Clause 10.—(CHARGE AND RATES OF INCOME TAX FOR 1953–54.)

HC Deb 11 June 1953 vol 516 cc479-526

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

4.43 p.m.

Mr. Douglas Jay (Battersea, North)

I think it is as well that the Committee did not, in a fit of absence of mind last night, refrain from discussing Clause 10. Evidently we have to be on the lookout for googlies in this Committee as well as elsewhere. This is a very important Clause. It imposes the Income Tax and Surtax for the present year. It reduces the Income Tax standard rate from 9s. 6d. to 9s. in the £ and also, which may not perhaps be so evident, it leaves the Surtax where it previously was. The effect of that is to reduce the combined effect of both those taxes quite substantially at the higher levels. The famous 19s. 6d., which hon. Members opposite sometimes imply falls throughout quite a large part of the income range, although really it only falls on the very top slice, now disappears from our tax tables altogether. That in itself is an event of which we ought to take notice.

Our complaint about this important Clause is not that a reduction in Income Tax as such has been made. Our complaint is that in making such a reduction the Chancellor has selected a very inequitable way of doing it. We should have preferred the reliefs to be given more heavily at th lower end of the scale and less heavily at the top. The Chancellor had £117 million to give in relief of Income Tax in the present year, and we think that a much larger part of that could have been given both with greater social justice and with better effects on incentive if it had been concentrated at the lower end of the scale. It is not in dispute between the two sides of the Committee that the larger reliefs per head fall to those with the higher incomes. We have been through all those figures and they are not in dispute between us.

4.45 p.m.

I would remind the Committee that of the total reliefs, the amount going to those with £2,000 a year and upwards— that is £22 million in revenue forgone by the Chancellor—is the same as the total going to all those with £500 a year and down. That in itself illustrates how very heavily those with the higher incomes gain by this form of relief. Our belief is that the reliefs should have been given not by this sweeping and clumsy method of reducing the standard rate but by changes in the personal allowances which could have produced for the same amount of money quite a different effect.

We have a number of Amendments on the Order Paper to this and other Clauses, which attempt to implement our views on that subject, and I hope that we shall have ample opportunity of discussing them. It seems this year that a large number of the most important issues have a way of being out of order, and I hope that we shall have better luck in the case of Income Tax.

The real issue before us is whether these alternatives which we suggest should have been adopted or whether the change in the standard rate alone should have been made. I hope the Chancellor will consider very earnestly some of our suggestions on the allowances by way of supplementing what he has done. I do not think he has made any concessions on this Bill, and I hope that he may find it possible, at any rate, if not to go the whole way, to give us something of which we are asking.

I imagine that the argument by which the Chancellor seeks to justify his policy is that though admittedly—I know he would not contest the figures—his method has not spread the reliefs equally between man and man, nevertheless that degree of inequity is justified on the ground of the effects on saving and on effort and enterprise by the additional incentive he has given. Therefore, I think that we should look for one moment at that general argument. Is the argument on grounds of incentive strong enough to justify the very unfair degree of reliefs? I do not think that we on this side of the Committee would deny that the present high level of direct tax has a considerable effect in reducing private saving and also to some extent in reducing saving by companies.

We have to look at this matter from the point of view of both saving on the one hand and work on the other. I think we can all admit that private savings are clearly much lower than they would be if we had not the present high levels of Income Tax and Surtax, but it seems to us that it is really not practicable to suggest that the way to restore the level of national savings is by sweeping reductions in Income Tax and Surtax. No doubt, if we were going back to the sort of income distribution before 1914 we might get higher private savings in that fashion. I doubt whether even hon Members opposite would be prepared to advocate that.

If that is so, I think it inevitably follows that, at any rate, for some years in the future we shall have to look for quite a considerable part of our national savings to public savings, through the Insurance Fund and sometimes through a Budget surplus. I therefore do not think that that argument can be adduced as a reason for making sweeping and unfair reductions in direct taxation.

There are also, of course, company savings. It is often argued by hon. Members opposite—and I give them this, that perhaps it is their strongest argument —that high Profits Tax and Income Tax diminish the amount of profits companies have to put to reserve and to use for actual investment and expansion of the business. The fact is that, on the figures, in I think no year since the war, have companies, as a result of tax payments, been left unable both to provide for depreciation and to pay reasonable dividends, and in most years to add a certain amount to general reserve as well.

Mr. Gerald Nabarro (Kidderminster) indicated dissent.

Mr. Jay

The hon. Gentleman disagrees, and no doubt if he has the good fortune to catch your eye, Sir Charles, he will be able to develop his argument. According to the Economic Survey, in the last year there was something like £600 million available to companies after all those things had been provided for. Looking at some of the reports of the more important companies like Unilever's and Dunlop's which have come out since the Budget, it is fairly clear that in the past year the fall in world prices and the reduction in the amount which had to be used for building up stocks has greatly relieved the position of a large number of private companies.

In any case, in our view, in so far as it is necessary—and it clearly is—to ensure that British industry has funds both for fully maintaining its present plant and for modernising and expanding it, the best way of meeting this need is by way of the initial allowance, which we shall argue on later Amendments. The initial allowance has the great advantage that, since it is in the nature of a loan rather than a gift, it does not involve capital appreciation for private shareholders; indeed, it is only released by the Treasury if actual physical investment takes place. We therefore agree with the Chancellor's action in making the increase there. So much for savings.

The rest of the argument the Chancellor might advance—and this is perhaps his main argument—is that the whole of this unequal distribution of reliefs was justified because of the stimulus it would give to individual productive effort, to actual work by the majority of the population. Now we are proposing Amendments affecting the earned income allowance, and I will not outline the whole of that argument now. I will say only this. When we are trying to estimate—I hope partially and objectively, because whatever we think it is an extremely important problem—the actual effect of reductions or increases in direct taxation on individual effort, I hope we shall have regard not so much to theory—because there have been ages of theoretical argument about this—as to the actual experience of recent years, which to my mind is worth a great deal more than all the theoretical arguments.

The remarkable thing is that in both this country and the United States in the last five, six or seven years, when direct taxation has been at the highest levels ever known in a modern industrial community, the advances in production and in productivity have been more rapid than in any previous period. That is some evidence against the previous theory that such high levels of taxation would have a universally deadening effect. I do not press this too much, but it is interesting to note that during the past year, after we had the Chancellor's incentive Budget last year, there was a check to the increase in production for the first time for a good many years. That in itself is at least evidence that we should look carefully and with some suspicion at any sweeping arguments on this issue.

We should also remember that, whereas there are, no doubt, some people who calculate the effects of the tax and argue, "Well, if it is at this level it is just not worth while doing so much more work, whereas if it is at a lower level it is worth while," and to that extent it has that effect, there are others in the community who are concentrating their attention on meeting a certain level of family commitments, on sustaining a certain standard of living. There must be some people like that who, when they see the tax fall, argue to themselves, "Now I can take things a little easier. The Chancellor is not getting quite so much and I can meet my commitments without quite so much effort as before." I do not attempt to argue which of those tendencies preponderates, but obviously they are both there.

In order not to pursue this part of the argument too far, I will reach this conclusion. I think that those considerations suggest that the answer is not simple. There is no sweeping evidence one way or the other, and I therefore draw this inference. I do not think the argument from incentive is sufficiently strong to over-weigh the objection to a system of tax reductions which, on grounds of equity and justice, is plainly undesirable. The issue is unproven. It does not make the Chancellor's case for having made these very big reductions at the top end of the scale and on unearned income as well as earned income.

What I think it does establish—and it is for this reason that we have put down certain Amendments, particularly those relating to the earned income allowance —is that, if such changes can be made in Income Tax, giving relief to those with middle and lower incomes and having reasonably good effects from the point of view of the distribution of wealth in the community, and at the same time having desirable effects on incentive, then there is clearly a strong case for doing so. That is what we have sought to do in our later Amendments.

We have put down Amendments affecting the children's allowance and the earned income allowance itself. I want to say only one word about those now, because on one of them there are, I will not say grounds for doubt, but some doubt whether it is likely to be called in the course of our debate. For the reasons I have given, I think there is a strong case for carrying further the process which was begun under the Labour Governments after the war, and which was continued by the Chancellor a year ago, of exempting a large number of the smaller Income Tax payers from the tax altogether. In so far as direct taxation does have a depressing effect on work, the more people who are subject to that effect the greater it must be for the nation. Therefore, prima facie there is a strong case for exempting a large number of people. That, of course, means exempting the lowest group from the effect of tax altogether.

I believe that quite a large number of people are debarred from advocating that by the quite common belief that we cannot take several million people out of the tax scale altogether without a very large loss of revenue. The remarkable fact is that, from the figures that is not true nearly to the extent that is generally believed.

5.0 p.m.

In the latest year for which figures are available, according to the Inland Revenue Report—1950–51—about 16 million people were paying Income Tax. A few weeks ago I asked the Chancellor what was the total revenue received from the 5 million people with the lowest incomes within that 16 million. The total Income Tax receipts in that year were something like £1,400 million, of which about half came from companies and something like half—about £700 million —from individuals. The remarkable answer which he gave, and which certainly surprised me, was that out of that £700 million the 5 million lowest income receivers—about one-third of the Income Tax payers—contributed only about £30 million. We could have exempted 5 million Income Tax payers altogether and lost only £30 million out of £1,400 million. That is a very strong argument for carrying on the process.

The method of relief which the Chancellor has chosen this year has the curious effect of reducing the tax almost all the way up the scale, and particularly at the higher levels, but exempting almost nobody. If that is incorrect, the Chancellor can say so. I do not understand, arithmetically, how it can be so, but I am assured that almost nobody is relieved of tax by this method of reducing the standard rate. The Chancellor will no doubt let me know whether that is correct.

