Clause 13.—(CHARGE OF INCOME TAX FOR 1954–55.)

HC Deb 15 June 1954 vol 528 cc1751-821

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

3.48 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

On this Motion we have the only opportunity during the Committee stage to consider the general principle of direct taxation as it will apply in the forthcoming year. This, of course, raises important and general questions, and I am sure that the Committee will not wish to part with this Clause without considering them in some detail. I was somewhat surprised that there was only one Amendment to this Clause on the Order Paper, that standing in the name of the hon. Member for Orkney and Shetland (Mr. Grimond), and that we did not have any Amendments from hon. Members on the Government back benches seeking a straight reduction in this year's rate of Income Tax. That is in contrast to what we have had in previous years.

It has been a general feature of our debates during the Committee stage of the Finance Bill to have Amendments moved from the back benches opposite seeking a reduction in the standard rate of Income Tax and using those Amendments as a peg upon which to base a general attack upon the whole level of direct taxation. I am sorry, for the sake of an interesting debate, that we have not had that this year.

In 1952, for instance, when the Government had been in office about a year, we had a good deal of that type of talk from the other side of the Committee. On the Committee stage an Amendment to reduce the rate by 6d. was moved by the hon. and gallant Member for South Angus (Captain Duncan), whom I am glad to see in his place. Today, of course, he might say that he has now had the reduction of 6d. for which he asked then, but I think that he and many of his hon. Friends will agree that in fact what they wanted was a good deal more than a simple, straightforward once-for-all reduction by 6d.

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

The hon. Member must realise that there are times for doing things and times for not doing things. We did it at the right time, and if he waits until next year we may do it again.

4.0 p.m.

Mr. Jenkins

I am sure that his Chief Whip would certainly agree with the hon. and gallant Member, whether I do or not. In the 1952 debate on the Finance Bill we had an extremely strong statement from the right hon. Member for Blackburn, West (Mr. Assheton). He certainly expressed the view that there would be a very substantial reduction in the direct rate coming along in the not-too-distant future. He said that he earnestly hoped that before the Government reached the end of their allotted span—and he had no idea how long that span would be—Income Tax would be reduced to 7s. 6d. in the £. However optimistic a view the right hon. Gentleman takes about his party's chances, he must agree that we are at least moving along towards the end of that allotted span, and I should have thought that he might have expressed disappointment in some Amendment on the Order Paper at the fact that there is no further move towards 7s. 6d. this year.

In 1952, too, at the Conservative Party Conference, some extremely strong views were expressed upon this question of the general rate. The hon. Member for Dover (Mr. Arbuthnot), whom I also see in his place, moved a resolution or an amendment at that conference which sounded very like a vote of censure on the Chancellor of the Exchequer. He put the view quite strongly that in 1952—let alone the present time, when apparently we have made great economic progress—a cut of 2s. in the standard rate was perfectly possible. He was supported in that debate by the former Member for Haltemprice, who is now Lord Coleraine, and also by the hon. Member for Farnham (Mr. Nicholson). The hon. Member for Solihull (Mr. M. Lindsay) also took part and wrote extremely strong letters in the Press. That was when the present Government and the present Chancellor were in office.

Whilst my right hon. Friends were in office, of course, the campaign on this front was even stronger. If one looks back to the 1951 debate on this part of the Finance Bill, one finds that the right hon. Gentleman who is now Secretary of State for the Colonies, who is always in the forefront when it is a question of using rather exaggerated language, had some very sweeping things to say about the rate of Income Tax which we then had to bear. He said: It is hard nowadays to get lawyers to take briefs, to get doctors to take out appendices, for directors to take on new commitments, managers to take new responsibilities, or anyone else to make any effort at all."—[OFFICIAL REPORT, 6th June, 1951; Vol. 488, c. 1154.] I can only imagine that all these hon. and right hon. Gentlemen whom I have mentioned as having taken a very strong line on this issue in previous years have been converted and have changed their minds as a result of various specific statements on this issue and the relationship of incentive to a high level of Income Tax which were made in the recent interim report of the Royal Commission on the Taxation of Profits and Income.

I imagine that they have all read this Report, coming from an impartial and august body, and having read it they have decided that they were wrong in the past and so would not trouble us this year with any Amendments. As my right hon. Friend the Member for Battersea, North (Mr. Jay) reminded us to some extent on the Second Reading of this Bill, this intermediate Report, which was unanimous on this matter and accepted by all members of the Royal Commission, constituted a very direct and complete refutation of what we have been hearing for years past from hon. Members opposite, because the Commission said quite clearly and distinctly that the relationship between incentive and direct taxation, which we had been told existed, did not in fact exist in anything like that form.

I should like to remind the Committee of the specific statement on this point which was made by the Royal Commission. It said: We are led therefore by all the evidence we have received to the conclusion that, so far as wages are concerned,"— I shall come to other forms of income in a moment— the economic effects of the tax system and its influence on work and output are much less important than some of the witnesses have supposed.… We see no evidence that the higher income earners are specially affected by disincentive. … That, it will be agreed, is in direct contradiction to the premises upon which have been based most of the arguments from the opposite side of the Committee for many years past.

I hope that if hon. Members opposite take part in the debate they will tell us what they think about that statement by the Royal Commission, whether they accept it and if they do not accept it, why they disagree with it, and what impartial evidence they have to set against that which the Royal Commission received and which made them come to an entirely different conclusion. Unless hon. Members opposite do that, it will be clear, as we have long suspected might be the case, that their attitude on this question of direct taxation is based far more on prejudice and party dogma than upon any appraisal of the facts. I hope, therefore, that we may have that position cleared up.

What is the position of myself and my hon. Friends on this question of direct taxation? We certainly do not like a high level of taxation, direct or indirect, for its own sake. It would be a great mistake indeed for any hon. Member to run away with the idea that we do, but we recognise that there are financial burdens which have to be met by any Chancellor at the present time and that much of the case which has been made against direct taxation in the past is grossly exaggerated. We believe that it is no good deploying an often exaggerated case against direct taxation unless it is clearly stated by what alternative and less objectionable means the revenue which is necessary can be raised.

As an example of this exaggerated case against direct taxation, I should like the Committee to consider one proposition which is advanced a good deal in business circles and of which no doubt we shall hear something this afternoon. It is the view that, if investment in the private sector of industry is somewhat disappointing at the present time, it is largely because the level of direct taxation—I refer to Surtax as well as to Income Tax—is such as to discourage those who are in highly responsible managerial positions in industry from taking the risks involved in a high level of investment. I have no doubt that that point of view is accepted by hon. Gentlemen on the Government side of the Committee. It was certainly put forward the other night in a broadcast discussion in which my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) took part—not, I hasten to assure the Committee, put forward by my hon. Friend—by Mr. S. P. Chambers, who at one stage certainly had a great deal of experience in the work of the Inland Revenue when he was an official of the Inland Revenue, and who is now the deputy chairman of Imperial Chemical Industries. He was arguing very strongly that, in considering the whole question of the level of investment in private industry, it was not sufficient to consider the level of company taxation but also the level of Surtax bearing upon the individuals in their individual capacity who were taking decisions not to go ahead with investment.

