FINANCE BILL

HC Deb 12 July 1954 vol 530 cc50-110

Order for Third Reading read.

4.20 p.m.

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

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

The lusty infant which I carried in from the Bar of this House just three months ago now reaches its last stage in this House. No doubt that fact will be a source of not inconsiderable consolation to a certain number of hon. Members. In the course of our debates, like other people as they grow older, the Bill has put on a little weight, but I do not think that in the process it has lost any of its initial vigour. A good deal of that bulk is, of course, due to necessary amendment of our tax law.

It is one of the many disadvantages of the present very high levels of both direct and indirect taxation that there is a great inducement and incentive to individuals to find such loopholes as they can in our tax law in order to minimise or avoid the burden of taxation. It then becomes the duty of the Government of the day to stop up those loopholes. The result inevitably is a certain complexity in legislation.

I suppose that all of us share the wish expressed during our debates by the right hon. and learned Member for St. Helens (Sir H. Shawcross) that our tax law could be simpler and clearer to understand. I am afraid that the fact that the tax net has continually to be repaired inevitably gives it a somewhat patchwork effect. It also has the disadvantage of exposing this House to the necessity of considering extremely complicated provisions the practical importance of which is often in inverse ratio to their complexity.

As one who was in the Chamber during the greater part of our debates, I hope that I may, without impertinence, say that discussion of the many technical Clauses of the Bill seemed to me to amount to a very strong vindication of the Parliamentary process. The fact that extremely complicated provisions were subjected from both sides to shrewd and penetrating analysis is a very fine indication of the way in which the House is able to perform its most difficult duties.

The great bulk of the provisions with respect to tax machinery are in that part of the Bill, from Clauses 7 to 13, which deals with the reform of the law relating to Purchase Tax. As I said during Second Reading, our Purchase Tax law was put together during the very difficult circumstances of the summer of 1940. I suppose that it is no understatement to say that most people's minds were directed to other topics at that time. It was largely rebuilt in the almost equally difficult circumstances of 1944, and I think that the only surprising feature is that it has not given trouble before.

In any event, the House can be congratulated on having put this tax on a much more satisfactory legal foundation than it has ever had. Our enactments in that connection have a further advantage. A good deal of the purpose of both Clauses 7 and 9 is to enable us, having cleared up the legal position, to adopt a somewhat freer and perhaps more helpful attitude on the vexed subject of registration for Purchase Tax.

One of the difficulties has been that hitherto the law on the subject has been so imprecise that it has been necessary to adopt a somewhat restrictive attitude, for which we have been criticised by my hon. Friend the Member for Gillingham (Mr. Burden) and others. We hope that this sounder legal foundation will enable us to move towards some degree of relaxation in this direction.

As I told the House during the Committee stage, conversations are going on with outside interests in the trades concerned. Though these conversations are not finished, I can tell the House that they are going well. It very much looks as if the voluntary assistance by trade interests outside, which is a necessary reinforcement of our revenue checks if we are to allow registration to be granted and maintained more freely, will be forthcoming. I hope that the result will be that we shall be able to give a considerable easement in the direction which all hon. and right hon. Gentlemen who have experience in the matter know has given rise to a great deal of ill-feeling and difficulty in the past.

We have also made a good many changes, some substantial and some smaller, in the almost equally difficult subject of the law relating to Estate Duty. Clauses 29 to 31 produce some modification of the rigours of what is called the assets basis of valuation in a number of cases in which it seemed a trifle oppressive that that basis should be applied. I freely admit that a more controversial feature has been the relief given under Clause 28 in respect of certain assets of the family business, the partnership or the individual business.

I do not want to revive the controversies which marked that part of our discussion of the Bill, but it is worth recording that Estate Duty falls with great severity on the assets of a business of this sort in a way quite different from that in which it falls upon the assets of a great public company. If a shareholder in a great public company dies, his shares may well have to be sold, but the company is largely unaffected. When the main proprietor of one of these businesses dies, it is the fact that the duty can fall—and with great severity—upon the assets of the business. Therefore, my right hon. Friend thought, in view of that and of the fact that the assets basis can operate with severity in certain types of case, that it was right to give certain of these businesses some relief such as that which agricultural land has enjoyed for a considerable time.

Another change in our Estate Duty law was effected with the support of both sides of the House during the debate on the Report stage. Then the House decided, if not unanimously at any rate nemine contradicente, to accept a proposal embodied in Amendments put down by the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) and my right hon. Friend the Member for Blackburn, West (Mr. Assheton) in favour of raising the exemption limit from Estate Duty from £2,000 to £3,000 and making a consequential reduction in the levels between £3,000 and £4,000.

Mr. Hugh Dalton (Bishop Auckland)

May I intervene to point out a misprint in the Bill which has been circulated? The proper word is "exemptions." That appears when the Clause is read, but in the index the reference is to "exceptions."

Mr. Boyd-Carpenter

I am obliged to the right hon. Gentleman. I had read the Clause but not the index, perhaps because after the last few months an index has become almost unnecessary to me. I am obliged to the right hon. Gentleman with his eagle eye. I am sure that those concerned will be very glad to make the necessary correction.

We are all glad that it has been possible to make this adjustment, whatever our views may be on Estate Duty in the higher ranges. I do not want to disturb the calm of the afternoon by reviving controversy on that issue. I think that the House is glad that it has been possible to give relief to the modest fortunes with which this change in the law deals and perhaps to give some psychological encouragement to savings by people of modest income, from the knowledge that their estates will not be subjected to Estate Duty when they are of these levels. It is a healthy thing that, at a time when we have so many difficulties to compete with, and when it is extraordinarly difficult to make concessions involving sacrifice in revenue, we have been able to give, with, as I understand it, the general consent and wish of the House, some relief in this direction and some encouragement of saving to the people concerned.

A number of other parts of the Bill are worth a valedictory mention—for instance, post-war credits. We have already set in operation the machinery by which the further scheme of repayment can operate. The new forms of application have now been in the post offices and tax offices for exactly a week and the machinery, therefore, which can deal with actual payment after the Bill is law has started to work. I think the House will be glad not only that we have been able to step up the repayment of these credits, which I know gave rise to strong feelings in many cases outside this House, but that we have been able also in the process to clear up perhaps the most exasperating of all the anomalies that used to exist, the anomaly of the family none of whose members lived long enough to reach the age of entitlement, with the result that the payment of the credit was postponed indefinitely.

Now that we are providing that the credit shall be repaid on reaching the 65th or 60th anniversary of the original holder, we have given some certainty in the matter and, incidentally, given the added advantage of securing that, where those credits are left to a charity, that charity will also be able to claim them when the original owner would have reached those ages. This is a healthy advance which I know will give considerable satisfaction to the half-million or so people outside who will benefit.

We have taken the opportunity, as the House knows, to deal in Part III of the Bill with some of the useful recommendations in the first Report of Mr. Millard Tucker, whose industry and skill in dealing with these immensely intricate subjects commands the gratitude of his fellow countrymen and of this House.

We can also take a valedictory look at the permanent debt charge. It lived in such a state of suspended animation that I suppose no one will pay much attention to its passing. It is a change of form rather than of substance, a tidying up of a statutory provision which has become obsolete, but it is worth noting at this stage that we shall no longer have in future Finance Bills a Clause to which we became accustomed in recent years.

The House will also be glad that we have been able to clear up the confusion which arose on the subject of the application by local authorities for exemption from Entertainments Duty in respect of entertainments which they provide. For some years, as the House knows, local authorities have been treated for this purpose on the same basis as anybody else; that is to say, if on the facts they were entitled to exemption, they got it; but some doubt has arisen as to whether a local authority came within the definition in Section 8 of the Finance Act, 1946, at all, and as a result it was doubtful whether local authorities could in any circumstances obtain these exemptions. The Clause which we put in at one stage of our debates, and which is now Clause 2 of the Bill, secures that, broadly, they will be treated like anybody else. The House will agree that it is right to discriminate neither in favour of nor against local authorities in this respect, but to treat them, for the purpose of applying for exemption from Entertainments Duty, in the same manner as everybody else is treated.

On the topic of the Entertainments Duty, it is in this sphere that my right hon. Friend has found it possible to make an appreciable concession by way of tax remission. As the House knows, the great weight of the Entertainments Duty falls upon the cinema industry, which yields by far the greater part of the revenue concerned. It is common knowledge that the industry has had difficulties to face, arising from competition both from new forms of entertainment and great technical changes which are taking place within its own sphere. In those circumstances my right hon. Friend thought it right to give them some remission of duty costing about £3 million in the current year and a little over £3½ million in a full year.

Other adjustments have been made both to the living theatre and to sport. No one who has dealt with these matters will ever expect that such adjustments and reductions will fully satisfy the people concerned, but it is a proper reflection of the care with which we try to deal with these matters that it has been thought reasonable to make small reductions at least in the rates of Entertainments Duty on these activities too.

The biggest change in the Bill is the change introduced by my right hon. Friend with respect to taxation allowances in industry and the introduction of the investment allowance. When my right hon. Friend announced this during his Budget speech, it was in the character of an innovation. The introduction into our tax system of a tax allowance in respect of an amount in excess of the total amount of depreciation produced a rather conservative reaction from right hon. Gentlemen opposite but as our debates progressed this proposal was paid the agreeable compliment of being pressed from all quarters of the House to be extended into spheres further than we had desired to extend it. That is a very wholesome compliment to the soundness and good sense of the proposal of my right hon. Friend.

More than that, it enables this proposal to go out not simply as a Government proposal passed through this House by a Government majority, but as a proposal which has commanded a good deal of support and favourable comment from many quarters of the House. That is a Rood thing, because it now goes out to the board-rooms of this country, to the thousands, perhaps tens of thousands, of people who make the decisions as to the degree of investment to be undertaken, or indeed as to whether investment is to be undertaken at all, with the background of the treatment which it has had in this House.

I suppose that in this vital sphere of investment, which this proposal is directly calculated to stimulate, it is impossible completely to isolate the factors which determine the decision whether to invest or not which in the majority of cases, is taken as the result of considering many factors; for instance, the outlook for the business concerned, the outlook for the trade in general to which that business belongs, the general outlook for the country, the atmosphere of confidence that may or may not exist. I imagine that it is fairly rare for any single factor to determine that decision.

On the other hand, it will now be known, when those decisions are being weighed, that a taxation allowance will be given over and above full depreciation in respect of the assets concerned. I have little doubt that this fact will be given weight by those who make the decision whether to invest, and that it will be a favourable factor in encouraging investment, which is a purpose that the whole House wants to see achieved. We all know how fiercely competitive world markets are becoming, and we all appreciate that, unless British industry is equipped with up-to-date plant to enable it to remain strictly competitive, it will not be possible for this country to compete successfully in the markets of the world. That is why, despite the difficulties about tax concessions which face us in this House, my right hon. Friend has taken the bold decision to introduce this innovation in our tax practice, in order to give a direct stimulus to that part of our economy where, perhaps above all, a stimulus is required.

These matters are not settled by one factor alone, nor are they settled immediately and on the spur of the moment. It would be wrong for that reason to assume that investment in the immediate future will necessarily show spectacular increases. I believe, however, that in this way we shall contribute a great deal to producing an intellectual climate in which there will he a far greater willingness and enterprise in investment and that in this way we shall operate to assist British industry in the problems which face it. In view of the very large amount of depreciation which arises in respect of shipping and the fact that the shipping industry in many ways is one of our vital industries and one which has fierce competition to face, it is a matter of great satisfaction that, as leaders of the industry have acknowledged, shipping will receive some real assistance from this provision.

While it embodies a great deal of improvement in our tax law and machinery, while it embodies the new device of the investment allowance and embodies changes in the rates of Entertainments Duty and the revision of postwar credits, the Bill is not one of those Bills that we have seen from time to time in the House which provide for large reductions in taxation. As the House knows, the balance of our income and expenditure, the very high level of expenditure which is necessitated by the defence programme and also the balance of our economy, have inhibited any such step this year. Whilst thinking about this at the weekend, I came across a couplet from Dryden which seemed to hear very happily on the situation. It read: Tis easy conduct when exchequers flow, But hard the task to manage well the low. It is because, in my judgment, the Bill is a good example of that good management that I commend it to the House and hope that the House will give it a Third Reading.

4.42 p.m.