One proposal to implement this idea of exempting the smaller taxpayers without giving corresponding reliefs higher up the scale would be to introduce into the earned income allowance not merely a ceiling of £450 beyond which no relief was given but also a floor of £100 to ensure that all those at the bottom of the scale would get relief on at least £100. I do not want to elaborate that suggestion this afternoon. I can see some technical difficulties and objections, but I should like to bring the suggestion to the attention of the Chancellor and his advisers, some of whom I am sure will understand the suggestion fully as well as the Chancellor. It is a possible way of taking a large number of these small taxpayers out of the Tax altogether, and I believe that is the direction in which we ought to move.

It would save a great deal of tax work and computation by the Inland Revenue officials, on the one hand, and by accountants, on the other, if we could take another four or five million people out of the tax. Of course, since those figures were given the Chancellor has exempted several million people by his 1952 Budget, but presumably it is still the case that if we took the lowest slice of three or four or five million people it would be possible to exempt them with rather similar effects in terms of revenue. If the Government would say what the effect would be up to date we should be very glad to hear it.

For those reasons we believe it would have been better this year, both because of the desirable effects on the incentive to work, which we recognise but which we do not wish to over-rate, and because of the equally important argument of social justice, if the reliefs had been concentrated at the lower end of the scale and had been so devised as to increase the benefits coming from the earned income allowance. Perhaps the Government will look seriously at these suggestions and, as they have not yet done so, at least present some concession in that sense to the Committee this afternoon.

Mr. Cyril Osborne (Louth)

The right hon. Member for Battersea, North (Mr. Jay) started by saying this was a very important Clause which marked the ending of the 19s. 6d. tax range altogether. I am delighted. 1 hope a lot more of the top ranges will go; I want ultimately to see many more ranges follow. Further, although the right hon. Gentleman mentioned incentive as a kind of afterthought, he did not give it the weight which economic factors demand for it.

First of all, may I say, through the Financial Secretary, how grateful we are to the Chancellor for a small mercy. We are grateful for the 6d. off. I recognise that this is only a first step and I hope that year after year we shall have 6ds to come, because I believe that the high rates of Income Tax and Surtax themselves form the greatest single factor against an improvement in efficiency and productivity in this country.

I hope that one day in the not too distant future—I realise it cannot all be done at once—we shall see Income Tax and Surtax together at not more than 10s. in the £, because with anything over that rate the law of diminishing returns operates. A man is then working less for himself than he is for the Chancellor. I remember in the days when Sir Stafford Cripps was Chancellor that we often heard, both amongst skilled workmen and amongst management, "Cripps will pay for this. This is Cripps's side of the expense." While men consider that the Chancellor of the Exchequer is a sleeping partner taking more than 50 per cent. of what they earn, we cannot expect them to do their best.

I should like to remind the right hon. Member for Battersea, North of one point upon which he did not touch. When I was a boy a phrase which was always used was "the idle rich." The underlying assumption is that the people who are paying the 19s. 6d. rate are those who are getting the money without working. On 19th February I put a Question to my hon. Friend the Parliamentary Secretary on the subject and he gave an answer which startled and pleased me. I asked him, of the 28 per cent. of the distributable income of the nation which goes to the richest one-tenth of the nation—which seems a large share— how much is earned and how much is unearned? I thought at least half would be unearned and that the phrase "idle rich" was not a figment of the imagination but was a reality.

My hon. Friend replied that of the richest one-tenth in the country—that is, the people who pay the top reaches of tax—five-sixths of their income is earned and only one-sixth is unearned. From a productivity point of view that is a very important factor, for these men are thus in competitive trade earning five-sixths of their income; and it is their point of view that I want to put to the Committee.

Mr. Frederick Mulley (Sheffield, Park) rose—

Mr. Osborne

Perhaps the hon. Gentleman would let me develop my ideas. In the Budget debate, the right hon. Member for Leeds, South (Mr. Gaitskell) continually referred—and I expected to hear it from his colleague today—to the largesse which the Chancellor is distributing. He said it should have gone to one class and not to another class; he said it was being given to the privileged and not to those at the bottom end of the income scale. I think that is the wrong attitude to adopt altogether. The Chancellor is not giving away largesse. He is ceasing to rob and take from people a little less of the money which they have legitimately earned. He is not giving them anything at all. He is refraining from taking from them—and that is quite a different matter altogether. If those people who are earning that money refused to earn it, he would not have it to give to anybody. I think it is an important point of view both sides of the Committee should bear in mind.

Arising from that there are two vital questions the Committee ought to face. The first is this. Do hon. Members opposite think the exceptionally able and gifted man. the man with exceptional ability and managerial capacity, should be taxed out of existence? Is it good for us that he, by high taxation, should be discouraged from doing his best? The second question is this. Will the ordinary wage-earner himself, in the long run, be better off if the men at the top are discouraged from doing their best by penal taxation? Would it be good to drive those men to be what "The Times" referred to the other day as "half-doers" and "non-doers"?

We have had during the last 10 years this high rate of taxation. We have had it so long we tend to forget that previously we had nothing like it at all. Even 9s. in the £ now is far too high. I would remind the Committee of how the tax has grown in recent years. During the First World War the standard rate of Income Tax was only 1s. 8d. in the £. In 1916 it went up to 5s. It was not until the end of that war that it was put up to 6s., and within six years of the end of that war it was reduced to 4s. in the £.

Now, eight years after the end of the last war, we are asking whether it is wise, whether it is fair, whether it is the economically proper thing to do, to reduce it from 9s. 6d. to 9s. in the £. I suggest we have lost our sense of proportion. This 10s. in the £ that hon. Members opposite seem to love so dearly was not imposed until 1941, when Hitler forced upon us a siege economy. I am hoping that before long we shall see a great reduction in the standard rate.

I give the right hon. Gentleman the Member for Battersea, North another reason why I think so. If, in addition to this high rate of taxation, we have, as we had in the last few years, the operation of inflation, the effect upon incomes in the higher groups is doubly severe, because what is left is cut by the amount of inflation suffered. Twenty years ago a man in business earning £10,000 a year paid roughly £3,000 in taxation, and he kept roughly £7,000 for himself. Today, the same man earning the same £10,000 pays roughly £7,000 in taxation and keeps for himself £3,000. In the last 20 years the value of money has fallen to a third of what is was, so that the purchasing power of the £3,000 with which he is left is reduced to that of £1,000, and his standard of living, the standard of living of the same man earning the same income and carrying the same responsibilities, is cut to a seventh.

I put this to the right hon. Gentleman the Member for Battersea, North. Suppose inflation continues, and we have it on the scale the French have had it. Nobody, with taxation as it is at the present time, could live beyond the state of beggary. If we have inflation to the extent the Germans had it, and as I saw it, in 1923, obviously the whole system will have to be reviewed. The position is like the operation of a pair of scissors. We have the cut being made by high taxation, and a cut by the other blade of inflation.

Sooner or later both sides of the Committee will have to face the possibility that taxation plus inflation will lead to nothing but beggary, so small will be the net income in terms of purchasing power. That is why I say that I hope that this is only the first of many reductions in Income Tax that over the years we shall see, and that ultimately not more than half of income will be taken from people who earn it. I would remind the Committee that I am dealing with earned income.

5.15 p.m.

One other consideration I would give to the Committee from the Inland Revenue Accounts for 1951. The number given here of income within tax classification is not 16 million but 20,200,000.

Mr. Jay

I think 16 million is the actual number of payers of Income Tax. It was.

Mr. Osborne

The figure given here is 20,200,000 for 1950 to 1951. What is important is that of those 20,200,000 only 245,000 are Surtax payers. Of those 245,000 Surtax payers, that is, with incomes over £2,000 a year, 200,000 have incomes between £2,000 and £5,000 a year gross. I put it to hon. Members opposite that those with gross incomes of from £2,000 to £5,000 are largely those with managerial capacity, who run our industries, and they play a much more important part in the efficiency of our industries than is generally admitted. It is true that they have not got so many votes as the wage-earners, but their contribution is of the highest importance to our efficiency and to our economic survival, and it is largely due to their abilities that there are the profits from which the Chancellor gets his taxation money.

This rate of taxation, even with this reduction of 6d., for which we are grateful, is still far too high. The principle of paying the rate for the job is often defended by hon. Members opposite. I think it is as important in economics as in anything else. We agree it is important in sport and in politics. A man successful in politics gets a reward. We believe that on the benches opposite there is a struggle going on as to who should be their next Prime Minister. I am not sure whether the right hon. Gentleman the Member for Leeds, South will be successful or whether the right hon. Gentleman the Member for Ebbw Vale (Mr. Bevan) will be successful. Hon. Members opposite, perhaps, know that; but there is a struggle going on about it, as everybody knows. The prize is the greatest and most glittering prize in this country. In politics the exceptionally able man receives an exceptional reward. It is the same in sport. Why should we not apply the same principle in business?

The day after the Coronation "The Times" published a most remarkable article that I wish every hon. Member of the Committee would read and read again. It asked the question, "What After?" In effect it said, "Let us get down the bunting, let us get down the decorations, and let us look at the stark economic realities that lie behind them." It then said what is very much to the point we are at present considering: The main reason why Britain has not yet prospered sufficiently to lift herself above the safety line is that the British people as a whole have not"—

The Chairman

Order. We are getting a little beyond Clause 10.

Mr. Osborne

I am most grateful for the indulgence you have shown me, Sir Charles. I am trying to show that the high rates of taxation are a great disincentive to earn and to extra effort.

I am grateful for the 6d. which the Chancellor has given us, although I would rather it had been 1s. Hon. Members opposite say that he has no right to give it to us. With your permission, Sir Charles, I want to use the editorial in "The Times" to support me in saying that I should like Clause 10 plus. I trust that you regard that argument as in order.

