Roberts

Does that include the necessity for the Budget surplus of £500 million?

Mr. Butler

I have dealt with that point before in my Budget speech, and I fear that I would not be in order if I were to pursue it now.

The question of a Budget surplus can be debated until the cows come home, but there are certain commitments which have to be carried out, such as our responsibility under the present system—I say "under the present system" because we can always look ahead to better and happier times—to make advances to local authorities and other matters, and I consider that we should at the present time support a surplus of the size which we intend to support. I go further. If we can reduce taxation and Government expenditure—and here I agree with my hon. Friends on this side of the Committee—that will be the best way for our future salvation, and then there will be all the less need for an immense surplus.

On this question of expenditure I would remind the Committee that I do not believe any Chancellor in recent years has had to take such unpopular decisions in reducing Government expenditure as I took for definite national reasons, which have proved on the whole to bring about results, at any rate in the form of confidence in our currency. I do not think that such efforts to reduce the size of the heavy burden of expenditure have been made before in such a short period of six months. I will certainly carry them forward. It would not be a bad thing occasionally if certain of the financial policies of the Government were given the support at home which they get abroad.

The last point to which I would refer is the very serious matter of the wage demands and the attitude of the trade unions. I do not wish to bring this into the argument, but I happened to mention it casually in a debate, and it has become the subject of great comment outside. It is not the only motive I have in my mind. From what I have seen of the trade union leaders, they are far too independent and experienced to be moved by any single argumentation. I realise that they have their own economic staffs and economic capabilities.

I make this appeal to the Committee: Do not run down or criticise any attempts to deal with this question of inflation. I have noticed a tendency in some speeches to put the wrong emphasis on this matter. One step alone will not do the trick, but I believe that the trade unions will be affected by the sincerity of our approach, and if they see that all quarters of the Committee are equally sincere in dealing with this question of inflation and with all these analogous questions I believe that we shall have greater moderation than we should otherwise get. I do not claim more than that.

After all, this is a free country, and it would appear from our debate tonight that this is a free Committee. Everybody is entitled to his opinion. I do not resent anybody's opinion. I am simply going to carry out my duty as I expressed in the Conservative Election manifesto, in company with many others, to the electorate; and this part of the story—that is to say, adjusting the reduction in Profits Tax—is part of the step which I have been obliged to take.

11.15 p.m.

Mr. Gaitskell

The Chancellor will not be surprised if I tell him that some parts of his speech—those when he was refer- ring to the burdens which this country has to carry and the external difficulties with which we have had to contend—will be received with sympathy on this side of the Committee. After all, we had to explain that very frequently when we were the Government. It is perhaps a pity that it was not received with the same sympathy when the Conservative Party were in opposition. However, better late than never. If they now appreciate the reality, that at any rate is a step forward.

During a large part of the debate, as in other debates, we were listening to a rather angry argument within the Conservative Party. I want to make it plain to start with that I by no means agree with all those who have attacked the Chancellor. Some points of view expressed from the Conservative back benches seemed to me to be extremely reactionary and certainly not worthy of serious consideration by the Opposition.

I agree with the Chancellor to the extent that there was a problem of steadily arising profits, considerable inflationary pressure, a large defence programme and with the view expressed in some quarters that it might give rise to fortuitous profits and a serious wage problem. In all those circumstances, to have sat back and to have done nothing about it but actually reduce the taxation on profits would have been sheer lunacy. That is the kind of thing some hon. Gentlemen opposite would nevertheless have wished to do. I commend the Chancellor for resisting the extremists in his own ranks.

There were three alternatives which any Government would have had to consider, and which we had to consider when we were framing the Budget last year. One could in the light of the rising profits have increased the Profits Tax, one could have imposed dividend limitation, or one could have imposed an Excess Profits Levy. As I said earlier, anybody who says that one need have done nothing at all needs no consideration. Each of those alternatives could have been adopted. We increased the Profits Tax, and also, owing to the fact that dividends continued to increase, decided to increase dividend limitation.

There remains only the last course. The real reason for putting this plan into the manifesto was that it was the only thing that the present Prime Minister could think of putting in. But the fact still remains that it was a very bad choice, and it would have been far better if the Chancellor had swallowed his political pride and said that, after all, the Labour Party were right and that it was better to deal with the matter on the basis of Profits Tax and dividend limitation.