Mr. Eric Fletcher (Islington, East)

The right hon. Gentleman the Financial Secretary to the Treasury has moved the Third Reading of the Finance Bill with one of those very amiable and agreeable speeches which those of us who have taken part in debates on the Bill are accustomed to have from him. I should be remiss if I did not say how much we on these benches appreciate the courtesy and competence and painstaking character of the contributions which he makes to our debates. He has a very happy gift of language and we can always rely upon him, unlike some of his colleagues, to read the right brief on the right Amendment and, generally, to give us the impression of understanding what he is saying.

Having said that, I do not think that we can share with the right hon. Gentleman his rather smug satisfaction of the contents of the Bill. We regard it, as we regarded the Budget, as being disappointing, dull and unimaginative. One of our difficulties on these benches in criticising the Bill this year has been its dullness and lack of imagination. In addition, I think that we are entitled to complain of the great reluctance on the part of the Chancellor, contrary to custom, to make any concessions to the numerous suggestions that have been put forward from this side of the House.

In fact—and the Financial Secretary mentioned it—the only notable change that has been made in the Bill since it was introduced is the relief from Estate Duty given to small estates as a result of the Amendment which was placed on the Order Paper by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton). Although the Chancellor has made that single and welcome concession, it was outweighed by his retrograde action in changing, as a result of pressure from his back benches, Clause 33, which deals with aggregation for Estate Duty purposes. The Clause in its original form was a laudable attempt to check evasion, but now, as a result of the changes that have been made, it has been watered down almost out of recognition.

My hon. and right hon. Friends have, as usual, attempted to improve the Bill in various drafting respects. Although none of the substantial suggestions that have been made by my hon. and right hon. Friends have been accepted, I hope that a number of the very constructive suggestions that have been made throughout our debates will bear fruit in future years. Disappointing though we find the Bill, it does contain a few minor concessions which resulted from suggestions we had urged upon the Chancellor in previous years; though in our view those concessions do not go far enough.

The reduction in the Entertainments Duty paid by the cinema industry, with which, as the House knows, I have some association, is long overdue and barely adequate. On the other hand, the trifling reductions made throughout the remainder of the field of Entertainments Duty are most unsatisfactory, and perpetuate the many anomalies to which we have drawn attention. We think that it is impossible to discriminate in taxation between cricket and other games and sports. We think it high time that all Entertainments Duty on games and sports was swept away. The cinemas stand in a class by themselves, and I do not think that there would be any criticism in the cinema industry if Entertainments Duty on all sports were abolished. In these days, with the spread of B.B.C. television and the unhappy introduction of commercial television, surely it is unfair and socially bad to penalise all outdoor games and sports.

We are equally disappointed with the niggardly beginning that has been made in the repayment of post-war credits. As the Chancellor well knows, some 10 million people enjoy—if that is the right word—or are entitled to the benefit of post-war credits. Many of them live in very distressing circumstances. All of them were disappointed with the meagre beginning that the Chancellor has made. The Chancellor has chosen to single out for special discrimination bankrupts and their creditors. We think the least the Chancellor should do is either to reduce the age at which the credits are paid, or else repay all the credits by reference to the earliest year in respect of which tax was actually paid.

Mr. Deputy-Speaker (Sir Charles MacAndrew)

I think the hon. Member is speaking about things which are not in the Finance Bill.

Mr. Fletcher

I was talking about post-war credits, and there is a Clause in the Finance Bill which relates to post-war credits, I was saying that we are disappointed with that Clause, but I was proceeding to pass from that Clause because, as you say, Mr. Deputy-Speaker, it would be out of order for me to deal with things which are not actually in the Bill.

There is a very great deal in the Bill about Purchase Tax. The Financial Secretary took credit to himself for the changes in the law relating to Purchase Tax. We welcome Clause 13 as far as it goes in dealing with the complicated subject of uplift, but we think it would have been very much better if the Government had gone further and given effect to the recommendations put forward by the two ladies who signed the minority report of the Grant Committee.

I was a little surprised to hear what the Financial Secretary said in regard to the Purchase Tax Clauses. He said they were introducing considerable improvement into the legislation on the subject, which indeed is true but what I thought most notable during our discussions of Part II was the lamentable state into which the whole Purchase Tax law has been allowed to drift. It was more than surprising to find the Financial Secretary, whom we always regarded as the arch-opponent of anything in the nature of retrospective legislation, justifying Clause 9, which is aimed solely at legalising retrospectively the collection by Her Majesty's Customs and Excise of all kinds of payments which have been illegally collected in the last few years. As he blandly told us, these Purchase Tax Clauses give legislative recognition to a number of extra-statutory practices which have been in operation for some time past.

On that subject I would also remind the House that one of the most pathetic episodes in the Committee stage was the desperate justification which the Solicitor-General gave to the astonishingly vague language now contained in Clause 13. which we had occasion to criticise so severely. The Solicitor-General attempted to justify the use of imprecise and vague language in a statute on the ground that it was necessary to have some measure of flexibility. I thought that a most pitiful exhibition for a Law Officer and really a prostitution of the noble art of drawing legislation in precise and intelligible terms.

I pass on to the more substantial features of the Finance Bill, the investment allowance and relief from Estate Duty on businesses affected by Section 55 of the Act of 1940. The Chancellor claimed, as the Financial Secretary claimed today, that they are related and that the object in each case is to stimulate investment and give assistance to the private sector of industry. We agree that probably the most serious single feature of our economic situation today is the neglect of investment in the private sector of industry.

Granted the necessity, as there obviously is, of giving private industry some incentive, we support the investment allowance, but not the relief from Estate Duty. In view of the urgent need to stimulate private industry, we think that the experiment of the investment allowance is certainly one worth trying. We support it because the relief given is coincidental with actual investment. We should have been happier if the rates of investment allowance could have been increased, particularly as regards plant and machinery and industrial building.

We recognise that the investment allowance has its defects. In a number of cases, it will give relief where investment on re-equipment would have been carried out anyhow. It is inevitably a somewhat clumsy method, and for that reason we should have preferred to introduce a greater selectivity or discrimination in the operation of the allowance. We believe that the difficulties of administration in that field could be overcome.

As was recognised by the Government throughout the debates, there are inherent possibilities of abuse in the whole system of investment allowance. We had occasion to criticise in considerable detail the safeguards which the Chancellor had put into the Second Schedule. We hope they are adequate. They have been improved as a result of suggestions we made, but we are still doubtful whether they are sufficient to circumvent the ingenuity of those whose chief preoccupation is to devise methods of exploiting loopholes in our fiscal arrangements.

As the Financial Secretary said, a great part of this Finance Bill contains Clauses which are aimed at checking tax evasion of one kind or another. There are not only Clauses 7, 10, 11 and 12—to which the right hon. Gentleman referred—aimed at stopping loopholes in the Purchase Tax field, but there is also Clause 17, which was inspired by a suggestion made by my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) in our debates last year, which is aimed at stopping the company reconstruction racket. Also, the whole of the complicated machinery in the Second Schedule is designed to check the misuse of the investment allowance.

I do not want to refer at length to these anti-evasion Clauses—although, as they are in the Bill, that would be in order—but I wish to remind the House that, bulky though the anti-evasion Clauses are, we urged the Chancellor to take additional powers to deal with tax avoidance, both in the Income Tax field and as regards Estate Duty. He preferred not to do so, but to rely on his existing administrative powers. Therefore, we shall watch with interest how those powers are used. While no one wishes to interfere with legitimate expenditure by directors and high executives in carrying out essential functions of their business, whether in this country or abroad, as the Chancellor will appreciate, there is a blatant abuse which clearly exists in connection with expenses allowances and other benefits and amenities enjoyed tax-free. This constitutes, to say the least, a very considerable irritant in our economic life and naturally produces a sense of disharmony and resentment.

I think it would be fair to say, viewing the Finance Bill as a whole, that it amounts to an admission by the Government that private enterprise is on trial, both as regards its capacity to respond to the needs of our economic development, and also as regards its conception of social responsibility.

There remains Clause 14, on which I should like to say a word. The Income Tax Clause is most important and is, indeed, central to our whole fiscal system, because some 43 per cent. of our revenue comes from this source. Here again we are disappointed because the Chancellor has not adopted any of the recommendations of the Royal Commission, and we believe that until he does so considerable injustices will be caused to all the smaller Income Tax payers. This results from the distortion of Income Tax liability that has been produced by inflation, and we hope it will not be long before the constructive suggestions made by the Royal Commission, some of which we have urged upon him, will be adopted and put into operation.

Speaking of Income Tax reminds me that the Royal Commission has gone a long way to refute the complaint frequently expressed in various quarters that our high level of taxation has a disincentive effect. That may be discounted as a result of this authoritative pronouncement, and we now have an equally important witness, the Chancellor himself who, on Wednesday last, told us: The country is responding with increased production. Things are buoyant in the country. Things are improving."—[OFFICIAL REPORT, 7th July, 1954; Vol. 529, c. 2251.] We on this side think that, whatever merits the Finance Bill has, and so far as the Chancellor is able to claim credit, as he does, for the buoyancy of our present financial situation, that is fundamentally because he has pursued the basic lines of fiscal policy that were laid down by successive Labour Chancellors of the Exchequer, my right hon. Friend the Member for Bishop Auckland, the late Sir Stafford Cripps—

Mr. Cyril Osborne (Louth)

The cheap money policy?

Mr. Fletcher

—and my right hon. Friend the Member for Leeds, South (Mr. Gaitskell). While the Finance Bill is an instrument for raising revenue, we believe it is something more. The Chancellor has adopted the thesis which we put into practice and which we had been urging for many years before that, that the Finance Bill should be the recognised instrument for controlling economic and social policy as well as effecting the redistribution of income and social benefits.

We feel that it is because high taxation enables the Treasury to maintain a high level of social welfare that we are now reaping the fruits in the high standard of production for which the Chancellor claims credit.

5.4 p.m.

Mr. R. Fleetwood-Hesketh (Southport)

I had hoped to say a few words in Committee when Clause 25—it has now become Clause 28—was being discussed. It deals with Estate Duty on family businesses. I refrained from entering into the discussion then because there was a general desire to push on to the other important Clauses in the Bill. Nevertheless I am grateful that I have the opportunity of saying a word now, for this Clause has, I know, given a new sense of purpose to many private firms throughout the country. I should also like to say something about the criticism which has been directed against the concession. This criticism appears to have been based mainly on Command Paper 8295, which has been very widely quoted, but the more I think about it the more I feel that the evidence of that White Paper does not point in the direction which has been suggested.

This issue is complicated by the fact that when concessions of this kind are discussed they are always recommended for a great variety of reasons. For example, when the original agricultural concession was made the main reason advanced was the low yield of agricultural land. Similarly today the Chancellor has told us that this concession is introduced for three independent reasons, to mitigate the effects of Section 55 of the Finance Act, 1940; to encourage people to renew their plant, on an analogy with the investment allowances; and, finally, to help family businesses to survive.

I feel that the third is the consideration of most lasting importance, and I think it goes a little deeper than some speakers have suggested, because it seems to me that it affects the whole question of the relationship of the individual to the property to which he is legally entitled. I have always held the view that there is an essential distinction between working capital or the tools of one's trade on the one hand, and, on the other, unattached personal wealth, or, as one might put it, the right to command the services of other people in the future. To put it another way, so long as one admits the rights of private property at all, it seems to me preferable that a man's investment income should be drawn from the business in which he is personally engaged rather than it should be derived from an enterprise with which he has no connection.

I cannot help feeling that this distinction was perhaps better understood in the past than it is today, and I would suggest that, in part at least, it underlay the old distinction between real and personal property and is to be found too in Roman law. But with the great commercial expansion which followed the Revolution of 1688 when the conception of limited liability came to receive a moral sanction and was widely adopted, this distinction tended to be obscured and, in the end, to be regarded almost as an anachronism. It would be foolish to suggest that that limited liability is inherently wrong, for, after all, our commercial greatness was founded upon it; I merely say that where inheritance is concerned there is an essential difference between unattached wealth, whose dispersal will not affect the management or control of the business which provides the revenue, and working capital, which may upset a complex of human relationships which has taken many years to create and may take as many to replace.