The Chairman

We have to consider Clause 10 as it is; neither plus nor minus.

Mr. Osborne

I am sorry if I am out of order. "The Times" goes on to talk about the "non-doers" and the "half-doers" in our economic system. My contention is that there are a lot of non-doers and half-doers in every class of society because taxation is so high.

The Chairman

If they are non-doers and half-doers I should be very surprised if they paid any Income Tax.

Mr. Osborne

Hon. Members opposite argue that the non-doers get too great a share of the national income and therefore should have to pay. I must leave that point if I am out of order.

Hon. Members opposite are opposed to this reduction of 6d. in the standard rate of Income Tax on the ground of egali-tarianism. They say it is not fair, and that we should be treated more or less alike. I want to know from them, when they come to state their case, what income they think we should set as a limit. How would they use taxation to enforce that? Why would they fix the limit they have in mind? How much extra would they allow for skill, extra effort, and the bearing of responsibility? Above all, why do not they practice that egalitarianism, of which we hear so much from them?

Why, if they came back to power, would they pay the fortunate Front Bencher £5,000 and make the poor back bencher put up with £1,000 a year? Coupled with that, why in the name of egalitarianism should they demand an increase in their own salaries when there are other men in this House who are getting less than £6 a week and for whom they have never spoken? Their's is a moral appeal. Let us hear more about it from them. Let us hear what they would do themselves.

I support this Clause. I am grateful to the Chancellor for the reduction of 6d. I hope he will give us another reduction, and if he does I shall support him again.

Mr. John Strachey (Dundee, West)

I hope the Committee will not pass from this Clause without giving it adequate discussion, because I regard this as an important moment in our post-war history. For good or ill we are reversing the whole tendency of direct taxation as it has existed since the war. The engine of direct taxation, up till now, has been used for redistributory purposes. Hon. Members opposite think that is utterly and absolutely wrong. They object to it probably more than anything else in the world, and they have indicated that.

We, on the other hand, believe that this engine of direct taxation can and should be used deliberately and avowedly for purposes of redistribution. And at the present standard rate of Income Tax, Surtax, Death Duties, Profits Tax and the rest, there undoubtedly is redistribution. It is therefore a vitally important question of economic principle whether or not it is a good thing to reverse that process and to reduce the degree of redistribution which has been effected by direct taxation. For hon. Members opposite to assume that it is necessarily a good thing argues a certain primitiveness of economical outlook. No one doubts that it is a good thing for their pockets, but is it a good thing for the economy of the country?

The hon. Member for Louth (Mr. Osborne) was seriously addressing himself to that question, although I utterly disagree with his view. Is it a good thing to use direct taxation quite simply to raise money for the expenses of the Government, or should it be used to redistribute income as between citizens? I think it was the Financial Secretary who said, in the Budget debate, that on the whole he took the view that the latter was not a good thing. He welcomed the idea of getting back towards a state of things when taxation was imposed simply as an unpleasant necessity to pay for the processes of Government, but was not used for purposes of redistribution.

That is a traditional Conservative view, and one which is flatly contrary to the view of every single Member on this side of the Committee. We are therefore bound to oppose what is the first step back from the very appreciable amount of redistribution which was being effected by this means of direct taxation. It is worth noticing to what degree that redistribution was carried out, because it is sometimes exaggerated.

The figures show fairly clearly that up till 1939 there was no net redistribution of income by taxation and other means. My right hon. Friend the Member for Battersea, North (Mr. Jay) summed up that position extremely well in his book "The Socialist Case." But I think it is equally true to say that since 1939— direct taxation is only one of the factors —there has been a certain degree of net redistribution of income through the community as compared with the previous situation. It is an almost impossible task to estimate quite how much there has been. I personally do not think it is nearly as big as many people believe. And in that respect I do not think the achievements of the Government of which I was a Member were quite as big as many people think.

Now, although not by an enormous amount, we are reducing the net effect of that effort at redistribution. Is that a good or bad thing? As my right hon. Friend the Member for Battersea, North said, the reasons which have been adduced by the Chancellor and other Government spokesmen in favour of that reduction fall, basically, under two heads. They wish to reduce the degree of redistribution which exists at present for the sake of two things—savings and incentives.

We should examine those two things because, if their argument is substantiated, they are important. No one on this side will deny that for a moment. It was the classical theory of capitalism—one sees it in the works of every economist— that the way to get high savings was to have a high degree of inequality in the distribution of income. If one had the national income distributed very inequitably between persons, although it might be unjust, it did produce a very high level of savings, because some people had so much income that they had very little incentive to spend it all.

I recall that famous passage in the late Lord Keynes's first major work "The Economic Consequences of the Peace," in which he describes the traditional workings of capitalism and likens the rich to bees who collect the economic resources of a community into their own hands, but not, he suggests, to spend themselves, but, in a large part at any rate, to save and invest, nominally for themselves, but actually for the benefit of the community.

5.30 p.m.

That was the way in which capitalism was supposed to work, and to some extent undoubtedly did work. And it is true that if that is the only way that we can get adequate savings in a community, then we must have a very high degree of inequality in the distribution of income. But I suggest that today that is not so; that it has proved not to be the case that we have to have this extremely high—and it is extremely high, although not quite as high as it was— degree of inequality in order to get adequate savings.

I suggest that the experience of the post-war years showed that there are now other ways, partly devised by Government and partly brought about by the changed shape of the organisation of industry, and in particular by the growth of corporations in industry, by which accumulation, saving can go on without anything like so high a degree of inequality in the distribution of income. The figures which my right hon. Friend the Member for Battersea, North has quoted are surely very striking in that regard—that last year, so far as one can tell, the actual amount of accumulation, not by individuals, but by corporations, company accumulation as he called it, was actually greater than that needed for the amount of actual investment in the sense of the creation of new capital assets, in the sense of physical investment, which those corporations wished to do—by a figure of some £600 million.

It does look as if under the old rate of taxation, very high indeed compared with our traditional rates, it was possible to produce by various means, Budget surpluses and the like, an adequate degree of saving for the purposes of real capital accumulation. Therefore, I think that hon. and right hon. Gentlemen opposite ought to address their minds—it would be very interesting to know what the Chancellor's mind was on this—to the issue that it is obsolete economic doctrine to take the view that we have to have an indefensible degree of inequality of income as the only way of producing a high enough rate of saving. Without going into elaborate economic theory, I suggest that it has been proved in practice that we can do it with a markedly less high degree of inequality than is supposed. That, it seems to us, is the issue in this matter of savings.

Now I should like to look at the other side of the Government's case—that of incentive. I think that incentive comes under two heads. There is the question of the disincentive to further effort, which, it may be quite reasonably suggested, is given by high rates of taxation on an actual worker, either a manual worker, or mental worker, such as the managerial worker—the actual degree of disincentive to his effort which a high rate of taxation on his wage or salary, his actual earnings, may give.

I do not think that anyone on this side of the Committee would seek to deny that, of course, if we push our rates of taxation on those wages and salaries up beyond a certain point we do get a degree of disincentive—and a dangerous one. Therefore, as my right hon. Friend said, we are in favour of reducing, by increased allowances or any other suitable means, the rates of tax on such incomes. If we can make remissions at all, let us make them where they will provide further incentive to our wage earners or salary earners who may, quite arguably, at any rate, although it is not certain, suffer a disincentive if the rate goes above a certain figure.

But if that is what the Government have in mind, then surely this present relief, which is on the very highest level of income, has the minimum effect upon incentive. Because the highest incomes are essentially property derived, or unearned incomes and, therefore, disincentive does not come in at all in taxing them.

But there are other incentives which many people have in mind. They suggest that to push taxation of all kinds above a certain degree will act as a disincentive, not on the manual worker but on the entrepreneur when he is deciding whether or not to launch out into some new enterprise. That is an entirely different form of incentive, and it is a very important one indeed. That has to be considered. We have to ask surely today two questions in that respect. We have to ask who is the entrepreneur today; who takes the vital decisions as to whether new enterprises should be started or, more important today, whether existing enterprises should be enlarged?

Of course, it is not any individual. The picture of an individual Victorian capitalist doing that is a very out-of-date one. Such figures do exist, but they are not the decisive factor. Our present day entrepreneurs, in that sense, are the boards of directors of the 12,000 public companies of this country. They are the people whose minds are made up as to whether new enterprises should be started or existing enterprises should be enlarged. The real question of incentive in that sense is the question of the effect of taxation on their minds, on the minds of the boards of directors of the public companies of this country. They are, surely, the really decisive people in this respect.

Therefore, we come to the second question, which one might put shortly as: What is it today which makes the entrepreneur want to "entreprenne"? The entrepreneur "entreprennes" when he considers it will benefit his corporation, the company or corporation or corporate body of any sort which he directs. He does not necessarily do it on a calculation of private gain to himself. He may or may not have large private gains to make in the matter. He is often concerned as a salary earner rather than as a shareholder. He will do it if he sees an opportunity to enlarge the scope of the activities of his company or concern and he will not do it if he does not.

I would not say that taxation may not have some effect on that if pushed beyond a certain point. But I believe that it has a far less effect than it had on the old type of entrepreneur—the individual capitalist of the system of 50 or 100 years ago. I put it to the Committee that again, and not as a matter of theory, practice has shown that the real factor which determines, predominantly, the decision of the entrepreneur, the corporate entrepreneur, whether he should go ahead and enlarge or not, is not the level of taxation on him at all —the real thing that affects his mind is whether he sees a market for enlarging the output of his product.

Mr. Ian Horobin (Oldham, East)

Not at a loss.

Mr. Strachey

Not at a loss, of course. There is no reason why it should be at a loss. If the hon. Member would like to expand his interjection, we might understand it.