I find it very difficult to accept that point of view. If it were accepted it would be an extremely worrying thing for both sides of this Committee. Let me consider first of all whether that point of view is likely to be correct. It is probably common ground between us that large companies make up the biggest slice of British industry—although the small companies play a large and important part—and that most of the people who are now taking the entrepreneur decisions are salaried managers or directors and not people who have the traditional private incentive in the sense that they themselves own a very large part of the equity.

I find it difficult to believe that people in that position, when deciding whether or not to go ahead with an investment for which there is a good economic case and which the Chancellor of the Exchequer would be anxious to accept, are held back not by taxation upon the company but by the fact that they themselves have to pay a certain amount of taxation when they get their monthly pay packet. That is a very far-fetched argument, and I should like to hear the views of Members opposite upon it.

Suppose it were accepted as being the case; what does it mean? It means that it is impossible to have, as we have tried and as the Chancellor of the Exchequer is still trying to have, a situation in which a very large part of industry is privately owned and subject to private decisions, accompanied by a high level of redistributive taxation and by a high degree of Government expenditure upon defence and welfare services, which account for the bulk of Government expenditure.

It means that one would have to make a definite choice between settling down to a low and disappointing level of investment in the private sector of industry and making a firm decision to abandon the present degree of redistributive taxation and the present degree of welfare services. The Chancellor and some of his hon. Friends would find themselves in a dilemma when they had to make that difficult choice. Therefore it is foolish for hon. Members opposite and for leaders of industry to argue too strongly that we cannot get the degree of investment in private industry which this country must have without going back to a level of taxation which everybody who seriously considers the position knows is quite impossible at the present time without bringing about a very difficult situation.

My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) and others have reminded the Committee during the debates on this Finance Bill that in the past year and in some respects for a number of years, we have had a high and fairly satisfactory level of investment in the nationalised industries. There might be argument about the level of investment in certain nationalised industries, but I do not suppose that anyone could argue that the level of investment in the national electricity industry has not been fully adequate in recent years. Some people might say that it was a good deal too adequate. After all, salaried officials like Lord Citrine are just as subject to the disincentive effect of a high rate of Surtax as anybody in private industry.

If it is argued that private industry cannot do its job because its managers pay a high rate of Income Tax and are so discouraged that they sit in their offices unable to think of investments or to summon up the will-power to make investments even if they can think of them, why is it that in the nationalised industries, and particularly in the British Electricity Authority, we have a rate of investment which might almost be considered excessive? Hon. Members who support the Government might well apply themselves to dealing with that point.

We ought on this Clause to have some statement from the Chancellor of the Exchequer of his views on the general principle which underlies the amount of the Budget which he meets from direct taxation and the amount which he meets from indirect taxation. I do not suppose that he is any worse a sinner in this respect than some of his predecessors, but I think there is very little principle and a good deal that is haphazard in deciding how much is to be raised in direct and how much in indirect taxation. Perhaps it is more important that the right hon. Gentleman should face this problem than that my right hon. Friends who preceded him should have done so, because in the right hon. Gentleman's three Finance Bills he has very substantially altered the balance away from direct and towards indirect taxation. I do not know the exact figures, but there can be no doubt that over the three years during which the present Chancellor has been in charge of the Treasury the percentage of the Budget raised in indirect taxation has increased substantially. In making this very important change, the right hon. Gentleman should give some indication of the principles which are guiding him, how far he would like to see this development continue, whether he wishes to push it further, and what arguments are actuating him in making this very important division between the levels of direct and indirect taxation.

Speaking for myself, and probably for some of my hon. Friends, I do not think that the present direct taxation structure is perfect. The Royal Commission torpedoed many of the general arguments which we have heard so frequently in the past from Government supporters, and it put forward a great number of interesting and constructive proposals, some of which come from the majority Report and some from the minority Report. I hope that the Chancellor will consider this matter really carefully. The point of general principle underlying the proposals for change put forward from both sides of the Commission which commands my support, and I think that of most hon. Gentlemen on this side of the Committee, is that the family man at almost all rates of Income Tax is over-taxed as compared with the single individual. We would welcome proposals which corrected it.

I think it is also important that we should bear in mind that proposals designed to correct that position, which as I said, applies at all income ranges, should be compensated for in the sense that if the middle or small Surtax payer with a number of children is helped, it should be done, not at the expense of the community as a whole, which would have been the difficulty of the Amendment of the hon. Member for Orkney and Shetland, had it been called, but at the expense of the single individual in that particular taxation range. In other words, if that redistribution could be carried out it should be redistribution between different individuals, according to their family responsibilities, in particular ranges of income and should not be used as a sort of back-door to carry out redistribution between different income groups.

Many of us would welcome the remission of taxation in respect of small Income Tax payers at the bottom end of the scale. A great number of individuals in this country pay a small amount of tax, and without doubt the administrative cost of getting that tax from them is very substantial. One would prefer to see remission of taxation directed towards relieving increasing numbers of those people from the burden of Income Tax altogether rather than remissions in the general direction in which the Chancellor has proceeded in previous years.

Mr. Ralph Assheton (Blackburn, West)

The Committee always enjoys listening to the speeches of the hon. Member for Stechford (Mr. Roy Jenkins). His argument is always close, and his presentation always most agreeable.

I listened to the discussion he referred to which took place on the wireless between the hon. Member for Gloucestershire, South (Mr. Crosland) and Mr. Paul Chambers. I very seldom have the pleasure of listening to debates on the wireless because we are almost always here when they take place, but as I say, I was able to listen to that one and I found it a most interesting discussion.

Before I come to my main points, I should like to interject one suggestion in answer to the point which the hon. Mem- ber for Stechford has just made. He asked why it was that those in control of nationalised industries were so much more ready to invest, than those in charge of private industry. Mr. Chambers had suggested that high taxation was a disincentive which had an effect even on the salaried employees of large businesses. I suggest an additional reason.

I would put for the consideration of the hon. Member for Stechford the suggestion that the nationalised industries have the great advantage of being able to obtain their money with very little trouble and with the interest guaranteed by the Treasury. That makes a tremendous difference to one's approach to investment, if one is thinking about investing money for industry.

Mr. Roy Jenkins

Obviously that makes a very substantial difference in the case of obtaining money as between public and private industry, but I am not clear why it should make a difference between the two sectors of industry when in both cases the money is available and in one case the decision is to go ahead and in the other it is not.

4.15 p.m.

Mr. Assheton

I heard the argument which the hon. Member for Gloucestershire, South put forward so well, and I heard the reply of Mr. Chambers. I believe the difference of opinion there is a matter of psychology. I find it difficult to explain to hon. Members opposite exactly what is the underlying cause; it is a psychological cause, not easy to put into words. But the fact that one has not to pay a high rate of interest and has no difficulty in finding the money makes a tremendous difference from the point of view of a businessman.

I do not wish to make a speech dealing in detail with current rates of Income Tax and Surtax. I have often expressed my views on this matter, and I should like to tell the hon. Member for Stechford that I have not changed them in the least. I still think that the current rates of Income Tax and Surtax are much too high for the true well-being of this community, and I shall continue to think so.