Yet the whole tendency of our tax law has been to extend the field of the public company. That is particularly true of Section 55. I contend that, in so far as legislation influences the matter at all, that influence should be in the opposite direction. This brings me to Command Paper 8295. As the House very well knows, that Report investigated a large number of cases and showed that in only 1.6 per cent.—the figure is actually 0.7 if investment companies are excluded, and I am inclined to think that they should be excluded—was it necessary to have recourse to the trading assets. In all others there were sufficient non-trading assets to foot the bill. From that it was argued that no concession was necessary.

I take the opposite view, because it seems to me merely to prove that the proportion of what I have described as the less essential type of wealth to the estate as a whole was greater than had previously been supposed. It simply shows that the tax structure encourages people to hold an inordinately large part of their assets in a liquid and easily marketable form which could more usefully and more appropriately be used in their own businesses, if necessary, right up to the day of their death.

From what I have said, it will be seen that I would have supported an extension of the concession to the distributive trades. I realise, however, that it would not be within the rules of order if I were to dilate upon that subject. I will only say that I appreciate the difficulties of a practical nature which stand in the way. At the same time, it is plain that the more one widens a class of this kind the greater is the risk of abuse. I was grateful, therefore, that the Chancellor undertook to watch this aspect of the matter closely, for large-scale evasion would certainly defeat the object which many of us have in view.

For the same reasons, I cannot go all the way with my hon. Friend the Member for Hall Green (Mr. Aubrey Jones) who so ably expounded the thesis that, as a matter of general principle, we should not discriminate in direct taxation. I feel that some broad distinction upon the lines I have indicated is necessary if we are to avoid drifting steadily into some kind of managerial society, which I believe would be stony ground for those traditional virtues which the Chancellor so rightly wishes to foster.

5.12 p.m.

Mr. J. Grimond (Orkney and Shetland)

I listened with interest to what has been said by the hon. Member for Southport (Mr. Fleetwood-Hesketh). I am sure that lie will share the anxiety felt by some of us that such a small proportion of British industry should be owned by the people who work in it. I think that the total number of shareholders in public companies is under 3 million, and of course those who own private or family businesses is not very considerable. I entirely agree with the hon. Member. I think it desirable that more people should have some share in the ownership of the company in which they work. I am also glad that some consideration has been shown by him to the possibility of an unjustifiable avoidance of death duties through the operations of the relaxation for family businesses.

This Finance Bill was always more famous for what is omitted from it than for what is included in it, and therefore when we come to the Third Reading debate and are confined to what is in the Bill we find that the food has been chewed over pretty thoroughly. The atmosphere is even more relaxed than is usual in a Third Reading debate. The Treasury look with a benign eye even on those hon. Members who have been most critical. I think they would even be prepared to be tolerant with boys like the hon. Member for Sowerby (Mr. Houghton) who is frequently able to catch out his masters by knowing more than they do.

I was interested in at least two remarks made by the Financial Secretary. He spoke of the continual need to patch up the taxation nets. It is quite clear that the present rate of taxation is so high that every year the pressure to evade—perhaps "avoid" would be a better term—taxation becomes greater and greater. This Bill is designed to cover the largest expenditure that this country has ever experienced in time of peace. Luckily it has fallen on the country at a time when trade is buoyant. Yet the Chancellor has told us that he has no surplus in hand at all. It is a serious matter, in my opinion, that this country has such a large extra expenditure to meet in the future both on capital account and for old-age pensioners and so on, and yet, in a year of really remarkable prosperity, the Chancellor can only just cover the outgoings which he already has to meet.

In my opinion, the country would be deluding itself were it to suppose that big reductions in taxation were possible. Until the rearmament programme is reduced, I do not see how that can come about. But it is the duty of any Government to try to reduce the administrative costs of central and local government. The Chancellor said something about that in our earlier debates, and it would be interesting to know whether his inquiry as to how that can be done has progressed, and what suggestions he has to offer.

The other remark by the Financial Secretary which struck me particularly was when he praised the Parliamentary process and spoke well of the general review given to this Bill throughout the Committee and Report stages. I think that is true. On the other hand, I think it is also true that there are several important reports and matters of concern to this country which this House has not been able to debate in full. They include the Millard Tucker Committee's Report, the Interim Reports of the Royal Commission on Taxation and reports on Purchase Tax and so on. They were discussed to some extent during the Committee stage of this Bill; but it is becoming more and more difficult to cover both the detailed financial ground and the planning policy, particularly I think, the broad issues of the investment and trade policy of this country.

At the core of this Bill, possibly at the core of our financial position today, is the question of whether we are saving and investing enough. In this Bill there are three provisions which may affect that. The relief which the Chancellor has given to small estates may do something to encourage savings. In passing, as one of the few representatives of the party of which Sir William Harcourt was a member, I would say that I am sure that he would have been delighted to see this. I am not ashamed of the liberal parentage of the death duties. They may be too high today, I do not deny that, but I think they were a justifiable form of taxation. I would compliment the party opposite because the other great form of taxation, Income Tax, was invented by the Tories. The Labour Party nave yet to provide any financial instrument which brings in so much money.

Mr. Douglas Houghton (Sowerby)

It was Income Tax that the Liberals promised to abolish.

Mr. Grimond

We will draw a veil over that just now but perhaps one day we shall do it.

There may be some relief to savings by this small concession, and there may be some encouragement to save for investment through the reduction in death duties on family businesses. But, of course the great inducement offered by the Chancellor is the investment allowance, and I welcome that as I think does everyone else. But I must say that as a substitute for a general investment policy I do not see that in itself it is enough.

We are still devoting more savings to house building than to manufacturing industries. We are devoting about one-third as much to the electrical supply industry as to the whole of manufacturing industry. Out of some £580 million raised in new issues this year, £440 million is accounted for by Government and local authority issues. That may be right or wrong, but it is a matter of great concern to the country that there should be some principle upon which the Government are acting in their investment policy.

Today a great deal of investment is necessarily done by the Government directly or indirectly. It is all very well to blame the private sector of industry for not investing sufficient, but we have only a limited amount of savings to cover Government and private investment, and the Government agencies will always have the priority because they have a Treasury guarantee. If we were prepared to allow private industry to raise money at 3 per cent: interest without regard for profitability, its position would be greatly eased. Until the Government clarify their policy, I do not believe that we shall get an adequate amount of saving or risk investment.

I still think that the machinery for private savings and for channelling them into productive investment is not entirely adequate. The banks have become too much like saving banks, and, despite the new organisations which have been set up, there is still a need for more machinery to provide small sums of money for really small businesses, small sums of money for risk investment. I should like to correct something which I said on Second Reading. It is not true of course that trust companies invest only in fixed interest stocks. But I think there is need for provision of capital for growing businesses.

In concluding his Budget speech, the Chancellor of the Exchequer said: It must, then, he a vigilant, poised and confident Britain which turns to face the new financial year—with an economy resilient to absorb whatever shocks and setbacks the fluctuations of world trade may inflict on us, but also alert to reach out for each and ever opportunity for expansion and enterprise which circumstances may offer, and our own initiative may devise."—[OFFICIAL REPORT, 6th April, 1954: Vol. 526, c. 227.] They were very fine sentiments.

Are we vigilant, poised, confident and resilient'? I think, without being jingoistic, we are to an astonishing extent confident, poised, vigilant and resilient. Full employment, the country's ability to obtain contracts in the export market in the face of competition all over the world, and the buoyancy of the revenue, are things we can all be proud of. I also think, however, that the Chancellor of the Exchequer should keep his fingers crossed. There was a moment during our debates when I thought he said he had a song in his heart. I hope he has got rid of that.

The present situation is one which we should not be ashamed of but there are certain features in it which must cause disquiet. I would not say that the coal industry, the shipbuilding industry or the transport industry as a whole are entirely confident. We have been getting an advantage from the terms of trade which we cannot expect indefinitely to continue. We have large sterling liabilities which to some extent have to be set against our improved dollar balances. We know that every year Japanese, German and American competition is growing. More countries are building up their own industries.

I do not believe that we yet have enough in hand, that our balances are high enough, or that we are investing enough to make sure that we can compete in world markets. Nor am I sure that it is a good thing for this country, even in a time of great prosperity, to keep taxation up to the very limit. I very much hope that by next year at any rate we shall have some of the changes in the financial structure of the country which have been suggested in this year's debates.

I hope that the Chancellor will make every effort he can to encourage saving, and to encourage saving which will go into productive investment. There is no lack of inventiveness in this country. We beat the world in inventions in a great many fields, but we have not always been able to exploit them in the way we should like. That is partly due, in my view, to lack of capital and perhaps partly to the admittedly disturbed conditions following the war. If we can help to expand world trade and stability on the one hand and provide our industry in this country and throughout the Commonwealth with adequate capital, on the other, we may then live up to the excellent moral maxims which the Chancellor has set before us.

5.23 p.m.

Mr. F. J. Erroll (Altrincham and Sale)

I should like to reinforce from this side of the House what was said by the hon. Member for Islington, East (Mr. E. Fletcher) about the Financial Secretary's lucidity and great capacity for detail. I should not only like to reinforce what the hon. Member said about the prepared briefs, but to refer to those when there could not have been a prepared brief because the Finance Secretary was replying to remarks that had been addressed to him a few moments previously. I have often been greatly satisfied with the lucid and detailed replies which I have received to my own suggestions in the course of our consideration of the Finance Bill.

Having said that, I should like to say that I cannot quite agree with what my right hon. Friend had to say about the Purchase Tax Clauses in the Bill today. I cannot regard them as a great improvement in the machinery of Purchase Tax, because I regard the whole tax as a most unfortunate fiscal weapon. One of these Clauses is designed to amend the valuation of charges on goods because of the dissatisfaction which has arisen from the current practice of the Department, and the remaining Clauses are merely to stop up loopholes or avoid doubt as to the proper method of charging tax.

This is the clearest evidence that Purchase Tax is not a satisfactory fiscal weapon. It is most unsatisfactory because we find in the Bill that the present high rates and the highly selective method of levying the tax on different articles leads to dissatisfaction and also to considerable ingenuity being devoted to fighting out with the Excise Department whether the tax should properly be applied to a specific article. I hope that we may expect to see, in the near future, some substantial reductions in the rate of Purchase Tax, with a greater level of uniformity in its application, so that the present admittedly serious defects can be eliminated.

I should like to join in the general praise of investment allowances, representing as they do not only a novel device but an extremely useful one. I must say, however, that the investment allowance is still inadequate for the British overseas mining industry. As I pointed out in the Committee stage of the Bill, the mining industry gets a poor deal out of the changes in the Bill.

There is one point about investment allowances on which it might be possible to ask for an assurance from the Chancellor, or whoever is to reply to the debate, as to whether, if there are likely to be any changes made in future in the rate of the allowances, the old rate would apply at least in respect of equipment already ordered before the change is brought into effect. A somewhat similar assurance was given in respect of initial allowances, and with that precedent it should be possible to say that, in general, equipment already ordered would attract investment allowances at the current rate and not at the rate applicable at the time of delivery. This is a matter of some concern to those with large-scale capital investment programmes which may be running on for three or four years at a stretch.

A great deal has been said about the importance of the investment allowance to British industry. The allowance applies to the purchase of plant, and the Financial Secretary referred to decisions which will be made in the coming months in hundreds of board rooms throughout the country, which he hoped would be favourably influenced by the introduction of initial allowances. Undoubtedly that will have a favourable effect, but we are all too apt to forget, in discussions in the House, that it is not only new plant which has to be paid for; there is the additional working capital necessary to finance the flow of raw material through the plant itself, which is often as great a problem for companies as finding the money for the plant.

To give an example from my own experience, a year or two ago, when a particular company took a decision to install a new continuous process as a complete changeover from an old reversing process, the cost of the new plant amounted to about £300,000. The board might well have considered the capital expenditure on the basis of that figure, but the raw materials required for the new plant to be operated efficiently cost, at prices then current, no less than £1 million. Only £300,000 of the total investment of £1,300,000 would qualify for investment allowance. While in a case of that sort the investment allowance would be a help, it would be a relatively small factor when a board was reaching a decision whether or not to go ahead with the new plant. Let us remember the importance of working capital when discussing projects of capital equipment and investment in industry.