Mr. Horobin

If every time a man makes a profit 19s. 6d. is taken out of it, and every time he makes a loss he has to pay the whole of it, the chances of making a net loss at the end of the year, even if one expands one's production of groundnuts or whatever it may be, are immensely increased.

Mr. Strachey

I will not take up the hon. Member's personal quip, although I am tempted to do so, but it would be going a little wide of Clause 10. However, that is true. If it was a question of taxation above the rate of 100 per cent., clearly there would be no possibility of expanding the net receipts of the corporation. But it is not a question of that. I would call the attention of the hon. Member to the fact—this is what I want to emphasise to the Committee —that while taxation has been at these very high rates—taking them all together, they are very high rates—during the postwar years, markets also have been very high or wide or whatever the appropriate word may be. The prospect of selling an increased output has been far better than ever before. In actual practice, this has made the modern corporate entrepreneur "entreprenne" far more strongly than ever he did under the lower rates of taxation in the '30s with the much narrower markets. That is a fact, and it cannot be gainsaid.

My submission is that the size of the market, the ability to sell an ever-increasing output, is not something unconnected with the system of high, direct, redistributory taxation. It is the other side of the whole system. It is because there has been, and is, this degree of redistribution of income, with its sustenance of the purchasing power of the population as a whole, that markets have been expanding. That is one of the most important reasons.

Mr. Osborne

Is that true of America?

Mr. Strachey

Certainly it is true of America. Does not the hon. Gentleman realise that re-distributory taxation in America, though not quite as high as it is here, is very high indeed, far higher than it used to be. Most American economists would agree with me about that. Certainly Mr. Galbraith, in his recent book, agrees very strongly that the fact that there has been in America a very high degree of redistribution has probably been the most important single factor in sustaining the American economy. The American boom has been sustained because of this wide distribution of purchasing power. Redistribution acts as a positive incentive, by its effect on their markets, on the men who take the actual decisions in modern industry. Consequently we receive with the utmost regret, and must oppose, this step back from the degree of redistribution which this country had achieved.

5.45 p.m.

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

If the right hon. Gentleman the Member for Dundee, West (Mr. Strachey) will forgive me for saying so, his experiences as an entrepreneur have been hardly more successful than his recent attempts to convert the word "entrepreneur" into a verb.

We know the right hon. Gentleman the Member for Dundee, West and we know the right hon. Gentleman the Member for Battersea, North (Mr. Jay), and we are not in the least surprised to find that they both regarded it as a very retrograde and undesirable step that the top range of Surtax in Clause 10 should have been reduced from 19s. 6d. to 19s. I take a very different view. I believe it to be a very healthy step. I hope this is only the first step. I do not believe that this or any other country year in year out can expect those whose capacity is such that they can command high incomes to continue to exert their full effort while keeping only 6d. or 1s. of every £ which they earn. I believe that is contrary to human nature.

The real difference between hon. Members opposite and my hon. Friends is that hon. Gentlemen opposite think that envy is the real generating motive by which we in this country can pay our way in the world. My hon. Friends and I do not believe that envy is the generating motive. I believe that ambition is a far more effective motive, although I absolutely agree that the urge, the push and the pull of ambition has to be kept under reasonable control.

If some ingenious saboteur wanted to damage our country's economy to a very serious extent, it could be done quite easily without atom bombs or anything like that. He would only have to remove the best half dozen brains in each firm, starting with those concerned in export, and then go on to remove from the potential genius the incentive to persevere in the early stages of his career. If that were to be achieved, we should get no progress at all, and the wage earner would quickly feel the draught. I do not suggest that the very high rate of taxation has gone as far as that, but it has gone quite far enough in that direction. One of the most serious effects of the incidence of too heavy taxation has been the trend to export brains instead of goods, and that is very dangerous indeed.

Secondly, I am not at all certain whether one can draw an absolutely rigid dividing line—I know that hon. Gentlemen opposite will not agree with this— between what is commonly called earned income and unearned income. Unearned income is really investment from savings. I cannot think of any other way of describing it. Why is the urge to save so strong? It is because most men wish either to provide for their dependants, when they themselves die, or to enable them to end their days perhaps in a happier condition than that in which they began. I believe that to be a wholly healthy desire. If we make personal savings impossible, we replace the urge to save by the urge to spend, and that is a very unhealthy urge.

Thirdly, there is one other difference between my hon. Friends and hon. Gentlemen opposite. Hon. Gentlemen opposite do not see taxation in its effect on the country's economy, in its effect in helping or hindering our capacity to solve the balance of payments problem. They regard taxation solely as a means for redistributing wealth. In their passionate quest for equality they forget that the most important part of "equality" is "quality." Anybody can level down and anybody can go along at the pace of the slowest horse, but that is not the problem which confronts our country now. We shall not get out of our economic difficulties by going along at the pace of the slowest horse in the race. Our problem is how to level up. It is quality that counts. Once the British nation stops exporting goods of quality or producing men whose managerial capacity is of high quality, we shall be in very serious trouble.

That is why I support Clause 10. I welcome the reduction of 6d. in the Tax, and I only hope that it is the first of much larger doses to come in future Budgets moved by my right hon. Friend.

Mr. Douglas Houghton (Sowerby)

There is one thing I should like to say to begin with, and that is that hon. Gentlemen opposite are in error in saying that there is any rate of tax at 19s. 6d. in the £. The effective rate of tax for a person getting as much as £100,000 a year was 18s. 10d. in the £ last year and will be 18s. 4d. this year. A person getting £50,000 a year had an effective rate of tax last year of 18s. l½d., and this year it will be 17s. 8d. I am not going to say that they are not very high rates of taxation. They are, but they are not 19s. 6d. in the £.

Another thing we ought to get clear is that when the hon. Gentleman the Member for Louth (Mr. Osborne), in fervent terms and almost with a tremble in his voice, thanks the Chancellor of the Exchequer for relief to the extent of 6d. in the £ he knows that the tax relief amounts to a great deal more than 6d. to those taxpayers for whom he has been speaking in this debate. It is 6d. multiplied by thousands, because the total relief of taxation on scores of hundreds of pounds is not just the 6d. that the hon. Gentleman is grateful for it is 6d. multiplied by all the £s that these persons earn a year. That is the total relief from taxation, and if the hon. Member gets up to tell the Committee how much relief he will get out of the Budget I will sit down and listen with great interest.

Mr. Osborne

Whatever I get I earn.

Mr. Houghton

We have only the hon. Gentleman's word for that. I know that in the course of his speech he said that we on this side of the Commitee believe in the rate for the job. What rate for what job? That surely is part of the test of the principle of the rate for the job, and if the hon. Member likes to tell the Committee what rate he gets for his job I will sit down so that we may hear what it is.

Mr. Osborne rose—

Mr. Houghton

Is the hon. Gentleman going to respond to my invitation? If not it will be an irrelevant interruption. I will give way if he is going to answer my question as to how much tax relief he is going to get out of this Bill. If he likes to answer that I will give way, but if he wants to get up and waffle about, with great respect I shall not give way.

Mr. Osborne

The hon. Gentleman should know what waffling is.

Mr. Houghton

Probably there are more experts than the hon. Gentleman and myself in the art of waffling, but at the present moment I am asking him a direct question and he is not giving me a straight answer. I will pass on, because I think we can assume that this 6d. relief for which the hon. Gentleman is thankful has to be multiplied many, many times to give the total tax relief that he will get from this Clause.

The question that we on this side of the Committee ask ourselves is, is it necessary to give the hon. Gentleman a tax relief in order to keep his spirits and his production high, and to give him, as the Chancellor of the Exchequer expressed it, a boost? I ask the hon. Gentleman another question. Is this Clause giving him a boost? If so—and I assume it is —will he kindly tell the Committee what form this boost will take? Will he work harder? Will he work better and talk less, or is it just a state of mind he has been put into by the reductions given in this Clause?

The right hon. Gentleman did not justify what he was doing in this Clause by reference to considerations of equity. He did not say that this was the fairest way of reducing taxation this year. He did not say that he believed this to be a more equitable way of distributing the tax reliefs to any other alternative course for Income Tax or any other tax. He did not say that he thought those who paid an effective rate of tax of 18s. 10d. in the £ were in real need of a reduction to 18s. 4d. in the £.

The right hon. Gentleman—and I think we all listened to his Budget speech with the closest interest—seemed to put some kind of spiritual inspiration behind this tax relief. It was going to be a boost, and he was going to give Britain a break by reducing taxation by 6d. in the £. There is no doubt at all that the Press the next day seemed to capture the magic which he wanted to import into this proposal, because their headlines were, "Sixpence off." That was going to be a new incentive, a new driving force behind our enthusiasm and our will to recover. We have had quite a long time to consult and consider whether this boost, which the right hon. Gentleman has sought to give, is indeed going to be the boost that he wants. Could he have done it a better way?

I think the party opposite are really in retreat from direct taxation. They have never liked direct taxation, because it is the only fiscal weapon which can be made severely progressive. It is the only form of taxation which can really hurt the well-to-do. Other forms of taxation on things rather than on persons and on income can be severely regressive. They can hurt some people very much indeed, but they cannot really hurt the rich. That is why, whether it is indirect taxation on motor cars or on beer and tobacco or indirect taxation on other goods, their interest in indirect taxation is only as producers and not as consumers.

I find it very hard to get this relationship between direct and indirect taxation in proper proportions in my own mind. I ask myself, what are the principles of taxation in this country? Just recently I was asked to do a few talks in the European Service of the B.B.C. on the principles of taxation in Britain. I tried to address myself to that problem, and I came to the conclusion that the principles of taxation in Britain are the principles of taxation everywhere, which were, as the Frenchman said, how to pluck the goose with as little squawking as possible. That seems to be the only principle in our system of taxation.