I should, however, like to give some reasons apart from the reason of incentive, to which perhaps more attention has been given than need have been. Incentive is a very important point, but not the only one. My objections to high taxation go a great deal wider than the question of incentive. There was a time when the sole object of taxation was to raise revenue to meet the expenditure of the State. It is a long time since we passed that stage.

Taxes are now raised for a variety of reasons. The principal other reason, which has for a long time been regarded by many people as a sound one, is to redistribute income and shift wealth from the richer members of the community to the poorer ones. There are other reasons in connection with tariffs, protection, etc.

The redistributive system began with the Lloyd George Budget of 1909, and it has gone on pretty steadily ever since. I wish to ask the Committee to examine today how far that has gone, and what it has led us to. I suggest to the Committee, and this is a substantial objection of mine to high taxation, that it has led not so much to a redistribution of wealth but to a redistribution of power from the Individual to the State. That is the most important effect of this high level of taxation. At all events, that is the consequence of what we have done, whether or not it was the design.

Socialism, as it was conceived by its earlier prophets, was a doctrine—I hope I am not doing the party any injustice—which looked to a good society, a society in which men would have better relations with one another and a more kindly feeling towards their fellows. Very wide discrepancies of wealth were thought to be inimical to such a society, and redistribution of wealth was looked upon as one of the means of achieving that end.

Of course, the high ideals of Socialism were somewhat weakened by the doctrines of Karl Marx, based so much on envy, which I know most hon. Gentlemen opposite would entirely repudiate. Nevertheless, I think it is not unfair to say that society has become more materialistic, and its object, and the object of politicians, has become much more that of seeking after personal consumption for the individual. That seems to me to have descended not so much from a high Socialist ideal but from the utilitarian concepts of the 19th Century.

Much will be said about the question of incentive and disincentive. I still profoundly declare, in spite of all that the hon. Member for Stechford has said, that the current level of taxation is a great disincentive to effort. I do not claim that all taxation is a disincentive to effort, but the current level certainly is.

I wish to make two points. One is that taxation on incomes as we have it now is not chiefly a transfer of wealth from the rich to the poor but is largely a question of the State taking people's incomes and spending their money for them on the broad assumption that the gentleman in Whitehall knows best. The figures conclusively prove that. One has only to look at the Blue Books showing the Inland Revenue figures. It will be found that the transfer brought about by taxation is a horizontal transfer, an oblique transfer, not one from the top to the bottom. That is the way in which this great increase of power has come into the hands of the State at the expense of the individual. That is a situation which may appeal to hon. Members opposite, but which does not appeal so much to hon. Members on this side of the Committee.

The other point I wish to make is that personal incomes are much more severely treated than incomes of corporate bodies or business organisations. I think that this is an important point. Corporate bodies enjoy extraordinary preference over real people, especially in the field of taxation. The income of corporate bodies is not charged to tax progressively—thank goodness. It would be a disaster for the country if that were so. But that is a great difference, and what is more, the expenses of corporate bodies are set off against their gross incomes before their taxable income is arrived at. Those are two tremendous differences between the treatment of corporate bodies and individuals.

M. Bertrand de Jouvenal wrote an interesting book called, "The Ethics of Redistribution." I dare say that many hon. Members have read it; I am sure that the Chancellor has; and I wish to give one illustration from it. He said: It is quite incomprehensible that a breeder of dogs for the race track should be allowed his costs, depreciation, etc., while the father of a family is not. It is as if the lawmakers sympathised more with the purpose of the former, which is to sell dogs for the track, than with the purposes of the latter which gives men to society—incidentally for soldiering and tax-paying. I recommend those who wish to pursue that thought further to read his book, which will repay study.

Now may I come back to my second point, that redistribution of wealth by taxation is really a redistribution of power and not of income from the rich to the poor? In the last 40 years the fraction of the national income passing through the hands of the taxpayer has increased enormously. It is about 40 per cent. now, or even more. That is something which it seems to me it is the duty of Parliament to check, and if possible to reverse. Parliament was originally the taxpayers' front against the Executive and that front has been sadly broken. The State was very clever in breaking it by driving a wedge between different sections of taxpayers and by subjecting one section of the taxpayers to progressive taxation. That was a very cunning move.

When greater demands for taxation came along in the period of the two wars, that progressive taxation went even further. At the end of the war the State kept a tremendous amount of the taxation which it had got into its net. Nearly all of this gain, certainly practically all the gains from the wealthier section of the community, were retained and, so far from diminishing its expenditure since the end of the war, the State has increased it.

In consequence, all the time there has been a tremendous destruction of private incomes, a tremendous destruction of independent means and of the efforts of individuals. All the time more and more power has been put into the hands of the officials and managers—more and more power for them and less and less power for the individual. A new ruling class has grown up, both in industry and in the service of the State, and some of the expenditure which the private individual has to bear himself can be indulged in by them at the expense of the office or organisation to which they belong.

Today I make a plea to the Chancellor for the ordinary taxpayer, poor "John Citizen," who gets a home together and who somehow manages to keep it together; who brings children into the world and even finds some money to help to educate them to become a more valuable part of the community; who pays for his own luxuries out of his own pocket. I plead for him for the professional man, and for those with fixed incomes who are so hard pressed both by taxation and by the tremendous fall in the value of money.

For those people a reduction of taxation is the only hope, and I was glad to note that the hon. Member for Stechford bears them in mind and that he gave some hope that his party feels sympathetically towards them. At present many men, even by the hardest work, cannot increase their incomes enough to offset the continual decline in the value of money. However hard they work, they cannot catch up with it. That is a very serious situation.

I plead, therefore, for the more capable and more industrious people, the people whose ability is being recognised less and less as time goes on. I plead for the skilled craftsmen and tradesmen who see the difference between themselves and those who have little skill being constantly diminished. Above all, I plead that the taxpayers should be allowed to keep a larger share of their incomes and certainly that there should be less for the State to spend.

As we know to our cost, the State is a very careless spender. Theory may tell us one thing, but practice reveals another. I do not want to cut all taxation ruthlessly as the leading article in "The Times" today seemed to think. That is not my idea. I want to see expenditure examined carefully and more money spent by those who earn it and not so much by the State. Of course, I wish to keep up expenditure and to keep up employment and investment. One wishes the money to be used, but one also wishes to avoid all the money being channelled through the State.

Of the very vast income—over £4,000 million—which the State machine wrings out of the taxpayer, by far the greater part comes from people of very modest means. One has only to look at the figures to see that. As I say, the transfer of income is not a transfer from the top to the bottom so much as a transfer horizontally, which is just a transfer of power from the individual to the State.

We on this side of the Committee, and I believe most citizens in this country, wish to see the power of the State diminished. We certainly do not want to see it increased. The power of the State has been increasing for many years, and to my mind, and I believe in the view of all hon. Members on this side of the Committee, it is time that it was diminished.

4.30 p.m.

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

While not agreeing altogether with the right hon. Member for Blackburn, West (Mr. Assheton), may I say that he has presented a reasoned case which deserves consideration. I wish he had attributed the responsibility for the present situation to some source, but that he did not do.