I cannot refrain from referring to the attack on the Chancellor by the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). We can see very easily that he was getting his own back for the smack in the face which he got at our last Sitting when the Chancellor was, by implication, extremely rude to him. I could not help being rather interested in these tearful pleas for economy coming from the Conservative back benches. They were pressnig very often for economy when we were in the Government, and very frequently we were explaining to them that unless one proposed to cut the social services or defence it was not possible to make major economies.

The Chancellor, of course, understands that now, and so does most of the country, but not the Conservative Party. I am afraid that the noble Lord is still in a dodo frame of mind. I suppose he will go on being in that frame of mind until eventually, after a further period of thought, even he may come to understand that we cannot have our cake and eat it.

The case against the tax has been argued very fully and very competently by my right hon. and hon. Friends with some assistance from hon. Gentlemen opposite. It is a very complex tax. That we certainly agree. It will make tremendous difficulties not only for the Inland Revenue but for accountancy staffs everywhere. It will certainly be an incentive to inefficiency and waste. That is, I suppose, the major case against it. It cannot really be defended on the ground that the revenue is needed because the Chancellor has told us that that is not the main purpose of it and, in fact, that if it is paid out of undistributed company profits there will be a fall in corporate savings and, therefore, no gain from the anti-inflationary angle.

If we had a few firms making large profits directly as a result of defence while everyone else's profits were at a much lower level there would be a strong case for an Excess Profits Levy. That is not the picture—and here I must agree with the noble Lord. In the present situation we have had, on the contrary, a fairly general rise in profits, some of it fortuitous undoubtedly, but a good deal of it spread widely and by no means all in the defence industry. At the same time, of course, a number of firms are making larger profits as a result of their enterprise, their development, and their initiative.

That makes the picture—there will be some cases where profits are very fortuitous, and in other cases it will be as a result of their efforts. But that is usually the case in any period which is at all inflationary. You will have your general increase, some of it incidental, and some of it resulting from more serious effort. I do not think in such a situation one can seriously argue that an Excess Profits Levy is necessary on moral grounds. On the contrary, everything points in these circumstances to increasing the Profits Tax as the right method of dealing with the situation.

I must make it plain once again that it is not the total weight of taxation on industry we complain about. It is the distribution of the burden which is now so arranged as to fall most heavily upon the most enterprising firms. That is our case in a nutshell against this tax. The Chancellor has made Amendments. He has, in fact, reduced the burden of the Excess Profits Levy in a number of directions, of most of which we approve, and he has increased the Profits Tax on distributed profits.

For that reason I would not advise my hon. Friends to vote against this particular Amendment. Nevertheless, in all the circumstances and because the right hon. Gentleman has still only gone a small part of the way back to the policy we favour, I advise my hon. Friends that when we come to it, we should vote against the Clause.

Amendment agreed to.

Further Amendment made: In page 32, line 28, leave out "fifteen," and insert "twenty."—[Mr. R. A. Butler.]

The Chairman

Under Standing Order No. 45, I have to put the Question that the Clause stand part forthwith.

Question put, "That the Clause, as amended, stand part of the Bill."

The Committee divided: Ayes, 187; Noes, 164.