How can the Chancellor get what he wants or achieve the purpose of his policy with the least political, social and industrial reaction? When the hon. Member for Louth was referring to the discouragement which is given to managers in this country by the present rate of taxation, I felt he exaggerated the position. I do not believe that management in industry is as dependent on the financial incentive as a great many people lower down.

After all, they have interesting jobs. They are very often devoted to their work. They take work home and do it at weekends. Many of them are great trials to their wives and children, because father has his work to do and he is very interested in doing it. They have many amenities and facilities in their work. They can have motor cars on the firm and they can have people to drive them about. They can be sent on overseas missions, and directors can say to them, "Take the wife, and do not hurry back."

6.0 p.m.

All sorts of things make life very pleasant indeed for those in positions of managerial responsibility. A person who retired recently from the public service, where he was a highly placed official, to go into industry was heard to remark that it was not because of the higher pay he received, because taxation cut most of that off, but because the amenities in an industrial job with managerial responsibility far outclassed anything that could be got in the public service where he had to walk or, at all events, was asked by the accounting officer, "Could you avail yourself of public transport?"

I think that many of these managers do not require financial incentive to give them a boost, and the idea that they do is misplaced. On the other hand, there are many workers on repetitive production jobs who are frequently bored by their work and dislike it and who are looking a great deal more closely than those higher up at the cash rewards they get.

A trade union secretary was saying to me yesterday that on a recent visit of Her Majesty to a factory she saw a young man doing a highly repetitive job. She asked, "What are you doing this for?" And he said, "Time rate and a quarter, Your Majesty. We are pressing our trade union to get time rate and a half." There is an example of what some people are working for. I have always said that in many ranges of wages the Chancellor of the Exchequer can give the best wage increases of all because he is the only person who can give the taxpayer wage increases by tax reliefs. The Chancellor has no doubt had them in mind in deciding that he would try to give the country a boost.

What the Chancellor has done this time, however, is quite unselective. Last year he chose to increase the personal allowance for both married and single persons, he increased the allowance for children and he created a new Income Tax concession, that of giving earned income relief to the quite small incomes. He also increased the earned income relief generally and thereby took out of the field of taxation a considerable number of people.

This year he has chosen to limit severely the reliefs that he has given to personal taxpayers. Later in our debate there will be occasion to consider some of the things which the Chancellor might have done to adjust the burden of taxation more fairly to the shoulders that have to bear it. This year the Chancellor has made small improvements in the allowances for housekeepers and dependent relatives, but all the rest of his Income Tax reliefs have gone in the reduction in the rate of tax covering the whole field of taxpayers.

When the Financial Secretary comes to reply, he may be able to tell us a little more of what is in the mind of Her Majesty's Government regarding their fiscal policy. A little while ago I read in the "Economist" a suggestion that there ought to be an election this autumn because the Conservative Party had never explained any policy which would take them beyond the autumn.

The Temporary Chairman (Colonel Sir Leonard Ropner)

The hon. Gentleman is getting a little beyond Clause 10.

Mr. Houghton

Yes, Sir Leonard, I regret that and acknowledge it. I am coming quickly back to this Clause. I am asking the Financial Secretary if, when he replies, he will explain to us not only what is the taxation policy of the Government in regard to the level of direct taxation but also the relationship between direct and indirect taxation as the twin weapons of fiscal policy. Perhaps, unless he transgresses as I have done, to keep in order he may have to confine his remarks to direct taxation and the Income Tax particularly. Is it the intention of the Government to regard as the basis of their future policy the reduction of the level of direct taxation even though it is not possible for them to give reliefs in the field of indirect taxation? That is the question that I want the hon. Gentleman to answer, though I am still prepared to give way if the hon. Member for Louth—who is no doubt still contemplating whether he should answer my question—wishes to put himself absolutely square with the Committee.

The boost which the right hon. Gentleman was hoping to give by this reduction in direct taxation seems to have exhausted itself even by now, at least so far as its effect on the general mass of the workers is concerned. There has been some critical reaction generally throughout the country—

Mr. Osborne

Not in Sunderland.

Mr. Houghton

Right hon. and hon. Gentlemen opposite must not fall into the error of thinking that one swallow makes a summer. There are all sorts of factors which may lead to a particular result at a particular time. We, for our part, are quite prepared to see how the other birds take to wing as time goes on. There is no doubt—all of us have sensed it in our contacts with our constituents—that there was a feeling to begin with that more had been done to give taxation reliefs than in fact had been done, and now this very week most workers will be able to see for themselves just what these tax reliefs amount to.

These few reflections may carry the mind of the Chancellor a little further in his difficult task, but it seems to us on these benches that, without hearing more of the principles upon which Her Majesty's Government are working in their fiscal and economic policy, we cannot judge this Clause, any more than the rest of the Bill, except on the basis of opportunism, expediency or even political prejudice.

Unless there are some principles behind what the right hon. Gentleman is doing, he is just ad hoc, if I may say so without disrespect, addressing himself to each problem as it arises by the balance of considerations as they appear to him at that moment. The essential difference between those of us on this side of the Committee and right hon. and hon. Gentlemen opposite is that we work on principles whereas hon. Gentlemen opposite are much more flexible in their approach to political and economic and social morality.

Mr. Nabarro

The hon. Member for Sowerby (Mr. Houghton) first gained a good deal of prominence through wireless programmes entitled "Can I help you?" I hope that during the course of those programmes he showed a little more consistency than he has shown this afternoon. Only yesterday we listened to a whole series of speeches pleading with my right hon. Friend the Chancellor of the Exchequer for a substantial reduction in the rates of Purchase Tax which is one form of indirect taxation. Today, the hon. Member is pleading for a reduction in direct taxation. I am not quite sure what the hon. Member's fiscal principles rest upon. They seem to me to rest upon a sort of omnibus reduction of every form of taxation, duty and levy at one and the same time, and in one and the same Finance Bill.

Two right hon. Members opposite spoke earlier in this debate on Income Tax. They both made extraordinary points in regard to company taxation and the effect of the reduction in the standard rate of Income Tax on the finances of companies. The case made by the right hon. Member for Dundee, West (Mr. Strachey) was evidently that the 12,000 public companies in the country, after providing for taxation, and after providing for reasonable sums for the servicing of their respective capitals and also reasonable sums for ploughing back into their businesses, had a sort of reserve of money which they did not quite know what to do with.

Mr. Strachey indicated assent.

Mr. Nabarro

The right hon. Gentleman now confirms that. Evidently he did not sit through our debates on the Committee stage of the Finance Bill last year. Had he taken the trouble to do so, he would have found that the case he was pleading today was in extraordinary contradistinction to the arguments of that economic triumvirate, the hon. Members for Gloucestershire, South (Mr. Crosland), Stechford (Mr. Roy Jenkins) and Edmonton (Mr. Albu). In speech after speech last year, when attacking the Excess Profits Levy, their whole case was that it mulcted corporate undertakings and companies of such a large sum of money that insufficient reserves were left for the development and expansion of their businesses.

Mr. Roy Jenkins (Birmingham, Stechford)

The hon. Member is misrepresenting us. The whole burden of our case against the Excess Profits Levy last year was not so much that it took money away from corporate bodies, but that it did so in an unfair way and one calculated to penalise expending companies as against static and contracting companies.

Mr. Nabarro

The hon. Member, who has considerable knowledge of these tax matters, must go away and read the speeches that were made last year. That was the only point which he and his hon. Friends were making. In a series of Amendments, the gravamen of their charge against my right hon. Friend was that companies were being mulcted at such an excessive rate by the aggregation of direct taxation which they were called upon to pay, that insufficient sums were left for development. The right hon. Member for Battersea, North (Mr. Jay) supported that case last year and opposed it this afternoon. His inconsistency is even more vivid than that of his hon. Friend.

Mr. Jay

The hon. Member is totally misrepresenting what we said. Obviously he cannot have been here last year and cannot have read the speeches. We did not object to the total level of taxation. We said that it was being levied in an unfair and inefficient way, calculated to penalise the progressive enterprise. Had we been saying what the hon. Member suggests, why should we have opposed the reduction in the Profits Tax, which went together with the increase in E.P.L.?

Mr. Nabarro

The right hon. Gentleman cannot pursue the argument that I was not here. I spoke at least half a dozen times last year during the Committee stage on the Excess Profits Levy Clauses and repudiated many of the fallacious charges made by hon. Members opposite. However, let me return to Clause 10.

A Finance Bill is generally a dull and uncongenial document. There are, however, magic words in the first two lines of Clause 10: Income tax for the year 1953–54 shall be charged at the standard rate of nine shillings in the pound, … It would have been even better had "only" been inserted before "nine shillings," for one of the worst things that the last Labour Government did was, in one and the same Finance Bill, to increase the standard rate of Income Tax from 9s. to 9s. 6d. and at the same time to withdraw the initial allowances. In my view, that was a primary cause of the falling off in production which we witnessed in the ensuing 12 months.

6.15 p.m.

In my view, the principal effect of the reduction of sixpence in the standard rate of Income Tax will be felt by industrial companies because of the marked impression that it will make on the sums of money that are available to them for improving their equipment, and for expansion. It is true that the abolition of the Excess Profits Levy will help them also.

The right hon. Member for Battersea, North makes the case that he would prefer to proceed by hiccoughs with the system of the initial allowances or a series of loans to companies—for that is all they are—and he says that he prefers that system to what he was pleased this afternoon to call a gift, by reducing the standard rate of Income Tax. I must say how greatly I oppose the right hon. Gentleman's point of view. It is not a gift to companies. It is a sum of money left in their reserves out of which, based on the evidence of the last two years, they are distributing only 20 per cent. in the general flow of dividends, and the remaining 80 per cent. is being used most largely for increasing their reserves, and then used principally for re-equipment.