There is no doubt that a much better stimulus to industry than the investment allowance would be a reduction in the standard rate of Income Tax, which, I am sorry to say, is still to be maintained at the same rate according to Clause 14. A reduction would make it possible for firms to retain more of their profits to provide both additional plant and the necessary working capital which more modern plant requires. A reduction would also have the effect of reducing the benefits of extravagance by industry and encouraging the benefits of economy. As long as a firm is making a profit and very nearly half of it is taken away under Clause 14, there is not the same incentive to be efficient and economical in one's operations as if one is being taxed at a lower rate. What is true in that sphere is particularly true in matters of enterprise. If some companies appear to be sluggish, it is because of the effect of Income Tax levied at the present rate.

I want to quote to the House briefly from the Report of the Mission which visited Middle Eastern countries earlier this year. It was specifically instructed to see how trade in those territories could be developed. The Mission's comments were independent and thoughtful. It said: …there is little incentive to incur the expenditure and run the risks "— by British firms— having regard to the fact that any small profit earned is subject to the current heavy taxation. The Mission also said: The Mission must also emphasise that the present heavy burden of taxation in the United Kingdom (indeed the whole structure of taxation) provides a strong disincentive to the taking of risks in these markets and that unless this can he further alleviated "— it is not alleviated in this Bill— the position of British exports in this competitive market may be more gravely affected… Those are the opinions of a responsible body of men, and I hope the Chancellor will take heed of what they have said when he is getting ready to prepare the Budget for next year.

If the effects of Clause 14 are serious for companies, they are also serious for individuals. While hon. Members opposite may say that their financial measures in the past have had the effect, for which they take the credit, of bringing about a great redistribution of income, surely the time has now come to consider whether we are perhaps going too far in that direction and losing a great deal of the efficiency of our senior business and industrial executives through the continuation of this levelling-down process.

I put it to the House merely on a basis of efficiency and of getting the best out of all men at all levels. The worker who is paid by the hour is not, for the most part, paying Income Tax at the standard rate as laid down in Clause 14. Therefore, taxation at the present level does not affect him so greatly. Nor, indeed, is he expected to work outside his working hours.

However, the industrial executive is paying tax at the full rate, and he is probably paying a good deal of Surtax as well. He comes home in the evening to a higher standard of living—a little higher, but perhaps it is not really high enough to give him the relaxation to do additional thoughtful work in the evening.

The country can have it either way, whichever way it wants. It can have the senior executive washing up the dishes at night and not doing additional thinking, or it can allow the senior executive to retain enough income in his pocket to hire people to do the chores for him so that he can do his additional thinking in the evening. My view is that it is probably better to allow the better-paid executive to retain more of his income so that he may lead a more relaxed and thoughtful life in the evenings and in his other spare time than is possible at present.

Mr. Houghton

Has it occurred to the hon. Member that charwomen also have something to think about in the evenings?

Mr. Erroll

I quite agree. Fortunately, they are able to do it. They have finished their day's work and so they are free to do as they like. The pressure on the modern industrial executive is such that if he is to spend a lot of time on chores there is less time for him to do the amount of work that his position requires. I am merely putting it to the House on the basis of what is more efficient for the country—whether men who have to work at very high pressure should be able to carry on with their brainwork in the evenings or whether they should not. We can have it either way we like. However, personal taxation at this high level for the men who are doing the thinking and planning more efficiently the work of others is surely not in the best interests of the country.

Earlier speakers have referred to the continuing high rate of Government expenditure, and my hon. Friends and I have rightly on many occasions drawn attention to the great amount of expenditure and the need for considerable economy, but I should like to put it to the Chancellor and the Financial Secretary that some of us realise how very difficult it is to secure the economies which everybody is so anxious to achieve. It is one thing to talk about economies, but it is another thing to bring them about.

Mr. J. T. Price (Westhoughton)

The hon. Gentleman is pursuing a valid argument from his own premises, but he and other hon. Members opposite were loudly telling the country at the last General Election that the Conservative Party would "stop up the hole in the purse." The Conservatives have produced no results in that direction up to now, and it seems late to be making speeches on those lines now.

Mr. Erroll

I do not think the hon. Member will feel like that when he has heard me through to the end of my point. Although it is difficult, it is none the less extremely important to bringing about those economies. Also, it is particularly difficult at a time when everything seems to be going so well to insist in Government Departments on economies which perhaps have not been practised so far.

Mr. Hugh Gaitskell (Leeds, South)

On a point of order, Mr. Deputy-Speaker. I have no desire to interrupt the hon. Member, but is it in order on the Third Reading of the Finance Bill to refer to Government expenditure? Will you please give us your Ruling?

Mr. Deputy-Speaker

It is only in order to refer to what is in the Bill. Perhaps I have been a little lenient.

Mr. Erroll

I am sorry, Mr. Deputy-Speaker, if I have gone too wide. That means that I shall not be able to answer the point put by the hon. Member for Westhoughton (Mr. Price).

The taxation of business profits is specifically covered in Clauses 17 and 26. In those Clauses we have an interesting study of the basis of assessment of business profits. In Clause 26 our fellow-sufferers in the Scilly Isles are being given a relief by having the option to be charged on the actual profits of 1954–55 or on the profits of the previous year. Perhaps this is to soften the shock of their first close connection with the Income and Profits Tax system of this country.

In Clause 17, it has been found necessary to counteract a device for avoiding Income Tax by reconstructing companies, and the details of the Clause are now well-known to hon. Members, but the remedy applied by Clause 17 is not the proper one. The proper remedy is the taxation of businesses on the profits actually made, neither more nor less, and doing away with pretending that the profits of the year of assessment are anything else than profits actually earned. The absurdity of the present position is nowhere more clearly brought out than it is by comparing Clauses 17 and 26.

For the rest of the Bill, I think we can fairly say that it has provided us with a useful and interesting survey of the country's position today. Some of us would like to have seen more concessions, but, under present circumstances, that hardly seems possible. Let us, nevertheless, wish the Bill well.

5.42 p.m.

Mr. Austen Albu (Edmonton)

I think hon. Members on this side will forgive hon. Members opposite if their speeches are rather long, because we realise that they are making the speeches they were not allowed by their Whips to make during the Committee stage of the Bill. That is especially clear from the fact that they are reading from briefs which have been provided for them.

The hon. Member for Altrincham and Sale (Mr. Erroll) represents, in the same way as many of us on this side represent trade unions, the Institute of Directors, and nobody could have spoken better for those whom he represents than the hon. Member. Those of us with some practical experience of the matter, however, find it a little difficult to recognise the picture he was painting of business executives, but no doubt the hon. Gentleman took it all from "Lloyd's Bank Review," and one fully understands that, to make a Third Reading speech, one must get one's information from somewhere.

What I found very interesting was when the hon. Member veered to the very edge of being in order, because he started off by attacking—what he is perfectly in order in doing—the Purchase Tax, and then went on to attack the levels of Income Tax. I thought the hon. Gentleman was going to follow that by expressing the view, in contradistinction to the hon. Gentleman who is the Chief Liberal Whir, that the present level of taxation is avoidable at the present time, but it appears that after that the hon. Gentleman agreed with the Chief Liberal Whip that the present high level of taxation is inevitable.

I would point out one other thing, which was also pointed out by the hon. Member. In spite of the very high level of taxation in this country since the end of the war, we have had a very prosperous economy, and we still have a very prosperous economy. The hon. Gentleman appeared to be demanding a very great reduction in the level of taxation, particularly on the higher incomes, but he ought to have known that there is some connection between this taxation, with its re-distributive effect, and the levels of employment and production in the country at the present time.

The Financial Secretary dealt at some length in his speech with the Clause concerning the Purchase Tax, and I should like to say that I personally welcome his remark about the Government's intention on Purchase Tax registration, following the passage of what is now Clause 7. I think that will be very welcome indeed to a large number of wholesalers, and I hope it means that in future applications for registration will be dealt with generously, because there is at present a good deal of feeling about the way in which the present registration system operates.

The most revolutionary Clause in the Bill is that providing for the investment allowances, and certainly, with my hon. Friend the Member for Sowerby (Mr. Houghton), I had the shock of discovering that these allowances were actually in excess of the cost of the plant and machinery involved. Nevertheless, realising the importance of increased investment, we have supported this Clause, although we wanted to make it more selective. I do not think I agree with the hon. Member for Altrincham and Sale about the cost of working capital, work in process and so on. What the hon. Gentleman does not seem to understand is that the reason why industry is not investing more today is not a shortage of finance. I am sure that any firm which was able to afford to pay a total cost of £300,000 for plant would have no difficulty in obtaining the necessary finance from the bank in order to finance increases in stocks and work in process.

The hon. Member went on to say that what would really induce industry and business men to invest would be a substantial reduction of the standard rate of Income Tax. There is absolutely no evidence of this at all. Indeed, if one looks at some countries, where the distribution of income between the wealthy and the poorer classes is much more unjust than it is in this country, the rate of investment is very much lower. The hon. Gentleman referred to some Middle Eastern countries, where, of course, there is an extreme mal-distribution of income, where taxation of the wealthy is very low, and where nobody could pretend that the rate of investment from internal sources is anything like high enough. I suggest that, before the hon. Gentleman proceeds to quote this type of case, we ought to have a good deal more factual evidence about it.

Finally, if I may introduce a greater note of controversy into this typically somnolent Third Reading debate, I would refer to the main concession granted in the Bill. It was said when the Budget was introduced that it was not an exciting Budget, but that it was a dull one. I think it certainly points the way to future Budgets of the present Administration, if they were to remain in office, because the only parts of the Finance Bill which have received the support of hon. Members opposite, and on which they turned up in the Committee stage in fair strength, are those in which we have discussed concessions granted to family businesses and the Clause on which we discussed tax evasion by aggregation, which led to a further concession, due to pressure from the back benches opposite.

We welcome the reduction of the Estate Duty at the very lowest level put forward by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), but we noticed an extremely significant feature during the Committee stage in discussing this matter with hon. Members on the other side of the Committee. Hon. Member after hon. Member demanded a much greater concession on Estate Duty, which they said was the worst form of tax that we could have. It was quite clear that they believed in a reduction of taxation on inherited wealth. Even the Chancellor of the Exchequer himself at one point said that he disliked this form of taxation, and made it quite clear that, if he remained Chancellor, he would reverse the present system of taxation on inherited wealth.

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

I certainly made some observations on the matter, but I gave no such undertaking.

Mr. Albu

I would not expect the Chancellor to anticipate his Budget speech of next year, or that of the year after, if he is still in office, but I am perfectly justified in drawing attention to the tone of the speech he made on that occasion. I have not got the record here with me, but I do not think there is any doubt at all that, if hon. Members opposite remain in office, they will reverse the present system of the taxation of inherited wealth. They are in favour of inherited wealth, and no doubt they would prefer to see a reduction in the taxation on inherited wealth almost before they see a reduction of Income Tax or of any other form of taxation. That is the impression I got during the Committee.

Sir Edward Boyle (Birmingham, Handsworth)

Surely the hon. Member is exaggerating very much in saying that the Chancellor of the Exchequer and hon. Members on this side wanted to reverse the present system? My right hon. Friend prefaced his remarks by saying that he did not wish to see any very big gaps between rich and poor.

Mr. Albu

One hon. Gentleman opposite certainly said that this was the worst of all taxes and made it clear that he and his hon. Friends felt very strongly about it. Many of the arguments about family businesses were complete nonsense. An hon. Member who spoke at the beginning of our proceedings today from the Government benches made what I call a thoroughly theoretical and legalistic speech about family businesses. It seemed to bear no relation whatever to the ordinary, practical way in which the thing works out.

My own view is that, on the whole, a business which has gone on for two or three generations is, in 99 cases out of 100, inefficient and badly subject to nepotism. Family businesses suffer more from nepotism than from anything else, as hon. Members who represent Lancashire constituencies will understand.

In spite of the fact that we made a number of requests to the Chancellor for concessions in the lower ranges of Income Tax, especially for people with large families, we have had no concession at all. I can only repeat what I said in the Committee: I suppose that the Chancellor is holding up his concessions for next year's Budget, which he hopes will take place just before the next General Election.

5.53 p.m.

Sir Edward Boyle (Birmingham, Handsworth)

Many of us on this side of the House listen with great interest to the hon. Member for Edmonton (Mr. Albu) and take careful note of what he says. Nevertheless, in the last few minutes of his speech today he seemed to me to exaggerate to a rather absurd degree. I can only suppose that he was trying to whip up this debate and to make it more controversial.