Division No. 145.]	AYES	[6.40 p.m.
Acland, Sir Richard	Fraser, Thomas (Hamilton)	Messer, F.
Adams, Richard	Freeman, John (Watford)	Mikardo, Ian
Albu, A. H.	Gaitskell, Rt. Hon. H. T. N	Mitchison, G. R
Allen, Arthur (Bosworth)	Gibson, C. W.	Monslow, W.
Attlee, Rt. Hon. C. R.	Glanville, James	Moody, A. S.
Awbery, S. S.	Grey, C. F.	Morgan, Dr. H. B. W.
Balfour, A.	Griffiths, David (Rother Valley)	Morrison, Rt. Hon. H. (Lewisham, S.)
Barnes, Rt. Hon. A. J.	Griffiths, Rt. Hon. James (Llanelly)	Moyle, A.
Bartley, P.	Griffiths, William (Exchange)	Mulley, F. W
Bellenger, Rt. Hon. F. J.	Hale, Leslie (Oldham, W.)	Murray, J. D.
Bence, C. R.	Hall, John (Gateshead, W.)	Noel-Baker, Rt. Hon P. J.
Benn, Wedgwood	Hamilton, W. W.	O'Brien, T.
Benson, G.	Hannan, W.	Oliver, G. H
Bevan, Rt. Hon. A. (Ebbw Vale)	Hardy, E. A.	Oswald, T.
Blackburn, F.	Hargreaves, A.	Padley, W. E
Blenkinsop, A.	Harrison, J. (Nottingham, E.)	Paget, R. T.
Boardman, H.	Hayman, F. H.	Paling, Rt. Hon. W. (Dearne Valley)
Brockway, A. F.	Henderson, Rt. Hon. A. (Rowley Regis)	Pannell, Charles
Brook, Dryden (Halifax)	Herbison, Miss M.	Pargiter, G. A.
Broughton, Dr. A. D. D.	Holman, P.	Parker, J.
Brown, Thomas (Ince)	Holmes, Horace (Hemsworth)	Paton, J.
Burke, W. A.	Houghton, Douglas	Pearson, A.
Burton, Miss F. E.	Hoy, J. H.	Plummer, Sir Leslie
Butler, Herbert (Hackney, S.)	Hudson, James (Ealing, N.)	Porter, G.
Callaghan, L. J.	Hughes, Emrys (S. Ayrshire)	Price, Joseph T (Westhoughton)
Castle, Mrs. B. A	Hynd, H. (Accrington)	Price, Philips (Gloucestershire, W.)
Champion, A. J.	Hynd, J. B. (Attercliffe)	Proctor, W. T.
Chapman, W. D	Irvine, A. J. (Edge Hill)	Pryde, D. J.
Chetwynd, G. R.	Irving, W. J. (Wood Green)	Pursey, Cmdr. H
Clunie, J.	Janner, B.	Rankin, John
Cocks, F. S.	Jay, Rt, Hon. D. P. T.	Reeves, J.
Coldrick, W.	Jeger, George (Goole)	Reid, Thomas (Swindon)
Collick, P. H	Jeger, Dr. Santo (St. Pancras, S.)	Rhodes, H.
Cove, W. G.	Jenkins, R. H. (Stechford)	Richards, R.
Crosland, C. A. R	Johnson, James (Rugby)	Roberts, Albert (Normanton)
Cullen, Mrs. A.	Johnston, Douglas (Paisley)	Robinson, Kenneth (St. Pancras, N.)
Dalton, Rt. Hon. H.	Jones, David (Hartlepool)	Rogers, George (Kensington, N.)
Davies, A. Edward (Stoke, N.)	Jones, Frederick Elwyn (West Ham, S.)	Royle, C.
Davies, Ernest (Enfield, E.)	Jones, Jack (Rotherham)	Schofield, S. (Barnsley)
Deer, G.	Jones, T. W. (Merioneth)	Shackleton, E. A. A
Dodds, N. N.	Keenan, W	Shinwell, Rt. Hon E.
Donnelly, D. L.	Key, Rt. Hon. C. W.	Shurmer, P. L. E.
Driberg, T. E. N.	Kinley, J.	Silverman, Julius (Erdington)
Dugdale, Rt. Hon. John (W. Bromwich)	Lee, Frederick (Newton)	Silverman, Sydney (Nelson)
Ede, Rt. Hon. J. C.	Lee, Miss Jennie (Cannock)	Simmons, C. J. (Brierley Hill)
Edwards, John (Brighouse)	Lewis, Arthur	Slater, J.
Edwards, Rt. Hon. Ness (Caerphilly)	Lindgren, G. S.	Smith, Ellis (Stoke, S.)
Edwards, W. J. (Stepney)	Logan, D. G.	Smith, Norman (Nottingham, S.)
Evans, Albert (Islington, S. W.)	MacColl, J. E.	Snow, J. W.
Evans, Edward (Lowestoft)	McGhee, H. G.	Sorensen, R. W.