Of those three incentives that my right hon. Friend is able to offer to industry to improve its equipment and to enlarge production—namely, the reduction in the standard rate of Income Tax, the prospective abolition of the Excess Profits Levy and the restoration of the initial allowances—the most important single one is, undoubtedly, the reduction in the standard rate of Income Tax. Hon. Members opposite who plead that it is so unfair to reduce the standard rate of Income Tax because it helps those few individuals with very large personal incomes, and who neglect entirely the profound effect that it will have on business and capital re-equipment as a whole, are falling into a grave error.

I speak with an intimate knowledge of what is going on in the Midlands. I know that since the provisions of this Budget were announced, there has been a great quickening in orders for every form of capital equipment, notably in the machine tool industry. It may be caused through re-introduction of the initial allowances. I hope it is not so, because initial allowances are only of very ephemeral and fleeting value. It is most largely, I believe, the impetus and the urge that has been given to industry generally by reduction of direct taxation and notably the prospective ending of the Excess Profits Levy; and in large degree by what the "Economist," in its leading article immediately following the Budget speech, called—a significant expression, I thought—"the turn of the fiscal tide" and described as the first time in years that a Chancellor had imposed no new taxes and had generally encouraged productive industry by straight reductions in practically all the levies that they were called upon to pay. I believe that this is the most important Clause in the Bill, and it has my wholehearted support.

Mr. Gordon Walker (Smethwick)

The hon. Member for Kidderminster (Mr. Nabarro) used very significant words when he talked about the magic words in the Clause, because he and his right hon. Friend the Chancellor of the Exchequer, together with all other Members on their side of the Committee who have defended it, are really relying on magic. They defend the reduction of the Surtax on purely doctrinal grounds and advance no proof whatever to substantiate what they say will follow from the reduction in Surtax.

The speech of the hon. Member for Kidderminster was typical of all the other speeches we have heard. He believes, without any evidence—he said himself that he had no evidence—that this reduction in Surtax is the bit of magic that will save the whole of our economy.

Mr. Nabarro

The right hon. Member must not misrepresent me. I did not mention Surtax, but from the beginning to the end of my speech devoted practically all my remarks to the effect on industry of the reduction in corporate body taxation by bringing down the standard rate of Income Tax.

Mr. Gordon Walker

If the hon. Member was wiser than some of his hon. Friends and did not mention it, it was in his mind all the time. I think I remember him referring particularly to the reduction of the Income Tax on the very rich. I think I heard him say that.

Mr. Nabarro

I did not.

Mr. Gordon Walker

I think he referred to the small number of the very rich who would get reductions. They certainly are Surtax payers. The real and simple issue is whether the reduction in the Surtax is put to the best use.

Mr. Ralph Assheton (Blackburn, West)

Would the right hon. Member allow me to remind him that there is no reduction in Surtax?

Mr. Gordon Walker

The reduction in the amount of tax paid by Surtax payers —[HON. MEMBERS: "Income Tax."]—I amend it to the total amount of tax paid by Surtax payers. The issue is whether it is the best use of the available money in the national interest, and on that we have not heard any evidence at all. The doctrine is a very simple one. It is that incentive today depends entirely upon the reactions of the big men at the top of industry and the rich people in the country. The argument all the time is that incentive primarily depends upon them. In fact, it is shown today that incentive in the main, in a modern society, is a question of the reaction of the workers as a whole and of their general will to work and not primarily— although, of course, it is also a factor— as it was 50 years ago, the question of the reactions of the very rich and men at the top of industry.

This has been proved by the test of experience; it is not a question of doctrine. What affects the will of the workers to work certainly affects our production as a nation, and that is the only test we can apply to find whether anything is an incentive or not. It is always forgotten that the workers also pay great attention to the prospects of their children. It is not only the effect on rich men and their children's prospects, but the effect on the workers and their children and on their general will to work.

Above all, there is the effect on the workers' sense of social justice and social equality. The great objection to this proposal is that it does offend against the principle of social justice and equality. This money could have been used differently. It could have been used with much greater benefit to the general economic and social equality of people in this country. The test is simple: Why did productivity go up under the Labour Government? It was because the workers had the will to work for these reasons.

If the present Government come forward with this sort of policy—urged upon them by their supporters—and, as money becomes available for tax reduction, as we hope it will, use that money in this unjust way so that people with much money get very much more considerable reliefs from the State than people with lower income, it will be a great blow to the productivity of the country. It will be something done for purely doctrinal and selfish reasons and not at all in the national interest. On those grounds, I think we ought to resist this proposal for the unjust—at this stage of our affairs— reduction of tax on very high incomes instead of a better and more socially just use of money.

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

I agree with the rather unusual concurrence of testimony of the right hon. Member for Battersea, North (Mr. Jay) and my hon. Friend the Member for Kidderminster (Mr. Nabarro) that this is an important Clause. By reason, perhaps, of its importance it is one to which a great deal of discussion has already been given during Second Reading and during the Budget debates. I must therefore beware of the danger of falling into the twin Parliamentary offences of tediousness and repetition.

The Clause itself, embodying as it does, the proposals of my right hon. Friend for Income Tax, was naturally discussed at fairly considerable length on Second Reading, and it is a little difficult to add very much to what was said in the course of that debate. It is also necessary to beware of the fact that the alternative method of allowances which the right hon. Member for Battersea, North advocated in general is likely to be discussed in detail on some of the Amendments to Clause 12, on which perhaps more conveniently will come such argument as there may be as to whether or not particular proposals have merits.

I will seek, therefore—not, I hope, at undue length, because the Committee still have a great deal of business before them —to summarise the reasons we feel the proposal of my right hon. Friend to reduce the standard rate of Income Tax, coupled with the adjustments to allowances which are made in Clause 12, is this year a preferable method of dealing with the questions of direct taxation to that which the right hon. Member for Battersea, North advocated, in what I hope I will not do him irreparable harm in his party by describing as a most persuasive speech.

If we are to form a fair view of what my right hon. Friend is doing, it is essential to have in mind one or two of the salient facts and to consider, in the light of those facts, whether some of the criticisms—notably perhaps that which fell from the right hon. Member for Smethwick (Mr. Gordon Walker) as to selfishness and being contrary to the national interest and so on—are really justified by the proposals as they stand.

It may interest hon. Members to look at the question in this way. The cost, in a full year, of the reduction of the standard rate is £73 million and the cost of reduction in the three reduced rates is £61 million. It is of interest that of the £73 million no less than £45 million goes to companies and only £28 million to individuals. As regards the reduced rate, of course the whole total of £61 million goes to individuals. Of the total benefit to individuals of £89 million, £61 million represents the reduction in the reduced rates. I think it is an important aspect of the matter that so large a proportion of the concession to individuals goes on the reduced rates—that is either to those on small incomes or to the bottom levels of those with higher incomes.

One may look at it in another way. If we take the total relief to individuals, when account is also taken of the adjustments to allowances to which we shall come in Clause 12, the total effect is of a concession to individuals of £96 million of which no less than 60 per cent. goes to individuals with incomes of £1,000 a year or less. It is also worth recalling, although I do not want to labour the point, what was said on Second Reading —that a reduction in the Income Tax rates benefits every taxpayer. Counting wives who are working separately, it affects 16½ million taxpayers—this is the correct figure which was in dispute between the right hon. Member and one of my hon. Friends—and, when we consider their families and dependants, 30 million people.

6.30 p.m.

There is also the consideration, to which I referred on Second Reading, that the biggest reduction in the tax bill comes at the bottom of the scale. There are 7½ million people who pay Income Tax only at the lowest reduced rate. That is reduced by this Clause from 3s. to 2s. 6d. It follows that those people see a reduction of one-sixth or 16¾ per cent. in their tax bill. The proportionate reduction of the tax bill, of course, diminishes as one rises up the income scale to about 2½ per cent. when one reaches the highest level. Therefore, although one can found arguments based on the absolute amounts involved, it is of some interest to recall that the proportionate effect on the individual's tax bill is so large at the bottom of the Income Tax scale.

I now seek to deal with the arguments which I do not think that the right hon. Member for Battersea, North deployed today—his speech was most agreeable— but which were deployed at an earlier stage of our debates by some of his right hon. Friends, to the effect that the reduced standard rate gave most benefit, first to the rich; second, to those with unearned income as against earned income; and third, in the case of married people, to those without children. I think these were the three main criticisms which, certainly at earlier stages of the debate, were levelled against my right hon. Friend's decision to reduce the standard rate.

A good deal of play was made and a good deal of fun was had by some right hon. Gentlemen in respect of the argument put by some of my hon. Friends that such a result must be the necessary and inevitable consequence of a decision to reduce the standard rate. One right hon. Gentleman said, "Why, in those circumstances, reduce the standard rate?" I should like to follow up that criticism a little further. Does it mean, if I may analyse the consequences more fully for a moment, if those consequences in fact arise, that in the view of the Opposition that is an argument for never, until the end of time, reducing the standard rate below 9s. 6d. or the total of Income Tax and Surtax on those branches of income which exceed £15,000 below 19s. 6d.? Is it their view that such levels of taxation must endure until the end of time?

Is it really their contention—a most interesting proposition—that, for the reasons they have given, we must not at any stage, even though the national finances permit, reduce the level of taxation of this order, which—I will come to the effects in a moment—is as high as we have ever had and a good deal higher than we have previously had in times of peace? That is the question posed by the arguments of the Opposition. It is a matter of some interest whether they really see irresistible objection to our ever tackling the question of the standard rate.

It is surely one of the essentials of a system of progressive taxation that where the State is compelled to raise large sums of money for public purposes, and when it is necessary to increase the revenues of the State, the burden of the increased taxation shall fall mostly on the higher incomes. We all accept that in principle, although we may differ in the precise application. It is surely one of the essentials in such circumstances. That principle has been applied by successive Governments and is in operation at this moment.