I wish to protest as strongly as I can against Income Tax at 9s. in the £ being imposed on highly-skilled craftsmen and, at the same time, to plead for increased allowances for the purchase of tools, and technical books. Pending consideration of this second problem by responsible Ministers, I ask that Income Tax at 9s. in the £ should not be levied on highly-skilled craftsmen.

I have made a careful analysis of the Finance Bill. In it there are many concessions and allowances, but none for the highly-skilled craftsmen who have inherited a wealth of knowledge as a legacy from their forefathers and who have devoted their lives to industry. For years I have tried to get the facts on record, but no one has taken any notice. Today, they will go on record and unless notice is taken further action will be taken within the next few years.

I have here a letter dated 17th May, 1954, from the Minister of Labour, which enclosed a document which read: Statement showing relative level of rates of wages for adult male workers in certain occupations. Level of wages expressed as percentage rates at July, 1914, equals 100. That statement shows that the figure at present for fitters and turners is 375. It is upon the rate for those men that the rates for the highly-skilled craftsmen are determined. Other figures are: labourers, 549; agricultural workers, 667; local authority workers, 480.

The statement does not include all those relatively well placed people whose standard of living continued to improve while that of the men for whom I am speaking fell as low as the employers dared to let it between 1930 and 1933. Other figures are for bricklayers in the building industry, 441, and for labourers, 578; railway service, 394-441; and porters, 650.

I wish that I had an opportunity to place the whole of the evidence on record, but I do not wish to detain the Committee for too long. These are the bare facts. If anyone doubts what I have said I invite him to look at the reply which I received from the Minister of Labour.

"The Times" has been very good on this issue. In a leading article some time ago it set out certain main principles, the first being that the workers want the social value of their job appreciated. Their earnings should be a recognition of their relative place in life. It said that there should be a social appreciation of a person's contribution. There has been a shameful disparagement of manual labour in this country during the past 50 years, and that includes the highly-skilled craftsmen who must combine all the needs of so-called brain work with skilled manual work.

An investigation was carried out some time ago by the Western Electric Company. It was found that dissatisfaction about wages was not concerned only with the absolute amount of the wage, but with the apparent unfairness in the relative payments made. Skilled craftsmen are indignant about basic rates of wages, relative payments and their lowering status. The employers have been appealed to over 40 years to do something about it, but they have ignored the appeals. Therefore, we are forced to ask the Government to make concessions so that the skilled craftsmen who have proved by their record to be as patriotic as anyone in the country should be granted recognition.

I propose to give facts about their worsened position. I quote from the "Institute of Statistics Bulletin" for April, 1951, at page 111. It states: Wages of skilled and unskilled workers. Time rate of unskilled as percentage of skilled. This shows that in 1880 the figure for engineering was 60 and in 1930 it was 71.2; in 1940, it was 77.2 and, in 1950, it was 84.7. In 1914, the general engineering worker received 66 per cent. of the craftsman's rate. In 1950, he received 84 per cent. In Britain there is a difference of 16 per cent.; in America, 55 per cent. and in the Soviet Union, 80 per cent. Those were the figures in 1949 and I understand that today in the United States the difference is much greater in favour of the craftsman.

I propose to produce evidence later to indicate that unless the country pays heed to the case which is being stated today we shall be in a very serious position within a few years. The relative worsening in the position of our highly-skilled craftsmen and their treatment over 40 years is a national scandal. About 40 per cent. of the highly-skilled pattern-makers, the most highly-skilled craftsmen in the country, receive only £8 2s. 3d. for a full week's work of 44 hours.

This is how we started our relative worsening position. In two world wars we have been super patriotic. We have sunk our identity and our interests for the good of the country. The process started in 1914 and we have continued to slip backwards.

The Temporary Chairman (Mr. James H. Hoy)

I would call attention to the fact that Clause 13 deals with the standard rate of Income Tax of 9s. in the £. I cannot follow the hon. Gentleman's argument.

Mr. Smith

I can understand that. When I started my speech Sir Charles was in the Chair and he understood that the 9s. in the £ is being paid by highly-skilled craftsmen. I am stating the case as a protest and I am trying to show that the rate should not apply to them. I am trying to convince the Chancellor that the 9s. rate should not be applied. The Clause has a bearing upon highly-skilled craftsmen whose position is worse relatively than that of anyone in the country.

During the First World War our position deteriorated. During the two world wars wages never caught up with increases in the cost of living. Therefore, we suffered in two ways. I married in 1922 and within six months I lost 25s. a week because of the attacks made upon the engineering industry. The highly-skilled craftsmen suffered relatively more than others.

We were told that we were engaged in an unsheltered occupation. We have heard the story so often—that to meet foreign competition—and as a realist I accept this part of it—it was necessary for us to have a wholesale reduction in wages and earnings and to have worse conditions while most other relatively placed people carried on just the same and at our expense. In 1923, those of us who were engaged in key industries, in unsheltered trades, suffered a 38½ per cent. reduction in our wages while in most other industries they suffered reductions of 21 per cent. and 23 per cent. While our wages, earnings and status went down, those of people engaged in some other walks of life went up.

During the past few years a large number of Anglo-American productivity reports have been published. We welcome them although those of us who have had to face foreign competition in our lives have become a little sickened of them because these reports come mainly from people who have never been engaged directly in industry. Nevertheless, they have made a contribution and to that extent we welcome them.

Never has there been one word in those reports about the vital question which I am discussing today. Britain's economic position is being maintained at the expense of our highly-skilled craftsmen. Britain's exports are being subsidised by paying the skilled craftsmen at least £2 a week too little and relatively less than they are receiving in many other industrial countries. People may say, "You are dealing only with wages or flat rates." That is true, but in addition we are considering the Finance Bill, which proposes to continue the application of Income Tax at 9s. in the £. There are millions of skilled craftsmen on the flat rate. Indeed, 40 per cent. of the most highly-skilled men are receiving £8 2s. 3d. a week.

Mr. Arthur Holt (Bolton, West)

When the hon. Member talks about £8 a week, is he not taking about minimum rates, not earnings?

The Temporary Chairman

This Clause deals with a standard rate of Income Tax at 9s. in the £ and the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) would be quite out of order in following that line.

Mr. Smith

The hon. Member for Bolton, West (Mr. Holt) is entitled to a reply, because within narrow limits the point is in order.

The Temporary Chairman

The hon. Member must not be tempted; the question was out of order.

4.45 p.m.

Mr. Smith

For years we were asked to accept payment by results. We did. We were also told, "Your prices will never be cut." But they were cut in 1931, and that cut has never been restored. They have been cut by Pay-as-You-Earn. with Income Tax at 9s. in the £.

I make the charge that the administration of Income Tax is most unfair to skilled craftsmen. Every penny in their pay packets is known and they are taxed on it. It is a simple administrative question of making a calculation. Compare that with the administrative difficulties which come out in the Royal Commission's Report. Compare it with the position of a well-known man in this country who has been able to save thousands of pounds because he has retired on three occasions.

It is time these facts were stated, because if it were not for the industries of the kind about which I speak, the economic position of this country, serious as it is today, would be much worse. It would be worse if these people did not give of their best.