It is not easy on the Third Reading of the Finance Bill to think of many new points about either the Budget or the Bill. I want to make a few comments on two particularly important Clauses, namely, Clause 16, which introduces the investment allowance, and Clause 14, which deals with Income Tax. I sincerely hope that the investment allowance will be given a good run by successive Chancellors of the Exchequer because that is the only way of ensuring that this new tax device does what it is intended to do.

I remember that when we were discussing the initial allowance last year, the hon. Member for Gloucestershire, South (Mr. Crosland) pointed out, very pertinently as it seemed to me, that a business almost invariably carried out a programme of capital redevelopment by a number of stages, and that while it might be repaying its initial allowance on one item of equipment it was already getting another initial allowance on another item. That seemed a very fair point, and it applies equally to the new investment allowance. We cannot turn these allowances on and off like a tap and expect them to perform their proper function.

I quite understand what caused the right hon. Member for Leeds, South (Mr. Gaitskell) when he was Chancellor of the Exchequer to do away with the initial allowances in his 1951 Budget. There are not many votes which I have given in this House which I have regretted, but I have a feeling that we were rather naughty to vote against that Clause in the 1951 Finance Bill. We had a heavy re-armament programme on our hands and room had to be made for it in the economy somehow. It was necessary at that time to clamp down on investment to some extent. But we must hope that our economy will never again be faced with a problem of the kind that faced it in that year. I hope that we shall never again have anything like a sudden re-armament programme of £4,700 million to disrupt all our economic calculations. I hope that it will be possible for successive Chancellors of the Exchequer to give this investment allowance a good run.

Now I wish to say a word about Clause 14, which is the Income Tax Clause. There are very considerable difficulties in the way of a reduction of Income Tax, although this is obviously greatly needed. In the first place, there is the great weight of Government expenditure on defence and on the social services. I thought that the hon. Member for Gloucestershire, South was a little less fair than he usually is when he twitted us about what we had said in "The Right Road for Britain" and about the Budgets of Sir Stafford Cripps, all of which dated from a period before the re-armament programme. It is only since then that we have had to bear this very heavy extra burden. Furthermore, quite apart from defence expenditure, there is the size of our expenditure on the social services. I remember a speech by my hon. Friend the Member for Ealing, South (Mr. Maude) in which he pointed out that this sort of expenditure was tending always to rise. In general, the size of Government expenditure is the chief difficulty in the way of any considerable reduction of direct taxation.

There are two other points. My right hon. Friend the Chancellor of the Exchequer cannot afford to reduce taxation in present circumstances if it means a budget deficit above the line. He was able to reduce it by 6d. last year only because he abandoned, and I believe quite rightly, the Cripps policy of having a surplus above the line big enough to cover the deficit below the line. It was only by thus altering the form of our Budget that he was able to afford a large reduction last year. As things are at the moment, it would obviously be too big a risk to have a large Budget deficit above the line.

Again, a reduction in Income Tax is bound to have a very sharp effect upon the volume of consumption. Any reduction which my right hon. Friend could afford would be likely to affect consumption to a greater degree than savings. I do not believe that it was coincidence that last year, when 6d. was taken off the Income Tax our expenditure on consumption went up by something like £300 million. That would have been a very serious matter if the terms of trade had not been as favourable as they were.

I have tried to set out some of the difficulties with which my right hon. Friend is faced when considering Income Tax policy. Nonetheless, we ought not to be complacent about a 9s. in the £ level of Income Tax. It is not quite good enough to say that this does not really matter because Income Tax has a redistributive effect. We have heard that argument very often from Opposition Members during our debates.

Hon. Gentlemen opposite sometimes confuse two slightly different points. It is quite true that since 1939 the total volume of wage incomes has risen pretty sharply in proportion to property incomes. I was reading an essay only this morning by Mr. Dudley Sears on this very point, in which he quotes a number of figures; but that is not quite the same thing as a redistribution between rich and poor. There are many people living on smallish fixed incomes who are very severely hit by the present rate of direct taxation and who get little or no benefit from the Welfare State. We should never forget that category of persons when we are considering Income Tax policy.

Furthermore, in the days when hon. Members opposite believed firmly in nationalisation, they often pointed out to us that redistributive taxation defeated its own ends when carried beyond a certain point. One of their favourite arguments for the nationalisation of industry was that we could not have redistributive taxation of incomes beyond a certain point, and that it was therefore necessary to nationalise in order to equalise capital ownership.

Only a day or two ago I was re-reading an essay by Mr. E. F. Schumacher, which I quoted in this House in my maiden speech three years ago. Perhaps I shall not be thought guilty of tedious repetition if I read two or three sentences from it again. Mr. Schumacher says: A high income tax, imposed for the purpose of redistribution, is subject to the law of diminishing returns in more senses than one. It leads to a situation in which every item of expenditure that can be booked over 'expense account' is automatically subsidised by the State at the rate of the standard tax…The more progressive' the scales of taxation, the smaller, at the same time, is the reward obtainable by business men for extra effort and risk-taking. In a free society, the limits of taxation ' deserve the closest study. Those words were written not by a supporter of the Government but by an economist who was—and is, so far as I know—a perfectly orthodox Fabian. It is worth considering whether we have not now got so near the limit of redistributive taxation that it is beginning to defeat its own object. In any case, I cannot believe that this question of redistribution can justify as high a rate of tax as 9s. in the £ in peace-time. Any reduction must be financed by orthodox means, but I very much hope that my right hon. Friend the Chancellor will be able to make sufficient cuts in Government expenditure to justify some reduction in Income Tax next year.

I do not want to end upon a note of complaint, because I think this has been a sound Budget and Finance Bill. The new accretion of reserves since the Budget was announced is itself a tribute to the work of my right hon. Friend. I believe that this Budget and Finance Bill will do a great deal to enable us to meet any economic difficulties which we may encounter during the rest of the year.

6.2 p.m.

Mr. Anthony Crosland (Gloucestershire, South)

In the course of my few remarks, I want to refer to one or two of the points made by the hon. Member for Handsworth (Sir E. Boyle). First, I deny that there is any such thing as an orthodox Fabian. If the hon. Member for Handsworth goes to any Fabian meeting of any kind in these days, he will find a diversity of opinion of such a sharp and almost emotional character that he will not think of referring in such terms to any person present there.

I am sorry that the Economic Secretary is not here; I dare say he is engaged important business elsewhere. The Chancellor of the Exchequer occasionally refers to my hon. Friend the Member for Stechford (Mr. Roy Jenkins) and myself as the "heavenly twins," and it is sad that we cannot see all three devilish triplets on the Front Bench tonight. The Economic Secretary has taken an active part in our debates and has always been extremely courteous in his replies, which have been very full.

I want to refer to the question of investment allowances, which has already been mentioned. The Financial Secretary claimed that this was a revolutionary new device. He rather twitted some of my hon. Friends with being taken aback by the revolutionary nature of this device when it was first mentioned in the Budget speech. It is fair to say that many of my hon. Friends wholly, approved of the idea right from the start—whether it was revolutionary or not—and it is also right to say that it is not quite so revolutionary as it might appear. It is a natural growth from the system of initial allowances, and it would have been perfectly possible to have found a rate of initial allowances which would have produced exactly the same monetary effect as the present proposal. It would have been perfectly possible to have found a rate which would have cost the Treasury the same amount this year as the change-over to investment allowances.

I do not think that such a step would have been a sensible one, however. Although I stick to the view which I have always expressed, that an initial allowance is not just an interest-free loan, the fact that most people in industry consider that it is an interest-free loan is a fact of great psychological importance which itself constitutes a strong objection. I think that the change-over was correct, and I hope that the new system will be extremely successful. Certainly hon. Members on this side of the House think that it is a more desirable approach to the problem of reducing corporate taxation than would be a straight reduction of Income Tax, such as was suggested by the hon. Member for Altrincham and Sale (Mr. Erroll).

I was glad that the hon. Member for Handsworth pointed out the perfectly true fact that a reduction in the standard rate would be bound to have a large influence on consumption. It is frequently argued that it is a measure designed to increase saving and investment, but the experience of last year has supported the view which most people already held, that the main beneficiaries of a reduction in the standard rate are the consuming public, and, although this may be a very good and agreeable thing from various points of view, it is not likely to have much effect in increasing investment.

If the hon. Member for Altrincham and Sale is correct, and the profits of industry, after taxation, are insufficient for various purposes, it is perfectly possible to increase them by raising investment allowances to the desired level. If we find this year—although I do not think it is very likely—that investment is being held back simply because it is not sufficiently profitable, this method provides an alternative to a reduction in the standard rate. If necessary, investment allowances could be put up to 40 per cent., or any desired figure, in order to give industry the profitability which it is held to require.

I was very moved by the hon. Member's picture of the business man and his social habits. He said how necessary it was that business men should spend relaxed and thoughtful evenings, and he conjured up a pathetic picture of a business man longing for an hour off with his Dryden. But I think his picture was a little too colourful. Lots of other people besides business men have to work in the evenings. Professional men, and even Members of Parliament, have to do so, and it is not such an enormous sacrifice for business men that they should occasionally settle down to productive effort even after 5 o'clock in the evening. That does not constitute a special reason for reducing the standard rate of tax.

My last point on the subject of investment allowances links up with that made by the hon. Member for Orkney and Shetland (Mr. Grimond). We all hope that these investment allowances are going to increase investment in plant, machinery and building—but primarily in manufacturing industry. They are not intended mainly to apply to the public sector, or agriculture, or distribution. But does the Chancellor really hope for a large increase in manufacturing investment in the next two or three years, considering the very heavy claims which are being made by other forms of industry? We read that the housing programme has now reached a rate of 400,000 houses a year, and on Friday last hon. Members were discussing the enormous investment programmes of the fuel and power industries. Most hon. Members regard those programmes as being absolutely justified, but are they going to leave sufficient resources available to allow of an increase in manufacturing investment?

The Chancellor tells us—and he claims credit for it, which he is entirely justified in doing—that employment is at a record level and that there is very little spare capacity of any kind, but I am wondering whether these investment allowances will produce the required increase in manufacturing investment, bearing in mind the very heavy investment programmes contemplated in other directions. I hope that the Chancellor will make a brief reference to that question.

The only other point on which I should like to say a word is that on which the hon. Member for Handsworth finished, the general question of redistribution. Personally, I thought that my hon. Friend the Member for Edmonton (Mr. Albu) made a fair and valid point when he drew attention to the enormous increase of interest shown on the other side of the House whenever matters concerning Estate Duty are discussed, and it is true that the concessions the Chancellor has made in amending the Bill have been largely in respect of that duty.

The hon. Member for Handsworth said that, although he was sympathetic to the idea that we have on this side of the House about the redistribution of income, one nevertheless had to be careful about two things. First, were we really redistributing from rich to poor and not from profits to wages? It is a valid question, but there is no doubt that we are redistributing from rich to poor, because the figures that are often published of the proportions of personal incomes, according to the richest group and the second and third richest groups and so on, show that not merely are we redistributing from profits to wages but also redistributing from the people at the top end of the income scale to the people at the bottom end of the income scale.

The hon. Gentleman's other question was whether we accepted Dr. Schumacher's view—although I do not see why we should accept his view on anything except possibly on matters of research in the coal industry—that there are limits to taxation. Of course we accept that view. Nobody supposes that we can go on pushing taxation up and up without a ceiling. The argument is whether we have reached those limits of taxation now or have overstepped them.

It is perfectly consistent for us on this side of the House to agree that there are limits and to say that those limits have not been exceeded. In our view, the present level of taxation on high personal incomes does not overstep those limits we are talking about, and we can achieve this measure of income redistribution without our suffering any loss of production. That is a quite consistent point of view which I hope the Chancellor may be persuaded to bear in mind when framing a future Budget.

6.12 p.m.

Major W. J. Anstruther-Gray (Berwick and East Lothian)

I think it was the hon. Member for Orkney and Shetland (Mr. Grimond) who began his speech by saying that this year's Budget and Finance Bill were more notable for what they omitted than for what they contained, and I quite agree that it is impossible this year, as it was last year, to point to a Finance Bill which resulted in everybody's taxation being reduced without anybody's being taxed any more.

Today, one cannot say that, and I accept the point made by hon. Members opposite that a certain amount of disappointment has been occasioned in the country as a result. However, when one looks around and sees the figures for the last few months since the Budget was announced, and how both the economic and the financial figures are buoyant, I am quite satisfied that the Chancellor made no mistake in the line he decided to adopt, and I am glad to find myself complimenting him once again, as I ventured to do last year.