Evans, Stanley (Wednesbury)	McInnes, J.	Soskice, Rt. Hon. Sir Frank
Ewart, R.	McKay, John (Wallsend)	Sparks, J. A.
Fernyhough, E	McLeavy, F.	Steele, T.
Fienburgh, W.	MacPherson, Malcolm (Stirling)	Stewart, Michael (Fulham, E.)
Fletcher, Eric (Islington, E.)	Mainwaring, W. H	Stokes, Rt. Hon. R. R.
Follick, M	Mallalieu, J. P. W. (Huddersfield, E.)	Strachey, Rt. Hon. J.
Forman, J. C.	Manuel, A. C.	Summerskill, Rt. Hon. E.
Swingler, S. T.	Wallace, H. W.	Williams, Rt. Hon. Thomas (Don V'll'y)
Sylvester, G. O.	Watkins, T. E.	Williams, W. R. (Droylsden)
Taylor, Rt. Hon. Robert (Morpeth)	Webb, Rt. Hon. M. (Bradford, C.)	Williams, W. T. (Hammersmith, S.)
Thomas, David (Aberdare)	Weitzman, D.	Wilson, Rt. Hon. Harold (Huyton)
Thomas, Ivor Owen (Wrekin)	Wells, Percy (Faversham)	Winterbottom, Richard (Brightside)
Thorneycroft, Harry (Clayton)	West, D. G.	Woodburn, Rt. Hon. A
Tomney, F.	Wheatley, Rt. Hon. John	Wyatt, W. L.
Ungoed-Thomas, Sir Lynn	White, Henry (Derbyshire, N. E.)	Yates, V. F.
Usborne, H. C.	Willey, Frederick (Sunderland, N.)
Viant, S. P.	Williams, Ronald (Wigan)	TELLERS FOR THE NOES:
		Mr. Wilkins and Mr. Wigg.
NOES
Aitken, W. T.	Gammans, L. D.	Nabarro, G. D. N.
Allan, R. A. (Paddington, S.)	Garner-Evans, E. H	Nicholson, Godfrey (Farnham)
Alport, C. J. M.	George, Rt. Hon. Maj. G. Lloyd	Nicolson, Nigel (Bournemouth, E.)
Amory, Heathcoat (Tiverton)	Gough, C. F. H	Noble, Cmdr. A. H. P.
Anstruther-Gray, Maj. W. J.	Graham, Sir Fergus	Nugent, G. R. H
Arbuthnot, John	Gridley, Sir Arnold	Oakshott, H. D.
Ashton, H. (Chelmsford)	Grimston, Hon. John (St. Albans)	Odey, G. W.
Assheton, Rt. Hon. R. (Blackburn, W.)	Grimston, Sir Robert (Westbury)	O'Neill, Rt. Hon. Sir H. (Antrim, N.)
Astor, Hon. J. J. (Plymouth, Sutton)	Harden, J. R. E.	Ormsby-Gore, Hon W D.
Astor, H. W. W. (Bucks, Wycombe)	Hare, Hon. J. H	Orr, Capt. L. P. S
Baldock, Lt.-Cmdr. J. M.	Harris, Frederic (Croydon, N.)	Osborne, C.
Baldwin. A. E.	Harris, Reader (Heston)	Partridge, E.
Barber, A. P. L.	Harvey, Air Cdre. A. V. (Macclesfield)	Perkins, W. R. D
Beach, Maj. Hicks	Harvey, Ian (Harrow, E.)	Peto, Brig. C. H. M.
Bell, Philip (Bolton, E.)	Harvie-Watt, Sir George	Peyton, J. W. W.
Bell, Ronald (Bucks, S.)	Higgs, J. M. C.	Pilkington, Capt. R A
Bennett, F. M. (Reading, N.)	Hinchingbrooke, Viscount	Pitman, I. J.
Bennett, William (Woodside)	Holland-Martin, C. J.	Powell, J. Enoch
Bevins, J. R. (Toxteth)	Hollis, M. C.	Price, Henry (Lewisham, W.)
Birch, Nigel	Holmes, Sir Stanley (Harwich)	Prior-Palmer, Brig. O. L.
Bishop, F. P.	Holt, A. F.	Profumo, J. D.
Bossom, A. C.	Hornsby-Smith, Miss M P.	Raikes, H. V.
Boyd-Carpenter, J. A.	Horobin, I. M.	Rayner, Brig. R.
Boyle, Sir Edward	Horsbrough, Rt. Hon. Florence	Redmayne, E.
Braine, B. R.	Hudson, Sir Austin (Lewisham, N.)	Remnant, Hon P.
Braithwaite, Lt.-Cdr G. (Bristol, N.W.)	Hudson, W. R. A. (Hull, N.)	Renton, D. L. M.
Brooman-White, R. C.	Hulbert, Wing Cmdr. N. J	Roberts, Peter (Heeley)
Browne, Jack (Govan)	Hurd, A. R.	Robinson, Roland (Blackpool, S.)