Except for the men at the coal face or the drivers of express trains, few people make the same contribution to our economic needs as the men in the engineering industry. For years we were told, "The sky is the limit, if only you will exert yourselves." But we had a cut in rates in 1931 which has never been restored and Income Tax at 9s. in the £ is still being applied. I make no apology for speaking on this subject today. This tax should not be applied to those engaged in industry of the kind about which I speak.

"The Times Review of Industry." March, 1954, Table 4, confirms all I have said. It also states: For other skilled occupations, such as builders and engineering craftsmen, real wages may now be somewhat less than before the war. What a terrible situation we have reached when the real wages of highly-skilled craftsmen, the very backbone of the country, are now somewhat less than they were before the war. That is said by the authoritative "The Times Review of Industry." This is the thanks we have for increased output, for increased exports, for the wage restraint of years. This is the thanks for our part in two world wars. At present, 40 per cent. of the most highly-skilled men do not receive a penny more than £8 4s.

Who are these highly-skilled craftsmen? When they were boys they devoted years, three or four nights a week cycling in all weathers to secondary schools in order to develop themselves technically, equipping themselves mathematically and geometrically to enable them to read drawings and make calculations quickly, to use their hands at the same time—a combination of brain and manual work together with ingenuity and adaptability. They give of their best in a way that few people do. Most people, who never take off their coats, do not give as much.

We must retain the good will of these men and unless something is done by the Government through the concessions which I suggest, that good will must inevitably be affected because of the way in which these men have been treated. Consider our record in two world wars, our contribution towards technical progress and towards exports. None of us would be living if it were not for our export trade. Consider our contribution towards increased output and experimentation. I say that the 40 years' treatment of the highly-skilled engineering craftsmen in this country is a national scandal.

We pride ourselves on having the most highly-skilled people in the world. Our forefathers migrated to America and other countries. They were looked upon as the cream of the skilled men of the world. In America standards have gone up and up while in this country the craftsmen who manufacture the motor cars cannot afford to ride in them. They cannot afford to use the other products which they produce. They see well-paid, well-fed and well-dressed people who, relatively, make no contribution worth mentioning. For these people the standard of living has gone up. They are well paid and get three weeks' holiday a year. The highly-skilled craftsmen receive only £8 4s. flat rate—millions of them do not receive a penny more—and receive only two weeks' holiday a year.

I hope the case I have presented will be considered. Some may be inclined to smile at it, but the smile will be taken off their faces in a few years' time unless some action is taken. I hope this case will also be read outside this Committee by the employers, to whom we have been trying to put it during the last 40 years. Because they have taken no heed, we now have to ask the Government to consider it, and that is why I have made this plea.

Mr. J. Grimond (Orkney and Shetland)

The debate has revealed the many difficulties of our situation without illuminating the way out of them. The hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) in effect has pointed out that today taxation is not paid only by the idle rich but principally by the hard-working man of skill, while the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) has said that we are bearing a monstrous degree of taxation, a degree which no other country in the world has to bear. But the right hon. Gentleman himself could not suggest any way out.

The Chancellor of the Exchequer is of the same party as the right hon. Gentleman, but after three years of a Conservative Government, there has been no significant reduction in taxation. [HON. MEMBERS: "Yes."] Well, I will give hon. Gentlemen opposite that; there has been a reduction, but not nearly as large as the right hon. Gentleman would like. Against that, there are pleas made from all sides of the House for higher pensions and for expenditure of money in various ways. Undoubtedly, the country is between the devil of high expenditure and the deep sea of taxation.

Personally, I agree with the findings of the Royal Commission and with what has been said earlier in the debate, that the disincentive effect of high taxation has been in one way exaggerated. I do not think that the man in his office or the labourer at his job works any less hard because taxation goes up or down a little. I think that is unlikely. I think we are too modest about the amount of work and energy of the people of this country, and my impression is that visitors to this country are much impressed by the amount of work that we do.

I do feel, however, that the present rate of taxation does not leave much margin for savings and particularly for mobile savings. Most of the savings are done by companies, and are available only to the company concerned. Further, I think that the rate of tax is a deterrent to young people who might be prepared to take risks. If they need capital they cannot get it and the rewards are not worth the dangers of failure.

Mr. Cyril Osborne (Louth)

A disincentive, surely?

Mr. Grimond

Yes, I think it is. In that way there is some disincentive effect, but it will take some time to show itself. This is a country which has to depend more on its own enterprise and on striking out into new methods if it is to support anything like its present population, and therefore this is a matter which will have to be more seriously reviewed and on a wider basis than that adopted by the Royal Commission.

I feel that the way out of the whole difficulty must lie in greater encouragement to effort and enterprise. This year there has been no further differentiation in taxation between earned and unearned incomes. I know that differentiation is very difficult, but it is a matter to which the Treasury ought to apply their minds again now, in order to see whether we could not award some relief to earned income even at the expense of extra taxation of unearned income. I should like to look, too, at the question of encouraging companies which are prepared to enter into some kind of profit-sharing scheme. The developments in Imperial Chemical Industries are very significant. I do not wish to overstate the argument. I know that some variation in schemes is required from company to company, but if a remission of taxation can be worked out to give encouragement to companies which initiate profit-earning schemes, I believe that the whole country would gain.

It has been remarked that there is an Amendment on the Order Paper to this Clause in my name, but you, Mr. Hoy, will be relieved to hear that I am not going to make the speech which I have prepared, partly because it would be out of order, and partly because I want to keep it for a later occasion in connection with another Amendment, which it will suit very well. I should like to say, however, that the intention of the Amendment was to do something to help the family man, because in my view we do penalise the family unduly in this coun- try. I am a family man myself. I am proud of it. I think people ought to marry and breed. People in this country should deplore the fact that a man can write to the "Manchester Guardian" signing himself "Happy Bachelor" and say: Love and procreation bring us to the brink of bankruptcy. Nowadays, a family of children is treated as a luxury, and as a somewhat disreputable luxury at that. It is important that the skilled workman, the middle classes, the professional people particularly, should be encouraged to produce children, because they are a great reservoir of skill and ability in this country. We should encourage them not only to have children and bring them up and provide for them, but to make a substantial contribution towards their education.

It has been pointed out by the hon. Member for Stechford (Mr. Roy Jenkins) that my Amendment is only half of the recommendation by the Royal Commission. With his usual acumen he noted that had I tried to give effect to the whole recommendation it would have been out of order. What I should like to see, however, is some help for the family at the expense of the bachelor, as the Commission recommend. At present, a man who has a family of five and is earning £2,600 a year has only £1,825 left on which to support the five people, while a bachelor, having the same income, would have about £1,600 on which to support himself. To support a wife or even one child costs more than £200 a year as anyone will know who has tried. It would be much cheaper to keep a mistress. If that is what the Chancellor wants, let him say so frankly.

In that Surtax level of income, the discrepancy is particularly large. It is much more acute than is the case lower down. At an earned income level of £500 the ratio between the single man, the married man without children and the married man with two children is 100 to 57 to 2, according to the Report of the Royal Commission. At the level of £3,000 a year, the ratio between the single man, the married man without children and the married man with two children is 100 to 96 to 90. Obviously, the ratio decreases steeply, and far too steeply, in respect of these higher levels. Surtax payers who are family men are relatively much worse off than Income Tax payers at lower levels.