The reduction in the cinema tax, which was referred to by the hon. Member for Islington, East (Mr. E. Fletcher), who spoke for the official Opposition today, has been of considerable benefit to an industry that has been hard hit by new competition. It has benefited to the amount of no less than £3½ million in a full year. I like that particularly because that was included last year among the very high priorities the Chancellor promised to devote his attention to when the opportunity should arise, and anything that savours of the keeping of promises is always very welcome. I hope that some of the words the Chancellor said in his Budget speech about old-age pensions may also be fulfilled in due course.

I welcome the concession on death duty and on family businesses. The hon. Member for Gloucestershire, South (Mr. Crosland) referred with disdain to Government supporters for their interest in death duty. He will not have forgotten that an Amendment was moved by his right hon. Friend on that. I think the provision for family businesses is overdue, and I cannot for a moment accept what the hon. Member for Edmonton (Mr. Albu) suggested, that family businesses are inherently inefficient. I do not think that the facts prove anything of the kind. The concession made to them is, no doubt, a step towards preserving the continuity of middle class life. I wonder, however, whether my right hon. Friend has gone quite far enough in that direction, and I wonder whether his Income Tax policy takes sufficient account of the virtual obliteration of the middle classes which the present level of taxation is bringing about.

I was reading "Lloyds Bank Review" over the weekend, too, as was the hon. Member for Edmonton and my hon. Friend the Member for Altrincham and Sale (Mr. Erroll), and I would commend a passage in this month's issue, that, I think, is entirely relevant: It has happened before now, in other countries, for the middle classes to be ruined: by inflation or by revolution. The troubles of the British middle class are mild compared with the disasters which, in the course of the twentieth century, have been heaped on the French, and still more on the German bourgeoisie and professionals, playing a major part in producing moral paralysis in France and collective dementia in Germany. Only in Britain, however, have matters been deliberately so arranged that there shall be no revival; no rebuilding, by the efforts, the thrift and enterprise of a new generation, of private competences, no replacement of the victims of special circumstance by successive starting, perhaps, from quite different origins but winning and retaining the rewards of special ability. I believe that my right hon. Friend would do right to take account of this general decline in the middle classes today, and I do not see why hon. and right hon. Members opposite should not agree with me in this. After all, the last three Chancellors of the Exchequer of the Labour Party all came from that section of the community, which has made a very full contribution to the public life of the country. It is not only among the politicians that it is and has been found. That section of the community has made a big contribution—and is still capable of so doing, if it is not squeezed out, as I fear it may be—in all the professions and Services, the arts and the law, and to leadership in the management of industry.

We have many men of integrity and initiative and genius from that section it would be very difficult to replace were we to allow that section of the community to fall under and be eclipsed by present trends, and in supporting the Third Reading of the Bill I commend that consideration to my right hon. Friend.

6.20 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I am glad that the hon. Member for Berwick and East Lothian (Major Anstruther-Gray), in referring to the social origin of previous Chancellors of the Exchequer, firmly put Eton and Winchester in their places as good middle-class schools.

In the course of these debates we mostly hear familiar voices and, to some extent, familiar arguments, but we have seen on the benches opposite on this occasion a few new faces, and we are glad to welcome them to our discussions. Hon. Members opposite who take part in the debates on the Finance Bill can be divided into three categories. First of all, there are those like the hon. Member for Handsworth (Sir E. Boyle) and the hon. Member for Scarborough and Whitby (Mr. Spearman), who, I see, is trying to catch your eye, Mr. Speaker, who are deeply interested in these financial questions but go in fear and trembling of their Whips and make no attempt to intervene during the Committee stage.

Then there are those like the hon. Member for Wimbledon (Mr. Black), who made two appearances in Committee—once to urge the claims of licensed premises to the investment allowance and. on another occasion, to try to see that too much tax avoidance was not knocked out by means of the provisions dealing with life insurance. Such hon. Members make only these brief appearances and then disappear.

Finally, there are those of whom perhaps the hon. Member for Edinburgh. South (Sir W. Darling) is the most distinguished, who go in some fear of the Whips but, nevertheless, cannot keep away from our debates. They would like to take part in them. To some extent the hon. Member for Kidderminster (Mr. Nabarro) is in that category, and I am sorry that he is not in his place. We often see him during these debates, but to an even greater extent we see the hon. Member for Edinburgh, South, sitting in his place on Clause after Clause. We know how much they would like to intervene, but when they do intervene, because their feelings have been bottled up for so many Clauses, they sometimes make speeches which are not perfectly informed. Nevertheless, we are very glad indeed to have their interventions and their humour. We had an intervention from the hon. Member for Edinburgh, South when he misunderstood a point put forward by my hon. Friend the Member for Edmonton (Mr. Albu).

Sir William Darling (Edinburgh, South)

The trouble was lack of clarity by the hon. Member for Edmonton (Mr. Albu) and no defect of mine.

Mr. Jenkins

My hon. Friend is not here to answer for himself, so I do not think I should pursue the matter further.

The hon. Member's friend and colleague, the hon. Member for Kidderminster, without my hon. Friend the Member for Edmonton or anyone else to confuse him, became extremely confused at an earlier stage about the way in which buildings were depreciated and showed himself less well-informed on this matter than we should have expected.

I am not sure into what category I should put the hon. Member for Altrincham and Sale (Mr. Erroll). Whether he is outside all those categories or not, we certainly enjoyed his speech this afternoon. As my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) said, he painted a most moving picture of the plight of business executives doing the washing up when they could have been enjoying thoughtful and relaxing evenings. I am not quite sure whether the two words always go together; I thought it was possible to have a relaxing evening which was not a thoughtful evening.

Mr. Erroll

One can think better when one is relaxed.

Mr. Jenkins

I am sure that applies to the hon. Gentleman and, no doubt, to most of us.

When he was dealing with the effect of the high rate of Income Tax upon individuals, the hon. Member directed our attention to the report of a mission which went to the Middle East. He should have borne in mind a still more important body which considered these questions of the effect of Income Tax upon incentives, particularly in relation to highly-paid executives—the Royal Commission on Taxation, which reached a conclusion almost diametrically opposite to that which he put forward in his speech.

The hon. Member also returned to a subject which is a favourite subject of hon. Members opposite. When concessions are being given to industry they are more welcome to hon. Members opposite if they come in the straightforward, unremitted form of a simple reduction in the standard rate of taxation rather than in the form of initial allowance concessions or even investment allowance concessions. I fully agree with my hon. Friend the Member for Edmonton who commented on the Chancellor's significant hint about his attitude in future Budgets to Estate Duty on big estates. I think the Chancellor will find that he has two competitors put forward from the benches behind him for such relaxations as are made, one being where estates pass at death and the other being for a concession in the standard rate of Income Tax.

But this is not a matter of logic on the part of hon. Members opposite when they apply it to the question of stimulating investment for, however we apply our minds to the matter, it is difficult to believe that a concession based on a cut in the standard rate of Income Tax of a given amount can possibly have an equally stimulating effect upon investment as a concession of the same amount in the form of an investment allowance. After all, with an investment allowance, that amount of money is directly related to the stimulation of investment and accrues to industry only to the extent to which that investment takes place; whereas, whatever assumption we make—whether we make the assumption, with which I rather agree, made by the hon. Member for Handsworth, that a large part of any concession in direct taxation goes into consumption and not into savings; or whether we make the more optimistic assumption—it still remains the case that it can be only a proportion of the money made available by a cut in the standard rate of taxation which goes to investment. With the investment allowance, where we have a given amount to play with, we can be sure that 100 per cent. of it goes to investment, rather than a small proportion.

If the Chancellor intends to claim as much credit for the investment allowances as did the Financial Secretary earlier today, I hope he will bear in mind that, while these allowances have on the whole received a very good reception from these benches—because, if taxation concessions are to be given to industry, we like them to be directly related to investment—they have in some ways received a more mixed reception from the benches behind him. That was shown by the hon. Member for Altrincham and Sale, who said plainly that he would have preferred a cut in direct taxation, presumably of an equivalent amount. I hope that the Chancellor will bear that in mind and will not put this concession forward too much as a great triumph for Conservative financial policy.

We have had a dull Budget and this is a dull Finance Bill. After what the Chancellor told us was a year of great recovery, the Budget did not give very much. We hope that next year's Finance Bill will have more in it and will have more important contributions to make to the national economy. I do not know how the Chancellor will bring that about, because he has told us that this year we had a very good year. We certainly hope that next year he will be able to produce a more exciting, and, from our point of view, more desirable, Budget.

6.29 p.m.

Mr. Cyril Osborne (Louth)

The hon. Member for Stechford (Mr. Roy Jenkins) introduced such a pleasant Sunday afternoon atmosphere in the first part of his speech that he reminded me of what Sir Frank Tribe, the Comptroller and Auditor-General, had to say about these debates, speaking last month, as reported in "The Times." He said that the function of the back bencher and the Treasury have completely changed in the last 50 years. Instead of the back benchers protesting to the Treasury about the heavy taxation which is being imposed, the Treasury are now having to resist the demands of back benchers for greater expenditure.

It seems to me extraordinary that this afternoon we intend to agree to a Finance Bill which will impose greater burdens than this country has ever known in time of peace—and yet some hon. Members regard it as a matter for laughter. I want to protest at the enormous taxes which are being imposed upon the people of this country in time of peace.

May I refer to two points made by the hon. Member for Edmonton (Mr. Albu)? He said, I think quite rightly—and this ought to be recognised on both sides of the House—that the prosperity of this country in the last 20 years has been to a large extent due to the redistribution of wealth that has taken place. If there is to be mass production of wealth, it has to be matched by mass consumption, and there can be mass consumption of that wealth only if the wealth of the nation is more evenly divided. I should like to assure the hon. Member—if he wants an assurance from this side of the House—that we have no intention whatever of trying to alter the policy of the last 25 years, or the last 50 years, whereby the distribution of the national wealth has been made more even and the gap between the very rich and the very poor has been narrowed. There is no intention whatever of reversing that policy.

May I also put another point to the hon. Member? He said that hon. Members on this side of the House were more interested in Estate Duty reductions than in any other item in the Finance Bill. I do not think that is quite true. I myself would like a reduction of both Estate Duty and Income Tax. If I were faced with a choice, I would rather tax the dead than tax the living. By taxing the living I think that it is possible to stop production, and I do not think that is possible by taxing the dead.

This Bill imposes taxation on the people of this country to the extent of £4,533 million, which equals about £12 million a day. No hon. Member has so far said, "I think these burdens are too great." Hon. Members opposite seem to think that taxes are desirable. I hope that the next time we go to the country, they will say. "Put us in power and we will double the taxes on all of you; we think that they are good things."

As the Chancellor of the Exchequer said in the debeate in Committee on what was then Clause 13, taxes are evils; they are necessary evils, but they are evils. I should like to ask my right hon. Friend this question. Will he on another occasion, if he cannot do it now, reduce these evils and make this country a little more virtuous financially, so that we can live a little more comfortably in it? I would remind the House that this Finance Bill is taking about 32 per cent. of our gross national product. In 1928, when the present Prime Minister was Chancellor of the Exchequer, the figure was only 20 per cent., and in 1913 it was only 7 per cent. of the gross national product. How long can that process continue? Hon. Members on both sides of the House have to face that question.

In this week's "Economist" there was an article on the situation in Italy, and there was one phrase which I would pass on to my right hon. Friend. It said that there was a danger of the people of Italy becoming subjects instead of citizens. That is where we shall be led, if we are not careful, by the height of taxation which we are imposing on our people. I believe that this is fundamental, and I am sorry that Liberal speakers have not said so, because this is ancient Liberal gospel. I believe that if taxation is as high as is imposed under this Bill, there can be no real personal liberty.

Mr. Grimond

Perhaps the hon. Gentleman could, on some future occasion, reconcile the two statements which he has made: first, that he wants to continue the process of the last 25 years, which is essential to the setting up of a very expensive Welfare state; and, on the other hand, that he wants to reduce taxation. Short of cutting the armaments programme, how does he think that this country can make a large reduction in taxation without reducing the welfare service?