It is surely the corollary that once the need for taxation at that level ceases, in the view of those responsible, one is entitled, indeed, compelled, to consider whether a standard rate, progressively adjusted by the Surtax as this is, is justified. It is surely the essential corollary of imposing taxation in this sort of way, which I think we all accept, that when it becomes possible to review the Income Tax position one is really compelled, by the same principle, to make adjustments downwards on exactly the same principle.

I will come to the argument of the right hon. Member for Dundee, West (Mr. Strachey) about the redistribution of income by taxation. Arguments of a philosophical nature based on the redistribution of income rather than the requirements of revenue can be advanced, whatever may be the level of taxation, but I should have thought that it would be generally accepted that levels of taxation such as those which we have been enduring, rising to very high proportions indeed in the higher levels of income, are only justifiable when the State has to raise that amount of revenue.

I am not concerned to argue with the right hon. Gentleman that when we come to the lower levels the re-distributive element may not be a very interesting consideration to be borne in mind, but unless the right hon. Gentleman wishes to carry redistribution very close to the point of confiscation he is bound to admit that taxation at the levels which we have been enduring is justifiable solely from the revenue aspect.

The effect is—here I come to the later criticisms—that when we reduce taxation which stands at this level it naturally follows that the biggest absolute reduction in that particular instalment of reduction falls to those who are paying the most in taxation. It therefore follows— here I am dealing with the right hon. Gentleman's point of the difference between the relief to those with unearned incomes and those with earned incomes and between the married and the single —that the mitigation of the rigours of taxation given in respect of earned income, and given also, and very properly given, to married and family men, means that when the tax itself comes to be modified, if one makes a mathematical calculation the amount of the reduction at the moment can be shown to be higher for one set of categories than for another. But it is, of course, a complete misreading of that situation to suggest that we are conferring any disproportionate or unfair benefit on one category as opposed to another when all that we are doing is to reduce the general rate as distinct from the reliefs given for social reasons to certain classes of people.

I turn to the question of incentive. The right hon. Member for Dundee, West did not seem to think that incentive mattered at the higher levels at all. He and several hon. Members talked as if the only incentive needed was for the directors of public companies. We are all aware of the great contribution to the well-being of this country not merely by public companies but by individuals— individual professional men in particular, to whom the right hon. Gentleman's arguments are not applicable at all. I do not think it has been fully appreciated on the benches opposite that earned income relief at present only runs up to a total earned income of £2,025. Therefore, the reduction in the standard rate for incomes over that figure falls equally on earned and unearned income.

I hope that it is not to be suggested in these days that valuable public and national service cannot be properly remunerated at levels in excess of £2,025. Nor, I hope, is it to be suggested that the encouragement which comes from being allowed to retain slightly more of one's own income for one's own purposes must necessarily be denied at the higher levels of income. It does not lie in the mouths of right hon. Gentlemen opposite to say that nobody ought to be earning salaries of that sort and that, therefore, they require no encouragement, because it will be within the recollection of the Committee that when right hon. Gentlemen opposite were in authority they appointed, quite rightly, to great public corporations which they created distinguished persons at salaries four or five times greater than that.

Therefore, it is clear that right hon. Gentlemen opposite appreciate, as we appreciate, that in the kind of responsible positions to be found in a complex modern society it is peculiarly right and proper that people should be remunerated at those levels. If that is so, why should they be denied the encouragement which comes from a reduction of taxation? Why, indeed, should they be deprived of encouragement to the acceptance of greater responsibilities which go with greater remuneration? Those are the sort of considerations to be borne in mind, and I would once again urge the Committee to consider that the standard rate decrease, falling equally as it does on earned and unearned income has a full incentive effect so far as earned income is concerned.

The Committee will recall that in the Parliamentary answer which I gave to my hon. Friend the Member for Louth (Mr. Osborne), and to which he referred, I pointed out the very high proportion of earned to unearned income which is to be found in the highest tenth of incomes of this country. But let me take the problem posed by the right hon. Member for Dundee, West. He, quite frankly, wishes to use taxation primarily as a redistributive factor. That is a matter which, as I have indicated, might be debated with regard to lower levels of taxation. But if he adopts that on this rate of taxation he is falling into the position that no one, however capable and competent or whatever responsibility the person accepts, is to be allowed to keep more than what is, by standards of gross income, a quite moderate net income.

If the right hon. Gentleman takes that egalitarian point of view, it conforms with his public and published statements, and I suggest that he is wholly consistent in so doing; but I do not think that his right hon. Friends on the Front Bench opposite would be consistent if they adopted that attitude, because it is wholly contrary to the line they have taken, for example, in connection with the salaries of persons given public appointments.

The practical point we have to consider is whether this year we cannot achieve more from the broad national point of view by diminishing the standard rate rather than this year making alterations in allowances. The right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) referred to a magic effect. I suggest that there is something very real and tangible and obvious about a reduction in the standard rate which must have its effect upon individuals in stimulating them to extra effort that would not obtain in regard to an adjustment of allowances, which I am bound to say few of us in our personal affairs wholly understand. If one takes that factor and adds to it the incentive effect on the higher levels and the fact that the 6d. reduction in the Income Tax rates is the one tax change which benefits every taxpayer, it will be appreciated that there are sound and solid reasons why this year the adjustment should be made in that way.

The hon. Member for Sowerby (Mr. Houghton), who is always very entertaining, said that a principle of British taxation was how we could pluck the goose without its squawking too much. But I suggest the hon. Member omitted one important part of the operation. Is it not also desirable to pluck the goose without stopping it laying the golden eggs? The danger of the hon. Gentleman's method, whether it be painless or not—and upon that I will not express an opinion—is that, particularly in the field of the professional man and the executive, there is undoubtedly some—we can debate and controvert each other on the amount, about which I am not concerned to argue— degree of discouragement in knowing that extra effort, or the acceptance of extra responsibility, brings a diminished share of the extra gross remuneration.

6.45 p.m.

Mr. Jay

Would the hon. Gentleman agree at this point that one important incentive to extra effort' throughout the community is the belief that the income of the country is being far more fairly shared? May I ask him whether he has read the interesting sentence from the report of an American productivity team which looked into the British pressed metal industry and quoted, as one of the main factors making for higher productivity in British industry, the feeling that, to a greater extent than ever before, whatever goods and services remain in the country are being more equitably divided among the whole population"?

Mr. Boyd-Carpenter

I will go a considerable way with the right hon. Gentleman. I agree with him that a sound feeling that the country's affairs, financial and otherwise, are being administered with fairness, and, above all. administered with the first priority given to the general national interest, is a very important feature in productivity. I see no reason to quarrel with the right hon. Gentleman, or the American productivity team— rather strange allies in this context—on that issue. I would say to the right hon. Gentleman, and I think I can say it in the light of the public reaction to my right hon. Friend's proposals, that those proposals are fully within that category, and that is recognised as so by public opinion.

I do not wish to indulge in the easy game of reference to by-elections or to Press quotations, but in his heart the right hon. Gentleman knows perfectly well, and so do his right hon. Friends, that the prestige and standing of this Government in the eyes of the people of this country is higher today than at the time of the General Election, and it is still rising. I believe a substantial contribution to that has been the very feeling to which the right hon. Gentleman has referred, that the Budget proposals of my right hon. Friend were a model of fairness. I am sorry that the right hon. Gentleman managed to distract me from what I hoped would be a dispassionate argument. I think he will agree that he tossed an adroit fly at me and if I gobbled it up I hope he will forgive me—I do not think I shall suffer from indigestion as a consequence.

I ask the Committee to remember one other fact. I do not think that my right hon. Friend's proposals this year can be fairly considered unless they are regarded against the background, and as a follow-on, of what he did last year. What my right hon. Friend did last year is, in substance, what the right hon. Gentleman is suggesting that we should do this year. He made adjustments in the earned income allowance, the personal allowances, the child allowance and so on. He made his main concessions by way of allowances and that is precisely what the right hon. Gentleman is asking him to do now.

Therefore, when it is sought to make invidious comparisons between the effect of the change in taxation on one person and another, one must look at the matter against the background of what was done last year and judge it upon the total effect. It is quite misleading and artificial to take one year's proposals and look at them completely in vacuo. They are part and parcel of a taxation policy which, as was truly observed by one of my hon. Friends, may well be a turning point in the affairs of this country, and which gives substantial relief from the heavy burden of taxation bequeathed to us by the right hon. Gentleman and his Government.

This reduction in the standard rate which this Clause effects is, as the right hon. Gentleman said, a major part of the Bill. We believe it is an essential part and I beg hon. Members, particularly the right hon. Member for Smethwick. to accept from me that though, of course. we can differ on the way reliefs should be made—that is a matter on which sincere opinions can easily differ—they are made in this way because my right hon. Friend and the rest of us sincerely believe it to be the way to effect relief in the burden of taxation in the interest of the nation as a whole. It is for that reason that the Clause will be accepted.

Mr. Roy Jenkins

The Financial Secretary, despite his great force of argument, is rather less successful than some other spokesmen on the Treasury Bench in understanding the attitude of this side of the Committee to direct taxation. He persists in thinking that we agree with him in regarding post-war levels of taxation, both in the total amount of revenue they raise and in their distributive effects, as some temporary aberration which we should all like to see disappear if it were possible. He thinks that some period which he does not define—perhaps 1936—with some standard rate of tax which again he does not define—perhaps 7s. 6d. and perhaps 5s. 6d.—is the sort of goal to which we should all like to return. It is true to say that most hon. Members would be extremely disturbed at the distributive effects which would follow from such a move backwards unless there were other counteracting factors.