But it may be said that, in any case, people who pay Surtax are rich as compared with many other people, and that is certainly true, but I think that £2,000 a year today is not a fortune. It is what a decent, unflamboyant fairly sober member of the middle classes like a Financial Secretary might expect to earn. It is fair that we should vary the burden of taxation within the Surtax rates without feeling that we are being overgenerous to the wealthy. I want to see the bachelor taxed more heavily, and I think there is a very strong case for assisting the family man by staggering the levels at which Surtax starts.

It is on these two points of redistribution in favour of the family man and redistribution to allow more earning to remain in the pockets of people who are prepared to give their skill and energy that I should like the Chancellor to look at this Clause again.

5.0 p.m.

Mr. Osborne

I had rather hoped to make a long speech, but I have been instructed to "make it snappy."

Mr. Ellis Smith

Where does this new technique come from?

Mr. Osborne

This Clause, which imposes Income Tax at 9s. in the £ and Surtax at 10s. in the £—19s. in the top ranges—cannot be looked at in isolation. It can only be looked at in the background of inflation and the narrowed wage and salary differentials. If it is taken in isolation, a case cannot be made against it, but, if taken with those two important considerations, a very strong case can be made. I hope I shall be able to make it on behalf of the skilled man, the man who takes responsibility, the professional man, and the middle classes generally.

May I make one other preliminary remark without offence? I much prefer the straightforward approach from the working man's point of view to the effect that this has on earnings, than the Balliol approach we had from the hon. Member for Stechford (Mr. Roy Jenkins). That smacked too much of the high school and the senior boy.

Clause 13 is obviously the most important Clause in the whole Bill. The Com- mittee may not realise that last year Income Tax raised £1,863 million, or 42 per cent. of our total revenue. We are tempted to regard the present rates as normal, but I would remind the Committee that they are not normal. They were imposed in 1940, when we were living in a siege economy and all sorts of restrictions were imposed. Most of those restrictions have been withdrawn, but this one has remained. In the 1914–18 war and after Income Tax never rose to more than 6s. in the £ as against 9s. today and Surtax never rose to more than 6s. in the £ and only applied to incomes of over £30,000 a year, whereas the limit today is reached at £15,000 a year and purchasing power is perhaps 25 per cent. of what it was in 1919.

The first point which the Committee should have clearly in mind is that the present rate is abnormally and excessively high and would have been regarded by Mr. Lloyd George in 1909 as indecently savage. The most important point the Committee has to bear in mind is that, whereas, since 1909, the counterpart of this Clause in previous Finance Bills has been regarded as an instrument of social justice for the redistribution of wealth between the rich and the poor, today it has to be judged from a quite different standpoint. Sir Stafford Cripps told us many times that little more could be done by mere redistribution of wealth and that if we were to raise the standard of living of the ordinary people of this country it could only be done by increasing national productivity.

Mr. Austen Albu (Edmonton)

Would the hon. Member—

Mr. Osborne

Please allow me to make my speech.

Despite what the Royal Commission on the Taxation of Profits and Income has said—and this will not be the first Royal Commission whose conclusions have been proved wrong by subsequent events—the Committee should look at this penal tax from the point of view of its economic consequences and disincentives. I agree with the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) that this tax, taken in conjunction with the narrow wage differentials and inflation, is the biggest hindrance to greater national productivity in our whole economy. I believe that the Finance Bill has to be judged purely from this point of view.

On a matter of small detail, I ask the Chancellor if it is possible—if not in this Finance Bill, in the future—to produce some regulations whereby overtime and extra productivity shall not be punished by savage taxation, but that men may get overtime payment free of tax. I know that there are innumerable difficulties and I do not pretend to have a clue of how to solve them, but I ask the Treasury, whose job it is to solve financial problems, to look at this question. Despite what the hon. Member for Stechford said about the matter, if he were inside a works, either running the works or working in them at the bench, he would know full well that if men have to pay 9s. in the £ on overtime they are much less likely to do overtime than if they did not have to pay it. I believe that P.A.Y.E. is a great disincentive and I would like the rate of tax to be altered so that men would not have to pay taxation on overtime.

Mr. Douglas Jay (Battersea, North)

The hon. Member is making a very interesting speech. Would he tell us what he thinks about the appendix in the Report of the Royal Commission? That is not based on any theorising from Balliol, or anywhere else, but on a number of questions addressed to actual workers and comes to a different conclusion on the subject of incentives. It would be interesting to know the hon. Member's views on that.

Mr. Osborne

That is the reason I did not give way before, and I apologise, but that would take me from the point I want to make to the Committee and would take far too long.

I will give some facts. Take the question of wage differentials now and in the 1930's. Hon. Members are interested in the railway unions. In 1934, the basic rate, with no overtime and no night duty, was, for a porter 40s.; for a top signalman, 70s. and, for an express driver, 90s. The wage differential was 125 per cent. Today, for the porter the rate is 124s. 6d., for the top signalman, 155s. 6d., and, for the express driver, 178s. 6d. The differential between the porter and the express driver has been reduced from 125 percent. to 43 per cent. That is not the way to encourage a man to take the risk and the strain of being an express driver.

In the engineering industry the position is infinitely worse. My plea is that the man at the top, if he is earning more, should not be subject to the tax we are about to impose. The Committee may be surprised by the figures I am now about to give. I was surprised when they were given me by the engineering industry. The basic minimum wage for a 54-hour week in 1914 was, for a skilled man, 36s., for an unskilled man, 20s. 6d. and the differential was 80 per cent Today, for a 44-hour week, the basic minimum wage for a skilled man is 144s. 10d. and, for an unskilled man, 124s. 6d. and the differential is 16 per cent. It is absurd that we do not pay our skilled people more money.

In the light of these facts I plead that the tax on their earnings under this Clause should be reduced. It is no good to say that this is not part of the argument, it is vital to the argument. It may be objected, as it was from the Liberal bench, that the figures quoted were the basic minimum rates.

Mr. Holt

On a point of order. May I draw attention to the fact that while all this argument is based on the payment of tax at the rate of 9s. in the £, not even a single man starts to pay that rate of tax until his income reaches £612 a year, nearly £12 a week? All this argument is based on earnings of £8 or £9 a week.

The Temporary Chairman

I tried to draw the attention of the Committee to the fact that this Clause deals with the standard rate of tax of 9s. in the £. I thought that the hon. Gentleman was using it as an example.

Mr. Ellis Smith

Further to that point of order. If the hon. Gentleman who asked the question was better informed, he would know that earnings and overtime would bring the skilled craftsman within the taxation group.

Mr. Osborne

I think that the intervention from the Liberal bench was most illiberal. This is vital to the whole concept of whether the taxation which we are imposing under Clause 13 is justified or not. I am trying to look at it from its economic consequences, of how it affects our productivity, and not from the point of view of its social justification. If the Liberal bench are not aware of it, I would point out that Clause 13 also imposes taxation which starts at less than 9s. in the £. Apparently, the Liberal bench are as bad as Balliol.