Buchan-Hepburn, Rt. Hon. P. G. T	Hutchinson, Sir Geoffrey (Ilford, N.)	Rodgers, John (Sevenoaks)
Bullard, D. G.	Hutchison, Lt.-Com. Clarke(E'b'rgh W.)	Roper, Sir Harold
Bullus, Wing Commander E. E.	Hylton-Foster, H. B. H.	Ropner, Col. Sir Leonard
Burden, F. F. A.	Johnson, Eric (Blackley)	Russell, R. S.
Butcher, H. W.	Jones, A. (Hall Green)	Ryder, Capt. R. E. D.
Butler, Rt. Hon. R. A.(Saffron Walden)	Joynson-Hicks, Hon. L. W.	Salter, Rt. Hon Sir Arthur
Carr, Robert (Mitcham)	Keeling, Sir Edward	Schofield, Lt.-Col. W. (Rochdale)
Cary, Sir Robert	Lambert, Hon. G.	Scott, R. Donald
Channon, H.	Lambton, Viscount	Scott-Miller, Cmdr. R.
Clarke, Col. Ralph (East Grinstead)	Lancaster, Col. C. G	Shepherd. William
Clarke Brig. Terence (Portsmouth, W.)	Law, Rt. Hon. R. K	Simon, J. E. S. (Middlesbrough, W.)
Conant, Maj. R. J. E.	Leather, E. H. C.	Smithers, Peter (Winchester)
Cooper-Key, E. M	Legge-Bourke, Maj. E. A. H.	Spearman, A. C. M.
Craddock, Beresford (Spelthorne)	Legh, P. R. (Petersfield)	Spence, H. R. (Aberdeenshire, W.)
Crookshank, Capt. Rt. Hon. H. F. C	Lloyd, Maj. Guy (Renfrew, E.)	Spens, Sir Patriok (Kensington, S.)
Crosthwaite-Eyre, Col. O. E.	Lloyd, Rt. Hon. Selwyn (Wirral)	Stanley, Capt. Hon. Richard
Crouch, R. F.	Lockwood, Lt.-Col. J. C.	Stevens, G. P.
Darling, Sir William (Edinburgh, S.)	Longden, Gilbert (Herts, S.W.)	Steward, W. A. (Woolwich, W)
Davies, Rt. Hn. Clement (Montgomery)	Lucas. Sir Jocelyn (Portsmouth, S.)	Stewart, Henderson (Fife, E.)
Deedes, W. F.	Lucas, P. B. (Brentford)	Stoddart-Scott, Col. M.
Digby, S. Wingfield	Lucas-Tooth, Sir Hugh	Storey, S.
Dodds-Parker, A. D.	Macdonald, Sir Peter (I. of Wight)	Strauss, Henry (Norwich, S.)
Donaldson, Cmdr. C. E. McA.	Mackeson, Brig. H. R.	Stuart, Rt. Hon James (Moray)
Donner, P. W.	McKibbin, A. J.	Summers, G. S.
Doughty, C. J. A.	McKie, J. H. (Galloway)	Sutcliffe, H.
Douglas-Hamilton, Lord Malcolm	Maclean, Fitzroy	Taylor, Charles (Eastbourne)
Drewe, G.	MacLeod, Rt. Hon. Iain (Enfield, W.)	Taylor, William (Bradford, N.)
Dugdale, Maj. Rt. Hn. Sir T. (Richmond)	MacLeod, John (Ross and Cromarty)	Teeling, W.
Duncan, Capt. J. A. L.	Macpherson, Maj. Niall (Dumfries)	Thomas, Rt. Hon. J. P. L. (Hereford)
Duthie, W. S.	Maitland, Patrick (Lanark)	Thompson, Kenneth (Walton)
Elliot, Rt. Hon. W. E	Manningham-Buller, Sir R. E	Thompson, Lt.-Cdr. R. (Croydon, W.)
Erroll, F J	Marlowe, A. A. H.	Thorneycroft, R. Hn. Peter (Monmouth)
Fell, A.	Marples, A. E.	Tilney, John
Fisher, Nigel	Marshall, Douglas (Bodmin)	Turner, H. F. L
Fleetwood-Hesketh, R. F.	Marshall, Sidney (Sutton)	Turton, R. H.
Fletcher-Cooke, C.	Maude, Angus	Vane, W. M. F.
Fort, R.	Maudling, R.	Vosper, D. F.
Foster, John	Maydon, Lt.-Comdr. S. L. C.	Wakefield, Edward (Derbyshire, W.)
Fraser, Sir Ian (Morecambe & Lonsdale)	Medlicott, Brig. F.	Wakefield, Sir Wavell (Marylebone)
Gage, C. H.	Mellor, Sir John	Walker-Smith, D. C.
Galbraith, Cmdr. T. D. (Pollok)	Moore, Lt.-Col. Sir Thomas	Ward, Miss I. (Tynemouth)
Galbraith, T. G. D. (Hillhead)	Morrison, John (Salisbury)	Wellwood, W.