As the hon. Gentleman himself shows, the distributive effects of this Budget are rather worrying. He pointed, as though it were a piece of great strength in his case, to the fact that taking into account the allowances as well as the cuts in the standard rate and the reduced rates, 60 per cent. of the direct taxation concessions would go to those with incomes of under £1,000 a year. That statement alone may sound impressive, but one need only think about it and add to it the fact that the incomes of over £1,000 a year amount to 4 per cent. of the total incomes in the country to realise that what he is saying is that 40 per cent. of the direct taxation and allowance concessions go to 4 per cent. of those drawing incomes of that kind. That is not a very impressive argument for the fairness of the Budget.

I turn to the extraordinary arguments of the hon. Member for Kidderminster (Mr. Nabarro). I thought that he was on much less sound ground than he sometimes is. He put before the Committee some extraordinary statements. He said that in his view the fall off in production in the last two years was largely due to a combination in the 1951 Budget of the withdrawal of initial allowances and the increase in the standard rate of Income Tax. As he knows, the withdrawal of initial allowances did not take effect until the spring of 1952. It is difficult to see how that could account for a lag in production which had already come into being some time before then.

Mr. Nabarro

Perhaps I might explain to the hon. Gentleman that whereas the fiscal effect was not felt for 12 to 18 months after the withdrawal of the allowances, the psychological effect was felt at once. Companies did not place their forward orders for capital equipment which, with initial allowances, they would otherwise have placed.

Mr. Jenkins

I will have something to say on the question of psychological effect in relation to the hon. Member's speech later on. I will deal with that point then. The hon. Gentleman said that he thought there had been a substantial improvement in business tone since this Budget. He put that down to three causes. The first was the restoration of the initial allowances. We on this side of the Committee certainly agreed with the restoration of the initial allowances and would have liked to see them at a higher rate. There is no special merit which the Chancellor can claim there.

The hon. Gentleman said that the other factor was the announcement of the end of the Excess Profits Levy. I find it difficult to follow his method of thought there, because a little earlier he was telling us, although with an imperfect memory of what took place, how last year he was foremost in resisting the arguments against the Excess Profits Levy which we put forward from this side of the Committee. He is now telling us that because of the removal of a tax which he defended so eloquently last year there has been a slight improvement in business tone.

The third factor he put forward was the increase in the resources available to companies which there will be as a result of the cut in the standard rate and the improved investment possibilities which will develop. It is indisputable on the figures that over the range of companies as a whole during 1952 there were more funds available than companies were prepared to invest in the circumstances then existing. That being so, it is absolutely idle to say that the mere making of more funds available can in any direct way improve the amount of investment which is being carried on.

The hon. Member might say that it is not only the direct mathematical effect but it is the psychological change which comes about from this new Budget which cuts taxation for the first time in years. We are getting into a very dangerous situation if we are putting ourselves into a position in which the volume of investment and the general level of business activity depends upon the psychological state of business men. We were able to have a situation for many years after the war in which we had what hon. Members opposite and business men generally regarded as crippling rates of taxation but in which we still had them anxious to invest.

But if we are now getting into a situation in which their psychological susceptibilities have to be stimulated by cuts in direct taxation before we can get an adequate level of investment and a reasonable business tone which will maintain a high level of production, I think we are entering on very dangerous waters. We may have to give a great number of cuts in direct taxation—more than we can possibly afford—in order to keep them going and in order to give continual psychological shots in the arm to business men who are getting rather nervous about the future and whose psychology we have constantly to watch. We should be entering on a very dangerous road indeed if we followed the hon. Member in believing that we should look to stimulating investment by giving cuts in direct taxation when they are called for by the business community.

Mr. Harold Lever (Manchester, Cheetham)

I explained to the Committee yesterday the difficulties I feel in intervening during the Committee stage of the Finance Bill in debates which are largely monopolised by the experts. Perhaps unfortunately for the Committee my diffidence causes me to speak rather than to remain silent. I must venture once again on a continuation of my attack upon the experts, because I fear that the Committee stage will be devoted exclusively to the unlovely jargon of our talented economists unless somebody gets up and injects a little uncouth candour into the discussion. I do this not because I hold an immodest view about my talent, but because I hope that it might encourage someone far better endowed to intervene at a later stage.

I ought to tell the Committee that I am further handicapped because, having listened to a portion of these debates, I realise that the great tides of modern economic thought have swept past me and I have been left in a backwater. I heard the debates on the Purchase Tax yesterday. It appears that there are some persons who imagine that there is something highly progressive in maintaining in peace-time the principle of a savage tax promoted deliberately during the war years to strangle our civilian economy. I find today that some people are chary and show no marked enthusiasm for the reduction of direct taxation. It appears that it is reactionary to wish for any reduction in taxation direct or indirect.

I honestly thought when I came into Parliament in 1945 that our direct and indirect taxation was so high that it would be tolerated by democratic people who were fighting for dear life only for the duration of the war. I thought that conscription, dependence upon foreign aid and all sorts of other unpleasant things would come to an end as soon after the peace as possible. It never occurred to me that we should have Purchase Tax and savage rates of direct taxation of all kinds championed on their merits as I heard Purchase Tax championed yesterday. I rather feel that there is a similar sentiment towards direct taxation today.

7.0 p.m.

The novelist Meredith said of his young ladies that their conception of freedom was that they learned to love their chains. It appears that some hon. Members have also achieved this perverse love of their fetters, and not only that but they clank these things defiantly above their heads and describe them as weapons of economic planning. I must confess I am puzzled, and it needs no argument from me to convince the Committee that I represent what appears to be an eccentric body of people, having regard to the prevalent doctrines of economic policy—the people of Cheetham in Manchester. They would also appear to be somewhat eccentric in that they do not subscribe to these doctrines of economic and financial masochism which I hear from all sides.

Yesterday, I heard the Chancellor of the Exchequer, ably supported by the hon. Gentleman who has just left the Despatch Box, explaining how we must reduce the Purchase Tax in a gingerly manner, because if we took this great weight off industry and stopped strangling it. the effect would be so frightening and upsetting that something fearful would happen in the way of an economic collapse, and the general implication was that we must not do anything sudden to add to the pleasantness of life at any cost, but we must go very gingerly.

I see that my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) is in his place. He evinced the same attitude as the Chancellor, and he approached the question of taxation reduction in the same manner. He confessed to the Committee yesterday that he had been guilty of a grave error for a few unguarded moments, when he had been in favour of reducing the Purchase Tax on electric fires. Think of it; the hon. Gentleman, for an hour or two, favoured the reduction of the Purchase Tax on electric fires. Of course, as he rightly pointed out, he studied pamphlet 273 (D), or whatever it is, which proves that this is by no means the most efficient method of space heating, and he then came to the House with proper opinions and opposed any reduction of the tax.

I think the same attitude seems to exist with many high-thinking economic experts who contribute almost exclusively to these debates, and it is for that reason that I have ventured to inject something of the uncouth attitude of my constituents, who are almost all of them Labour, and who sent me here. They have no desire whatever to be overtaxed either by excessive direct or indirect taxation merely to gratify the economic theorists who advise the Chancellor of the Exchequer of whichever party happens to be on that side of the House. I should feel a great deal happier if I thought that the taxation we are imposing was actually needed for running the country and not merely to gratify the economic theories of people sitting in back rooms somewhere.

I am bound to say that I have witnessed in my short period of political life what I might call a triumph of the killjoy spirit. By now, if we smoke a second cigarette within the hour or take another glass of beer we all feel we are casting away the educational birthright of our children and probably pauperising our widows in the future, because they will suffer from our squandering our money on this wholly unpleasant and undesirable expenditure.

Now, we have gone a little further, and I am bound to say that it has extended to the realm of earnings. This question is not so simple as some of my hon. Friends have made out. A bare four hours' train journey from the London School of Economics there exists something like 60,000 people in my constituency in Manchester, and they do not resent at all the fact that there should be different earnings by various people contributing to the Welfare State; they do not begrudge these differential earnings. Indeed, they say that they should be maintained. The working people of this country have never objected to a high standard of living for those who make genuine contributions to their economy, amusement or administration.

What they do resent is political and economic nepotism and the triumph of mediocrity in people getting themselves into cushy jobs for life and giving very little in return. [HON. MEMBERS: "Hear, hear."]. I am very glad that hon. Members opposite are coming to my support in opposing nepotism. That is the kind of thing which the working folk of my constituency resent. They do not resent at all the differential earnings, even of the highest grade, who earn very considerably more than they, because they recognise that such is likely to be the situation until an overwhelming majority of our countrymen have the same saintly approach so often heard in these debates.

I think some people have been labouring under the misapprehension that our economy is rather like some of those festive balloons, which, if you pinch one part, automatically swell out in another. That is not quite the case, and the mere fact that we savage one industry or one individual by excessive taxation does not guarantee that there will be a corresponding benefit to any other industry or individual, and I think that ought to be borne in mind. The world does not tick over in quite the naive and simple and saintly way which some hon. Friends would seem to suppose.

I shall conclude on this note. I am not criticising the great talent, though I am a little chary of the jargon, of the gentlemen who contribute so knowledgeably and freely, and almost in a monopoly, to the Committee stage of our debates on the Budget. I think they have great contributions to make, and I hope that they will not take offence at any remarks I make, for I have the greatest respect for their intelligence and judgment, which I recognise far exceed my own. I shall be happy if I bring even one or two of their toes down to earth. There are few spectacles more edifying than the man who has his head in the clouds if his feet are on the ground. The reverse posture, which is known as standing on your head, is somewhat less reassuring, especially when adopted by gentlemen who may at some time have the management of our economic affairs, and it is for these reasons, though with considerable diffidence, that I have ventured to intervene once more in the affairs of this Committee.

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 11 ordered to stand part of the Bill.