I will try to show how this Clause affects the skilled man for whom I am making a plea. I am advised that in 1914 the earnings of a skilled man in the engineering industry amounted to 43s. a week and those of an unskilled man to 24s. a week, which showed a differential of 79 per cent.

Mr. Roy Jenkins

On a point of order. As I am unable to see the hon. Member for Louth (Mr. Osborne), Mr. Hoy, could we have the blinds drawn?

Mr. Osborne

That is a typical sixth form schoolboy's trick. It is not even worthy of Balliol. I wish I could have the hon. Gentleman on a factory floor for two years. We might then make a man of him.

Compared with those figures for 1914, the skilled man today earns 226s. a week—that brings the matter into the range which even the Liberals understand—and the unskilled man earns 178s. 6d. a week. The differential is down to 26 per cent.

Mr. William Ross (Kilmarnock)

As I am now able to see the hon. Gentleman, Mr. Hoy, could we have the blinds drawn up again?

Mr. Osborne

This is the first time that I have been given the slightest glimpse of humanity on the part of the hon. Member for Kilmarnock (Mr. Ross). Bitterness and hatred have previously been his hallmark.

The Temporary Chairman

May I ask the hon. Gentleman to come back once again to the Clause? The discussion is getting a little wide, and the reference to Balliol, I believe, even affects the Financial Secretary to the Treasury, who, I am sure, does not wish to be drawn into the argument.

5.15 p.m.

Mr. Osborne

There are Balliol men and Balliol men.

Under Clause 13, the single engineer earning 226s. a week pays 7s. in the £ on his top earnings. It is not the men who sweep the floors in our factories who will help us regain our position in the export market. The people who will do this are our technical men, our skilled men and our managerial classes. What we are saying to them under this Clause is, "If you dare to work harder, dare to do better, we will punish you by taxing your earnings." That is not the way to encourage them to do more.

The purchasing power of the £ today is only 8s. compared with what it was in 1935. Therefore the skilled engineer and the top railway men have not only had their wage differential narrowed, but what they receive purchases only 40 per cent. of what it did, and of that the Chancellor under this Clause is taking too big a slice. My plea is that there ought to be a considerable reduction in taxation.

My last word will not, perhaps, get so much agreement from some hon. Members opposite. I now want to speak for the men who are paying Surtax. Under this Clause, Surtax still commences at £2,000 a year, the same as in 1935, but, as the purchasing power of the £ is down to only 8s., we are, on 1935 values, beginning to charge Surtax at an equivalent of £800, which I think is preposterous. If, on the other hand, the commencing level for Surtax were started on 1935 values at £2000 it would mean that Surtax would only begin to be charged today on an income of £5,000 a year.

It is no use ignoring the fact that this country needs all the managerial skill, all the technical skill and all that the middle-class can give to our industrial organisations. If we tax our middle-class out of existence, not only will they suffer, but the old-age pensioners and the lowest income groups will also suffer, and suffer, perhaps, proportionately more.

I ask my right hon. Friend the Chancellor to re-examine the Surtax Clause as it affects the middle-classes, the professional man and the technician, and, to support my plea, I propose to give the Committee three brief extracts. One is from the Registrar-General's Occupational Mortality Supplement which was issued quite recently. Commenting on this report on 5th June, the "Economist" used the heading, "Mediocrity is Safer." What an extraordinary thing for a country to have to admit. The "Economist" went on to say: The improvement in standards of living, which used to be the reward of success, is no longer sufficient to counteract the strain of more responsible work.… Today men in the top 'white collar' occupations, loosely classified as the professional classes, and those doing skilled manual work, may expect to die younger than their somewhat less skilled colleagues. If the strain of their job is shortening their lives, then I suggest that we ought not to take their earnings from them while they are alive.

The other aid which I want to quote comes from the "New Fabian Essays," and was written by the hon. Member for Gloucestershire, South (Mr. Crosland). This, again, is to do with productivity and taxation. The hon. Member wrote: The dominant reason—indeed, the outstanding feature of the whole American scene—is the extraordinary productive achievement of U.S. capitalism.… Trade unionists are at one with business men in believing that mass-production private capitalism offers the world's best answer to poverty and unrest. I agree with him. The reason is that in America, as I know from experience, they pay their managerial class much more highly than we do and tax them infinitely less. [Interruption. ] They tax them infinitely less.

The final support to my plea to the Chancellor comes from an article by George Schwartz in the "Sunday Times," of 13th June. He says: What this country needs is a four-day working week and no questions on the other days by the Inland Revenue or by anyone else. In these circumstances, the result could not be measured, but I am confident it would lead to a notable, if not spectacular, increase in the national product. We all know that men of all grades are doing secondary jobs, on the rewards of which they pay no Income Tax. I reason again with the Chancellor that if taxation were not so high the temptation to do those extra jobs and dodge taxation would not be so great. For all those reasons, and for many others which I should have liked to adduce, I hope that between now and next year we shall have a considerable reduction both in Income Tax and Surtax.

Mr. Albu

The hon. Member for Louth (Mr. Osborne) spoke of an inhibition against his taking a great deal of time. I well remember that two or three years ago there were occasions when we were in a similar position, but so much nonsense was talked from these benches by hon. Members opposite that some of us revolted and made the speeches we had intended to make.

I do not intend to follow the hon. Gentleman very far, but rather to refer to the interesting and very sincere speech of my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith). We know the very strong feelings he has about the condition of skilled workers in this country and about the narrowing in differentials which has taken place in recent years. I agree that this is a very serious issue indeed, but I am not sure that it can best be dealt with by taxation. It is a matter which we have to deal with through our trade unions, and on which we have to get agreement in the trade unions.

Mr. Ellis Smith

The trade unions have been negotiating for 40 years and the position has continued to worsen.

Mr. Albu

We are both members of unions which are members of the Confederation, and my hon. Friend will know that it is not as easy as all that.

The truth is that the amount of taxation paid by family men on the levels of wages referred to by my hon. Friend is not very great. That is, of course, no argument for saying that they should not have the very much higher wages which would bring them into the higher ranges of taxation. To some extent the situation has worsened, due partly to the change in the value of money which has brought out of the exemption limit a large number of people whose real standard of living or earnings are not really higher than before the war.

As paragraph 8 of the Minority Report of the Royal Commission points out: In the first place, the starting point of liability is at a much lower level of real income than before the war. In the second place, the rise in taxation has been proportionately much greater in the lower categories of income taxpayers (broadly the £300-£1,000 range) than on those higher up the income scale. It is precisely those in that £300-£1,000 range who are the skilled technicians. Although it was never the intention, they have, relatively, suffered most.

I am more concerned with what happens to people in this income range when they have the responsibilities of married life and children. The Royal Commission points out, again in the Minority Report, that the tax burden would be greater on a family man than on those married but without children, and greater on married couples without children than on single persons.

What has struck me in recent years has been the narrowing of wage levels, not only between unskilled and skilled workers but between young persons and adults and how that affects those who have children still at school. My own view is that young people are earning much too much relatively to those men and women with responsibilities in life. One does not like to draw tendentious conclusions, but I am sure that juvenile delinquency, and so on, is, in some way, connected with the very high earnings of young people, and especially young men before going into the Services.