White, Baker (Canterbury)	Wills, G.
Williams, Rt. Hon. Charles (Torquay)	Wilson, Geoffrey (Truro)	TELLERS FOR THE NOES:
Williams, Sir Herbert (Croydon, E.)	Wood, Hon. R.	Mr. Studholme and Mr. Heath.

Question put, and agreed to.

Division No. 146.]	AYES	[11.23 p.m.
Aitken, W.T.	George, Rt Hon. Maj. G. Lloyd	Oakshott, H. D.
Allan, R. A. (Paddigton, S.)	Godber, J. B.	Odey, G. W.
Alport, C. J. M.	Gough, C. F. H.	O'Neill, Rt. Hon. Sir H. (Antrim, N.)
Amory, Heathcoat (Tiverton)	Graham, Sir Fergus	Ormsby-Gore, Hon. W. D.
Anstruther-Gray, Major W. J.	Grimston, Hon. John (St. Albans)	Orr, Capt. L. P. S.
Arbuthnot, John	Grimston, Sir Robert (Westbury)	Osborne, C.
Ashton, H. (Chelmsford)	Harden, J. R. E	Partridge, E
Assheton, Rt. Hon. R. (Blackburn, W.)	Hare, Hon. J. H.	Peto, Brig. C. H. M
Astor, Hon. J. J. (Plymouth, Sutton)	Harris, Frederic (Croydon, N.)	Peyton, J. W. W.
Baldock, Lt.-Cmdr. J. M	Harvey, Air Cdre. A. V. (Macclesfield)	Pickthorn, K. W. M.
Baldwin, A. E.	Harvie-Watt, Sir George	Pilkington, Capt. R A
Barber, A. P. L.	Heald, Sir Lionel	Pitman, I. J.
Baxter, A. B.	Heath, Edward	Powell, J. Enoch
Beach, Maj. Hicks	Higgs, J. M. C.	Prior-Palmer, Brig. O. L.
Bell, Philip (Bolton, E.)	Hinchingbrooke, Viscount	Raikes. H. V.
Bennett, F. M. (Reading, N.)	Hollis, M. C.	Rayner, Brig. R.
Bennett, William (Woodside)	Hornsby-Smith, Miss M. P	Redmayne, E.
Bevins, J. R. (Toxteth)	Horobin, I. M.	Renton, D. L. M.
Birch, Nigel	Howard, Gerald (Cambridgeshire)	Roberts, Peter (Heeley)
Bishop, F. P.	Hudson, Sir Austin (Lewisham, N.)	Robinson, Roland (Blackpool, S.)
Black, C. W.	Hudson, W. R. A. (Hull, N.)	Roper, Sir Harold
Bossom, A. C.	Hurd, A. R.	Ropner, Col. Sir Leonard
Boyd-Carpenter, J. A	Hutchinson, Sir Geoffrey (Ilford, N.)	Russell, R. S.
Boyle, Sir Edward	Hutchison, Lt.-Com. Clark (E'b'rgh W)	Salter, Rt. Hon. Sir Arthur
Brains, B. R.	Jenkins, R. C. D. (Dulwich)	Schofield, Lt.-Col. W. (Rochdale)
Brooke, Henry (Hampstead)	Johnson, Eric (Blackley)	Scott, R. Donald
Brooman-White, R. C.	Jones, A. (Hall Green)	Scott-Miller, Cmdr. R.
Buchan-Hepburn, Rt. Hon. P. G. T.	Johnson-Hicks, Hon. L. W.	Simon, J. E. S. (Middlesbrough, W.)
Bullard, D. G.	Kaberry, D.	Smithers, Peter (Winchester)
Bullus, Wing Commander E. E.	Keeling, Sir Edward	Spearman, A. C. M.
Burden, F. F. A.	Lambert, Hon. G.	Spence, H. R. (Aberdeenshire, W.)
Butler, Rt. Hon. R. A. (Saffron Walden)	Lambton, Viscount	Spens, Sir Patrick (Kensington, s.)
Carr, Robert (Mitcham)	Lancaster, Col. C. G.	Stanley, Capt. Hon. Richard
Churchill, Rt. Hon. W. S.	Legge-Bourke, Maj. E. A. H.	Stevens, G. P.
Clarke, Col. Ralph (East Grinstead)	Legh, P. R. (Petersfield)	Stoddart-Scott, Col. M.
Clarke, Brig. Terence (Portsmouth, W.)	Lloyd, Maj. Guy (Renfrew, E.)	Storey, S.
Conant, Maj. R. J. E.	Lockwood, Lt.-Cot. J. C.	Strauss, Henry (Norwich, S.)
Cooper-Key, E. M.	Longden, Gilbert (Heels, S.W.)	Stuart, Rt. Hon. James (Moray)
Craddock, Beresford (Spelthorne)	Lucas, Sir Jocelyn (Portsmouth, S.)	Studholme, H. G.
Crookshank, Capt. Rt. Hon. H. F. C.	Lucas, P. B. (Brantford)	Summers, G. S.
Crosthwaite-Eyre, Col. O. E.	Lucas-Tooth, Sir Hugh	Taylor, Charles (Eastbourne)
Crouch, R. F.	Macdonald, Sir Peter (I. of Wight)	Teeling, W.
Cuthbert, W. N.	Mackeson, Brig. H. R.	Thomas, Rt. Hon. J. P. L. (Hereford)
Darling, Sir William (Edinburgh, S.)	McKibbin, A. J.	Thompson, Kenneth (Walton)
Deedes, W. F.	McKie, J. H. (Galloway)	Thompson, Lt.-Cdr. R. (Croydon, W.)
Dodds-Parker, A. D.	Maclean, Fitzroy	Thorneycroft, Rt. Hn. Peter (Monmouth)
Donaldson, Cmdr. C. E. McA.	MacLeod, Rt. Hon. lain (Enfield, W.)	Tilney, John
Donner, P. W.	MacLeod, John (Ross and Cromarty)	Turner, H. F. L.
Douglas-Hamilton, Lord Malcolm	Macpherson, Maj. Hiatt (Dumfries)	Vane, W. M. F.
Drewe, C.	Manningham-Buller, Sir R. E.
Duncan, Capt. J. A. L.	E. Marples, A. E.	Wakefield, Edward (Derbyshire, W.)
Duthie, W. S.	Marshall, Douglas (Bodmin)	Wakefield, Sir Wavell (Marylebone)
Elliot, Rt. Hon. W. E.	Marshall, Sidney (Sutton)	Walker-Smith, D. C.
Erroll, F. J.	Maude, Angus	Ward, Miss I. (Tynemouth)
Fell, A.	Maudling, R.	Waterhouse, Capt. Rt. Hon. C.
Finlay, Graeme	Maydon, Lt.-Comdr. S L C.	Wellwood, W.
Fisher, Nigel	Medlicott, Brig. F.	White, Baker (Canterbury)
Fleetwood-Hesketh, R. F.	Mellor, Sir John	Williams, Sir Herbert (Croydon, E.)
Fletcher-Cooke, C.	Morrison, John (Salisbury)	Wilson, Geoffrey (Truro)
Fraser, Hon. Hugh (Stone)	Nabarro, G. D. N.	York, C.
Fraser, Sir Ian (Morecambe & Lonsdale)	Nicholson, Godfrey (Farnham)
Gage, C. H.	Nicolson, Nigel (Bournemouth, E.)	TELLERS FOR THE NOES:
Galbraith, Cmdr. T. D. (Pollok)	Noble, Cmdr. A. H. P.	Mr. Butcher and Mr. Vosper.
Galbraith, T. G. D. (Hillhead)	Nugent, G. R. H.