Mr. Osborne

The hon. Gentleman says that there is no possibility of a reduction of taxation unless the armaments programme is ended. I would ask my right hon. Friend whether there is any hope that the money saved on armaments would ever be used to reduce direct taxation. But that is taking me away from the point which I want to make. The point which I am putting to the House and to my right hon. Friend is that the more earned income the central Government take from the people of this country, the more they reduce the liberty of the people, and if tyranny is to come in this country it will come through the silent operation of Finance Bills. It is because of this that I feel extremely nervous. There have been no real protests in this House at the immense weight of taxation which we so freely, so glibly and in such a laughable and joking way put on to the shoulders of our constituents.

I should like to remind the Chancellor of what he himself said during the Committee stage of the Bill. On 15th June he said: In all this controversy as to whether taxation has this or that effect, strange to relate, although I occupy the high post of Chancellor of the Exchequer, I regard taxation as a necessary evil, but an evil. He went on to say: …Had there been more money to spare, I do not think that it would have been immoral to reduce taxation…"—[OFFICIAL REPORT, 15th June, 1954; Vol. 528, c. 1816–7.] It is on that point that the two sides of the House differ. We on this side agree with the Chancellor that it would not be immoral to reduce taxation, but a very good thing to do so, and the more he could do it the better we would be pleased. There is a cleavage between the two sides of the House on what is included in this Bill. Hon. Members opposite seem to think that taxation is good in itself and the more they can pile it on to private citizens, the better. [HON. MEMBERS: "No."] We take the opposite view. Therefore, I plead with the Chancellor to reduce, in so far as it is possible, not only indirect taxation but also direct taxation, because I still believe, despite what the Royal Commission on Taxation said, that the present rate of taxation does act as a disincentive.

Finally, I should like to make this point. Under the present Bill, Income Tax is 9s. in the £. When the present Prime Minister was Chancellor of the Exchequer, it was 4s. Surtax today is 10s. in the £; then it was 6s., although the limit was not reached until £30,000. whereas today it is reached at £15,000. The total taxation imposed in this Budget is £4,533 million, whereas when the present Prime Minister was Chancellor it was only £753 million. The direct taxation, under Clause 14, amounts to no less than £2,384 million, as against £406 million.

Mr. H. Rhodes (Ashton-under-Lyne)

Is the hon. Member aware that he is boring us stiff?

Mr. Osborne

Despite the fact that I am boring the hon. Member stiff, I propose to continue what I have to say. This was once a free House—[An HON. MEMBER: "It is not a tied House."]—and Members were not paid extra to come here. This was where men came to protest against the taxes that were imposed on their constituents. Hon. Members opposite may think it is funny that they are imposing heavy taxes on their constituents; I do not think so, and I am going to say so. I hope that the hon. Member will go back to Lancashire and say that it bored him stiff because some-one was protesting against high taxes.

Mr. Rhodes

It is the hon. Member's side which is proposing them.

Mr. Osborne

It is boring the hon. Member stiff because I am protesting against them.

This is what the Prime Minister said when he was Chancellor of the Exchequer, and I commend it to all sides of the House. He was talking about the desirability of reducing taxes, which then were only a quarter of what they are now. Therefore, if what the Prime Minister said then was true, it is much more true today. Talking about the removal of tax burdens, my right hon. Friend said: That is a course along which we are entitled to proceed hopefully, endeavouring to lighten the burden of taxation "— [Interruption.] Hon. Members opposite may laugh at this, but if they think that the possibility of reducing taxation is so ridiculous that in their idea taxation is never to be reduced, I hope that they are never returned to power. The then Chancellor of the Exchequer said—and I hope hon. Members will listen to these words: …and reducing the amount of money at the disposal of the Exchequer as much as we can, and using the shortage of money at the disposal of the Exchequer as a greater reason for enforcing economy on all Departments of the State."—[OFFICIAL REPORT, 27th July, 1928; Vol. 220, c. 1707.] That spirit has been lost, and all that we are doing today is jeeringly and cheerfully putting burdens on to our people as though we were doing them a favour. Against that I wish to make my personal protest.

6.43 p.m.

Mr. Hugh Gaitskell (Leeds, South)

I do not propose to follow the hon. Member for Louth (Mr. Osborne) into the mass of contradictions and irrelevancies into which he got himself tangled. The trouble with the hon. Member is that he never understands why we react as we do on this side of the House to what he has to say. If he would study the faces of my hon. Friends a little more, he would be clearer as to the reasons that they object to or criticise what he has to say. I was very glad that my hon. Friend the Member for Ealing. North (Mr. J. Hudson) was not in the House when the hon. Member made his astonishing reference to a "free house." I do not know how much longer we should have been kept had my hon. Friend been present. No doubt, however, Mr. Speaker would have intervened.

The Third Reading of a Bill is, as we know, heavily circumscribed by the rules of order, and I suppose it is that which generally makes it a rather quiet debate. Certainly, so far as this Bill is concerned, throughout most of the Committee stage we were endeavouring from this side to introduce new elements into the Bill. Having been foiled in that attempt, we now can only discuss what the Government have chosen to allow to remain in the Bill, which, of course, is a more limited field. However, it may also be that the fact that the Bill was thoroughly discussed in Committee has made it rather harder for us to think of new things to say. I was glad that the Financial Secretary paid a deserved tribute to the shrewd and penetrating analysis which the Bill received in Committee from both sides.

There were moments when we were a little alarmed when the sinister shadow of the Patronage Secretary was seen to be hovering around, when an effort was made to hustle and bustle us along a bit faster. At one point the Chancellor of the Exchequer himself gave up his accustomed calm and became a little irritated, but he regained his temper very quickly and I am glad to say he withstood the pressure coming from the Government Chief Whip, and that we were able to finish the Bill in a reasonable way.

It is a nice custom that in the Third Reading debates we are allowed to pay each other compliments. I am sure that you will be lenient, Mr. Speaker, so far as the rules of order are concerned, so long as they are compliments. My hon. Friend the Member for Stechford (Mr. Roy Jenkins) has already done very well so far as the back benchers on the Government side are concerned. He put them into their various classes and told them exactly what they are and what they have been doing all these weeks. I propose to make a few friendly comments about the Government Front Bench.

Mr. Gerald Nabarro (Kidderminster)

Hear, hear.

Mr. Gaitskell

I am glad to know that the back benchers on the other side are relieved.

Almost the whole of the burden of the Bill has been carried by the Chancellor of the Exchequer, the Financial Secretary and the Economic Secretary. They will appreciate that it is no complaint of mine when I say that we sometimes think that it would have been nice to have had some other Minister intervening. There was one point at which we nearly got the Minister of State, Board of Trade, on to his feet, but, unhappily, the Chancellor walked in at that moment and, metaphorically speaking, gagged him. We also hoped that the Joint Under-Secretary of State for Foreign Affairs might have joined in, but he also was kept firmly in his place.

However, the Solicitor-General has intervened once or twice; and I want at once to come to his defence. My hon. Friend the Member for Islington, East (Mr. E. Fletcher) was perhaps a little critical of the Solicitor-General's custom of reading out the wrong brief to an Amendment. I want to tell the Chancellor of the Exchequer not to discourage his right hon. and learned Friend. It enlivens the proceedings if every now and then the wrong brief is read out. It is true that we shall, as is our duty, point it out, otherwise there would not be any enlivening feature. But let the right hon. and learned Gentleman continue in that course, and I think it will greatly assist the good feeling in the Committee.

I will say a word or two about those who have borne the burden and heat of the day. I certainly endorse what my hon. Friend the Member for Islington, East said about the Financial Secretary. He was most painstaking, thorough and courteous throughout the proceedings. I am glad to see that he now looks a little better fed than on some occasions during the passage of the Bill. He has relaxed, to use the favourite expression of the hon. Member for Altrincham and Sale (Mr. Erroll). I do not know whether he is thoughtful as well, but probably he is not now because he does not have to speak any more on the Bill.

The Economic Secretary has also given us very good measure at times. He has had to deal with complicated Amendments. Even if I have not followed everything that he said, it looks as though one ought to be able to understand it when reading HANSARD afterwards. We are sorry that the hon. Gentleman is not with us this afternoon. I trust that he is not ill, but is engaged on important Government business. The Chancellor has been his usual bland and friendly self, and although we certainly have no reason to thank him for making concessions—he has made far too few—he has always rejected our proposals in a pleasant and amiable way. I suppose one cannot expect very much more from any Chancellor of the Exchequer.

I thank the right hon. Gentleman for the firm fight he has put up against the Leader of the House, who I am glad to see present. We have not seen much of him, but we know very well that he has been active in the background, egging the Chancellor on to go faster all the time. But the Chancellor has been stubborn and has represented the views of the Committee to the right hon. Gentleman, and I am glad to see that the Leader of the House has obviously been foiled in his desires.

I should like to say a few words about those who have taken part in these proceedings on this side of the House. My hon. Friend the Member for Islington, East and by hon. and learned Friend the Member for Kettering (Mr. Mitchison) have done noble service both in the drafting of many Amendments and in many contributions to our debates. They have a remarkable capacity for speaking with almost no notice at all on any subject, and, at the same time, speaking very much to the point.

Then there are my hon. Friends the Member for Stechford and the Member for Gloucestershire, South (Mr. Crosland), who have been wrongly referred to as the two Balliol boys. I am not quite sure whether they fell within the category of the middle classes as explained to us by the hon. Member, but they have been a tower of strength to the Opposition. I think they were very reasonable in not making more trouble about the insulting remarks thrown out by the hon. Member for Louth, which might have led to serious controversy between them, since only one of them comes from Balliol and the other one is associated with a college which is known for its fierce hostility to Balliol. It is just as well that we had not the scene that that sort of thing would arouse if it were said in Oxford itself.

My hon. Friend the Member for Edmonton (Mr. Albu) and my hon. Friend the Member for Sowerby (Mr. Houghton) have also played a very valiant part in these debates. As the hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond) said, my hon. Friend the Member for Sowerby is in an unusually strong position; but he is a person who tempers his opposition with mercy and is not too offensive to the Government Front Bench, even though be knows quite a lot about Inland Revenue.

As for the Opposition Front Bench, I am sorry that my right hon. Friend the Member for Battersea, North (Mr. Jay) is sweltering in the Brazilian jungle—if that is what he is doing—and is not here to enjoy these proceedings. He is a well-known and successful figure in finance debates. But my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) has graced our proceedings and made most important contributions.

I hope that my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) will not mind me saying that he has been in particularly good form. He made a number of trenchant and well thought out speeches in excellent English and they were dear and penetrating. He is in the fortunate position of being the only Member on these benches who has extracted a concession from the Government, and we envy him for that. I may perhaps now turn to the Bill, for I observe, Mr. Speaker, that you are looking a little anxiously at me.

Mr. Speaker

If the right hon. Gentleman has really finished with his compliments there is still time for him to say a few words about the Bill.

Mr. Gaitskell

I am much obliged to you, Sir, for not intervening until I had finished, because it would have been a great pity had I to leave anyone out. It might have led to a lot of jealousy on both sides.

Briefly, I will say this about the Bill. There is not a great deal in it to which we take strong exception. In fact, our main criticism is reserved for some of the Estate Duty provisions, and particularly Clause 28, which makes this unnecessary concession to the so-called small businesses. I do not propose to repeat all the arguments, but the answers from the Government side of the House which have been made seem to justify our criticism of their determination to ignore the conclusions of the White Paper on Small Estates. There seems to be no case there at all for what was done.

We know also of the justifiable indignation on this side of the House at the concession which the Government made in the face of back bench pressure on the question of aggregation I hope that after the debates we have had we will hear no more from anyone on the Government side that this concession was for people of limited means. The Government ought to come clean about it. Let them be frank and say that the people who are to get the benefit are the people with large estates, and by that I mean with estates of over £10,000. That is bound to be the case. One has only to look at the Estate Duty scale to see that it will be these people who will get the benefit of that particular concession.

There are wider issues involved here which have been referred to in the course of our debates. I endorse what my hon. Friends have said about the interest hon. Members on the Government side have taken in this Estate Duty business. They turned up in force for consideration of the Clause in question. There were far more Government supporters present when that Clause was under discussion than there were for any other Clause in the Bill. They are very interested in the subject. There is no reason why they should be ashamed of it, but that is a fact.