NOES
Adams, Richard	Broughton, Dr. A. D. D.	Davies, A. Edward (Stoke, N.)
Albu, A. H.	Burke, W. A.	Davies, Ernest (Enfield, E.)
Allen, Arthur (Bosworth)	Burton, Miss F. E.	Davies, Stephen (Merthyr)
Attlee, Rt. Hon. C. R.	Butler, Herbert (Hackney, S.)	Deer, G.
Awbery, S. S.	Callaghan, L. J.	Delargy, H. J.
Balfour, A.	Castle, Mrs. B. A.	Dodds, N. N.
Barnes, Rt. Hon. A. J.	Champion, A. J.	Donnelly, D. L.
Bellanger, Rt. Hon. F. J.	Chapman, W. D	Driberg, T. E. N.
Bence, C. R.	Clunie, J.	Dugdale, Rt. Hon. John (W. Bromwich)
Benn, Wedgwood	Coldrick, W.	Ede, Rt. Hon. J. C.
Benson, G.	Collick, P. H.	Edwards, John (Brighouse)
Bevan, Rt. Hon. A. (Ebbw Vale)	Corbet, Mrs. Freda	Evans, Albert (Islington, S.W.)
Blackburn, F.	Cove, W. G.	Evans, Stanley (Wednesbury)
Blyton, W. R.	Craddock, George (Bradford, S.)	Ewart, R.
Boardman, H.	Crosland, C. A. R.	Fernyhough, E.
Brockway, A. F.	Cullen, Mrs. A.	Field, W. J.
Brook, Dryden (Halifax)	Dalton, Rt. Hon. H.	Fienburgh, W.

Fletcher, Eric (Islington, E.)	Keenan, W.	Shawcross, Rt. Hon. Sir Hartley
Forman, J. C.	Lee, Frederick (Newton)	Shurmer, P. L. E.
Fraser, Thomas (Hamilton)	Lindgren, G. S.	Silverman. Julius (Erdington)
Freeman, John (Watford)	Logan, D. G.	Simmons, C. J. (Brierley Hill)
Freeman, Peter (Newport)	MacColl, J. E.	Slater, J.
Gaitskell, Rt. Hon. H T N.	McGhee, H G.	Sorensen, R. W.
Gibson, C. W.	McInnes, J.	Soskice, Rt. Hon. Sir Frank
Glanville, James	McKay, John (Wallsend)	Steele, T.
Greenwood, Anthony (Rossendale)	MacPherson, Malcolm (Stirling)	Stewart, Michael (Fulham, E.)
Grenfell, Rt. Hon. D. R.	Mallalieu, J. P. W. (Huddersfield, E.)	Stokes, Rt. Hon. R. R.
Grey, C. F.	Manuel, A. C.	Strachey, Rt. Hon. J.
Griffiths, David (Rather Valley)	Marquand, Rt. Hon. H. A.	Swingler, S. T.
Griffiths, Rt. Hon. James (Llanelly)	Mikardo, Ian	Sylvester, G. O.
Griffiths, William (Exchange)	Mitchison, G. R.	Taylor, Rt. Hon. Robert (Morpetn)
Grimond, J.	Monslow, W.	Thomas, David (Aberdare)
Hale, Leslie (Oldham, W.)	Moody, A. S.	Thomas, Ivor Owen (Wrekin)
Hall, John (Gateshead, W.)	Morgan, Dr. H. B. W.	Thurtle, Ernest
Hannan, W.	Moyle, A.	Tomney, F.
Hargreaves, A.	Mulley, F. W.	Ungoed-Thomas, Sir Lynn
Harrison, J. (Nottingham, E.)	Noel-Baker. Rt. Hon. P. J	Usborne, H. C.
Hayman, F. H.	O'Brien, T	Wallace, H. W.
Henderson, Rt. Hon. A. (Rowley Regis)	Oliver, G. H.	Watkins, T. E.
Herbison, Miss M	Oswald, T.	Weitzman, D.
Hobson, C. R.	Padley, W. E.	West, D. G.
Holman, P.	Paling, Rt. Hon. W. (Dearne Valley)	Wheatley, Rt. Hon John
Houghton, Douglas	Porter, G.	White, Henry (Derbyshire, N. E.)
Hoy, J. H.	Price, Joseph T. (Westhoughton)	Wigg, George
Hudson, James (Ealing, N.)	Price, Philips (Gloucestershire, W.)	Wilkins, W. A.
Hughes, Cledwyn (Anglesey)	Proctor, W. T.	Williams, Ronald (Wigan)
Hynd, J. B. (Attercliffe)	Pryde, D. J.	Wiliams, W. T. (Hammersmith, S.)
Irving, W. J. (Wood Green)	Pursey, Cmdr. H.	Wilson, Rt. Hon. Harold (Huyton)
Janner, B.	Reid, Thomas (Swindon)	Winterbottom, Richard (Brightside)
Jay, Rt. Hon. D. P. T.	Rhodes, H	Wyatt, W. L.
Jeger, Dr. Santo (St. Pancras, S.)	Richards, R.	Yates, V. F.
Jenkins, R. H. (Stechford)	Roberts, Albert (Normanton)	Younger, Rt. Hon. K.
Johnson, James (Rugby)	Robinson, Kenneth (St. Pancras, N.)
Jones, David (Hartlepool)	Royle, C.	TELLERS FOR THE NOES:
Jones, Jack (Rotherham)	Schofield, S. (Barnsley)	Mr. Pearson and Mr. Horace Holmes.
Jones, T. W. (Merioneth)	Shackleton, E. A. A.