They protest that they are in favour of the equalitarian tendency, and I dare say that there is not a right hon. or hon. Gentleman on the Government benches who would not say that he was in favour of equality of opportunity. But the plain fact is that so long as wealth is inherited on the scale that it is still inherited today and distributed in such an uneven fashion, then we shall not have genuine equality of opportunity. To cut short my remarks on this, I should just like to commend to hon. Members opposite a book which my right hon. and learned Friend the Member for Bishop Auckland (Mr. Dalton) wrote on this subject many years ago, and which is still the best available book on the subject, "The Inequality of Incomes." I hope they will all read it and understand, as a result of reading it, how hopelessly inconsistent their attitude is on this matter.

Mr. Erroll

Unfortunately, it is out of print.

Mr. Dalton

It has not been out of print since it was first published in 1920.

Mr. Gaitskell

That removes the last possible excuse that hon. Members opposite may have. There is no question of the hon. Member for Altrincham and Sale going to the Library to borrow a copy. He can buy one.

I come now to Clause 14, which is concerned with Income Tax. We were all most interested by the reference of the hon. Member for Altrincham and Sale to business executives, and I noticed that several hon. Members were touched by the tear-jerking account of the situation in which those people find themselves. I am bound to say, however, that I felt there was a little element of fantasy in his description of what actually is happening and also what he supposes might happen if there were to be large tax concessions.

A little ludicrous was the idea of business executives with aprons on scrubbing or washing the floors or washing up the plates while longingly thinking of the hours they might be spending sitting in an armchair, not reading Dryden, as was first supposed, but thinking of their businesses. That is what the hon. Member said they otherwise would be doing instead of washing up the plates.

But I am not so sure that one cannot think about business as one washes up. I do not think that that is their real difficulty. If the hon. Member had argued that they had a lot of intellectual work to do in the evenings, like Members of Parliament, then he would have been advancing a much better argument. I must say that the whole picture seemed to me a little unreal. Anyway, I always understood that the tired businessman usually had other interests.

I want to say a word or two about investment allowances. I was glad to hear the hon. Member for Orkney and Shetland say that he did not think that the Government were doing enough to regulate investment. He thought it was not going in the right amount in the right direction and I welcome strongly his good Socialistic planning. If he really believes that investment ought to be directed and planned by the Government, as he clearly implied, there is no reason at all why he should not join us in the Lobby more frequently than he does at present.

The hon. Member for Altrincham and Sale took the view that a straight cut in the standard rate of Income Tax was better than an investment allowance. I think that point has been admirably dealt with already, and I just want to tell the hon. Member that there is no doubt that if stimulation for investment is wanted then it is best done by a direct stimulus.

I can assure the hon. Member for Handsworth about our attitude on the matter. He must be aware that we have, in principle, accepted the investment allowance and given it strong support. I was glad to see him looking in our direction with an anxious eye when he spoke about future Chancellors of the Exchequer, and when he hoped that they would have the same views. It is just as well that he should be thinking now about the change of Government which will doubtless come in the near future. I can assure him that, if this comes about, he need have no serious anxieties. Naturally, one cannot commit oneself because one does not know the full circumstances but, in general, we take a favourable view of the investment allowance and we hope that it will do the trick.

I could not quite follow the Financial Secretary on that point. The right hon. Gentleman seemed to think it surprising that we supported the investment allowance although he was glad that we did so. Surely he will appreciate that we did the same last year. We have been saying that as soon as the immediate pressure for rearmament has eased sufficiently there ought to be special encouragement to investment. Indeed, many hours were spent last year on our part in pleading that the initial allowances should be increased, We are perfectly holiest about this, and when the Government come forward with a proposal of which we approve, we say so. The hon. Gentleman must not think back in terms of the way he used to behave when on the Opposition benches.

We now come to the end of this Bill. For the most part our proceedings have been orderly and have been conducted in a reasonably friendly manner. Of course, there has been hard-hitting argument in our debates, as there should be. I cannot say that we are particularly pleased with this Bill. We are much more concerned with what is not in it, which I must not mention, than with what is in it. So I will leave it there, and if by any mischance the right hon. Gentleman or one of his colleagues—I do not mean him personally—is Chancellor of the Exchequer next year, I hope we shall have a Bill which is more adequate to meet the needs of the country.

7.2 p.m.

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

As the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) has said, we have come to the end of our discussion. I was interested in his prize-giving manner and would recommend the academies in need of a genial outsider to give away the prizes to make application to the right hon. Gentleman. In fact, from the purring sounds around him, which are still continuing, he may feel that his activities today augur well for his future political career. I think he was quite right to name only one book as a prize and so to keep firmly to his side the right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), but if all the children have the same book, what a very dull prize-giving it will be.

I shall not follow the example of the right hon. Gentleman, Mr. Speaker, for fear of your intervening, but he was quite right to pay a tribute to my right hon. Friend the Financial Secretary and to my hon. Friend the Economic Secretary, who have borne the burden of the day for the Government. I am glad that after the end of rationing my right hon. Friend is looking a little fitter than he was.

I want to pay a tribute to my supporters and thereby to fortify my own position from continuing pressure from the 1922 Committee. I understand that I have several further meetings with them before the end of the Session, so the less I say about my own supporters the better, except that they have taken a very constructive part in our debates, and I only hope that any of them who wished to speak on this occasion may not have been cut out by the exigencies of time.

I also want to pay a tribute to one section of the population and their work, namely, the local commissioners of Income Tax. These are unpaid public servants who perform a task of great importance in the smooth operation of the taxation system by their help in the administration of Income Tax, and especially in the determination of appeals, in which they are of great help to us. It is in the best British tradition that such unpaid residents in a district should help us, and I do not think it is inappropriate for the Chancellor of the Exchequer from time to time, when we are remembering all those around us, to remember this section of the population.

Now I come rather more rapidly than the right hon. Gentleman to the Bill. The arguments of the Opposition have revealed, as they have really acknowledged, that they have nothing to say about it. Indeed, it is a recommendation of the policy of Her Majesty's Government, in introducing a Measure of this kind, that we are able to sustain our case over such a period with such absolute success. As my hon. Friend the Member for Handsworth (Sir E. Boyle) and my hon. and gallant Friend the Member for Berwick and East Lothian (Major Anstruther-Gray) have said, there is nothing, either in the confidence in our financial and economic affairs as seen from the world outside or in the progress of our economy internally which other than justifies the introduction of a Finance Bill of this kind, based on a Budget of the kind we have had to introduce this Session.

If these were dull, they were certainly successful, and they were the right thing to do for our people, because it is the fundamental aspect of our affairs which most interests the working people of this country, namely, their employment, which now stands at a record level of employed persons in our history: their production, which now stands at a record level in our economic history: and the general outlook for confidence and in sterling which I think have seldom stood higher in our island story. These are, therefore, not bad situations, and it is in this atmosphere that we introduced this Budget, it was to this atmosphere that the Budget was attuned, and it is in the hope that this progress will continue that we pass the Third Reading of the Finance Bill today.

I should be out of the order if I entered any further into the economic situation, but in answer to the hon. Member for Gloucestershire, South (Mr. Crosland), who has a special, intimate knowledge of our economic affairs, I will only say this about our resources: that with this high level of employment we are now working more up to our resources than we were a few months ago, that since the index of industrial production has risen we shall have to look for further progress to increased productivity, and that this is of the greatest importance to the country at the present time.

Our exports have risen. In general there are no marked shortages but we are certainly running now up to full load, and therefore it is important for all concerned in passing the Finance Bill today against the background of our economic situation to realise that further productivity, particularly in coal, is of the utmost importance to the future of our economy. In passing this Finance Bill, therefore, we should not sit back with satisfaction. We should be thankful that we are living in a period of comparative prosperity compared with things that we have been through in the past, but we should make further efforts if we are to sustain the advance already made.

I have only one or two observations to make about the Bill. The first is in answer to the hon. Member for Islington, East (Mr. E. Fletcher) who brought to the concluding stages of the Bill as much clarity and ability as he brought to its intervening stages in Committee. However, the hon. Gentleman fell, like most of his companions on the opposite side of the House, into a real difficulty about concessions. He first said that we had made no concessions and then he said that we had paid attention to representations made in previous years by hon. Gentlemen opposite. In fact, two concessions—the concession to the cinemas, which I think so essential, and the concession on company reconstruction—were the result of cogitating upon points put in previous debates.

One was an important concession to the point of view of the right hon. Gentleman the Member for Bishop Auckland, and the acceptance of the Amendment of my right hon. Friend the Member for Blackburn, West (Mr. Assheton) was also valuable in the general picture. So we did attempt to listen; we may not have done very much, but if those examples of concessions made this year as a result of previous discussions are to be followed in the future, hon. Members may have a little more hope than they have had in the course of the debates this year.

I must mention that this Bill does not contain many points referred to in the Report of the Royal Commission, and therefore I have not been able to refer to them in the course of our discussions, but they have all been noted in the debates leading up to this Bill.

My hon. Friend the Member for Southport (Mr. Fleetwood-Hesketh) made a very valuable intervention in our debates and I felt that he very nearly convinced the right hon. Gentleman opposite on the subject of Command 8295, "Estate Duty and Family Businesses." In any case, even if he did not, he made a good speech. I do not accept the arguments of the hon. Member for Edmonton (Mr. Albu) about 99 per cent. of old traditional businesses now not being practical, and he used the word "nepotism" in association with their management. I think that that is a most exaggerated picture. If a family business is a bad one and the family declines and decays and indulges in nepotism, the business goes to ruin, but it is by no means the case with this country that it owes its greatness to novelty in one generation. It owes its great degree of development and prosperity and most of its originality to the fact that we are in the habit of taking what we can from the traditional past, enriching it in the present and handing it on to the future.

That is the object of the concessions which I have made, small though they are, in the Estate Duty field. Hon. Members will remember that I promised last year to study Estate Duty and do what I could in a small way, which is precisely what I have been able to do on this occasion.

My hon. Friend the Member for Altrincham and Sale (Mr. Erroll) dealt with the investment allowances and asked that a warning be given if the rate was going to be altered. My chief answer is that I am certainly not contemplating anything of the sort of alteration that has been done in this field before. I would only remind him that when initial allowances were suspended, warning was given that that would take place and that in the case of ships already ordered or under construction special provisions were made. I cannot do better than say that such a respectable precedent would certainly be considered in the event of any alteration of the rate taking place. But we should look a little further and regard this not as an ephemeral matter but as one which has come to fortify the general system under which we wish to encourage industry.

There was some degree of novelty in this kind of allowance, but as the Financial Secretary clearly put it, the fact that it has been so widely received and accepted in the House will mean, I trust, that industry will take advantage of it because, as I explained in the Budget, the weakness of our economy last year was the non-improvement of investment in the private sector, particularly manufacturing industry. It is in the national interest that Ministers should not only state what is wrong but—and it is an essential feature of my task at any rate—that they should try to put things right and that people should take advantage of their efforts and thereby play their part in the national improvement. I hope that that will he the case with investment allowances. If so, they then may be able to show some such improvement in the figures as the hon. Member for Orkney and Shetland (Mr. Grimond) illustrated has been shown in the public sector, in coal and elsewhere.

There has been a certain controversy about taxation—whether it is good or bad. My hon. Friend the Member for Louth (Mr. Osborne) has made quite clear what views I have on the subject and I will not rehearse again the arguments which I have used before. We, of course, are carrying forward what I said in my Budget Speech was our task, namely, that we must attempt so to control Government expenditure that the outlook in respect of taxation can be better on future occasions. But when hon. Members say that we might have done better than we have done, and the hon. Member for Orkney and Shetland says that we have produced only a small surplus and the national account is only just balanced, hon. Members must remember that we are carrying the biggest load in our history in defence and in the social services, and we have special arrangements for food and agriculture which I think are supported broadly by all parties. If we are to carry these burdens one cannot expect Finance Bills which will give us very much more Agreeable concessions than this one gives. The more the public realises this fact the fairer things will be, but we must certainly attempt to tackle this question of taxation, and we are doing our best to tackle the question of expenditure.

As long as people, both in the House and outside, do not expect wonders, we shall continue to do our best, but there are no miracles in an age when we are carrying a burden of this sort. We should only be thankful that we are seeing to it that we have national security, that we have retained an improved social security, and that we have tried to give a little hope, which I think has been reflected in the atmosphere of our agreeable debate this afternoon.

Question put, and agreed to.

Bill accordingly read the Third time, and passed.