Under the present taxation system, a man earning £7 or £8 a week may marry a girl earning £6. At first they will have a gross joint income of £13 or £14. As soon as they get a couple of children and the wife has to stop earning, the income will drop to £7 or £8, plus a family allowance of 8s. 6d. The net result is that the overall standard of living of that family drops very substantially indeed and they are frequently in great difficulties. I am sure that, whatever else we do, we must do something about those families.

It is the men with those families and in that income range who are to some extent the backbone of the country—the technicians, the skilled men. They are the rising young men of the country. They have done their National Service, completed their craft training. Then, when getting to a responsible position and doing highly-skilled work, they will find themselves at their very lowest standard of living—

Mr. Ralph Morley (Southampton, Itchen)

What argument is my hon. Friend trying to adduce? If the salary of a married man with two children falls to £7 or £8 a week he does not blame Income Tax at all, so what does the argument lead to?

5.30 p.m.

Mr. Albu

I was not referring only to that. If my hon. Friend had heard the beginning of my speech I referred to the income range between £300 and £1,000. Had my hon. Friend read the Royal Commission Report he would know that those signing the Minority Report drew most attention to those people. I would say to my hon. Friend that the matter has now become even more important because of the unanimous decision of the House, now reluctantly accepted by the Government, to introduce a system of equal pay for teachers and the public service. This makes it even more important to give greater relief to the family man with one or two children.

I hope that hon. Members have studied the recommendations on pages 74 and 75 of the Minority Report which suggest, first of all, that there should be a minimum earned income relief of £120 which would greatly help the class of persons to whom my hon. Friend referred, and that the children's allowance should be increased. The result would be that there would be a rather slight increase in taxation at certain levels for single persons or married persons without children, with a consequent relief to those with one or more children. It seems to me that if there are to be changes in the Income Tax system, this is the way in which they should be made.

We should endeavour to restore the levels of income which have disappeared through the change in the value of money since the war, and we should endeavour to give greater relief to those who, in my opinion, are in most need of it—the married men with two children. I am reminded that I should have said "with at least two children." I was not thinking of mass production cases.

The right hon. Member for Blackburn, West (Mr. Assheton) made a very interesting philosophical speech, and we are always very interested in his views. One of the things he referred to was the advantage today which the corporate bodies have over personal units, individuals and families. To an extent, I agree with him. I do not think, however, that he can carry his argument too far, for reasons which I will give in a moment, but I do agree with his reference to the problems of depreciation of the household and the necessity to give greater relief to those who are doing their job by raising families and so on. Unfortunately. the Income Tax authorities. I believe, hold that a depreciation allowance cannot be granted on a body; I hope my hon. Friend the Member for Sowerby (Mr. Houghton) will correct me if I am wrong.

I know that in America the ladies who appear so frequently in colourful garb, or with no garb, on the pages of glossy newspapers, and who earn their livings by showing off the fashions that are produced in the model houses, did try to get from the Income Tax authorities a depreciation allowance on the only assets which they possessed, but they were unable to do so.

When I was in the United States last year there was a very interesting row going on between the airlines and the trade unions of the air hostesses because the airlines decided that by the age of 33 the assets of these ladies to their employers were completely wasted and that they were unemployable.

The Deputy-Chairman (Sir Rhys Hopkin Morris)

I do not want to interrupt the hon. Member in his very interesting argument, but this Clause appears to me to be concerned with the standard rate of Income Tax.

Mr. Albu

Yes, Sir Rhys. I was rather drawn into this argument by the remarks of the right hon. Member for Blackburn, West who referred to what he thought was the unfair discrimination between the rates of taxation applicable to corporate bodies and the rates of taxation paid by other bodies or personal units. I do not know whether the right hon. Gentleman was pressing the case, but it would not really be possible to equate forms of taxation. Whether we like it or not, the corporate bodies today carry out a large part of our commercial and industrial activities.

I think the right hon. Gentleman forgot that one of the reasons for our present high level of taxation is outside our own control, and that is our very high defence burden which we do not normally expect to have. But even if that were no longer necessary, we should still have the high level of welfare services and, let us say frankly, the redistributory effect of taxation which we consider is so necessary.

The right hon. Gentleman used two expressions when he referred to the present taxation system. He said that it was an oblique, and then he said that it was a horizontal transfer. I think the right hon. Gentleman must agree that our Income Tax and Surtax constitutes a very progressive form of taxation which effects a very considerable transfer from rich to poor. But, as my hon. Friend the Member for Stechford (Mr. Roy Jenkins) pointed out, the actions of this Government have, to some extent, increased the proportion of indirect to direct taxation and it is, therefore, regressive. To that extent, as one increases indirect taxation, especially on necessities which the mass of the people consume, and reduces direct taxation, the transfer will be oblique or horizontal.

Certainly, we on these benches are not in favour of that situation. But even so, if there is some transfer which is horizontal or oblique, is it necessarily a bad thing? It is not a question of the State undertaking everything for the individual, but there are many things which the individual cannot undertake for himself. An insurance scheme is a form of horizontal transfer, and some of the purposes of our taxation are really insurance purposes. The intention is that the whole community shall contribute towards assisting and protecting those who may be in pecuniary need. It seems to me that that form of horizontal transfer is well understood and accepted by our people as a whole. Therefore, I think that one can carry this argument too far.

I should like to pay a tribute to the Royal Commission for having had the very good sense to use the Social Survey when it made its study of the effects of Pay-As-You-Earn. We as politicians are apt to think that we know everything from what our constituents tell us, that all our hunches are correct and that our views must inevitably be right. I do not hold that view. My experience is that one generally gets letters from a very small number of the people who are most affected, and that it is very difficult to know what is the general view on a complicated matter like taxation. One can get a lot of misleading opinions, such as those expressed by the hon. Member for Louth, who made an attack on my hon. Friend the Member for Stechford because he happened to have been at Balliol. I do not know why he should be attacked for that.

Mr. Osborne

Because he has been nowhere else.

Mr. Albu

The hon. Member for Louth has been in his own factory for many years, and, after all, no one is so small minded as a small businessman who is concerned only with the small number of people in his own business life. If one wants to get a false impression of these matters one should ask the small businessman.

Mr. Osborne

However small he may be, he knows how this taxation affects—

The Deputy-Chairman

I do not know how this argument can apply to this Clause.

Mr. Osborne

It relates to the effect of taxation on the employees of a small business. Whether a business employs 10,000 people or only 100, the effect of taxation under this Clause on their overtime earnings is considerable, and persons who have spent their lives with men who are affected by this taxation should know a little more than the Balliol boys who, I suggest, know nothing about it at all.

The Deputy-Chairman

The Clause deals with a narrower subject than that. It deals with the standard rate of Income Tax.

Mr. Albu

I return to the subject of P.A.Y.E., which is the system by which Income Tax is paid by a very large proportion of taxpayers. The opinion of the large sample questioned by the Social Survey is a far better test—especially when one remembers that the questions were scientifically devised and the whole project was carried out by a body with very great experience of this matter—than opinions expressed by individuals without any statistical method of checking results. As the hon. Member knows, I have spent most of my life in industry—mostly in small businesses—and I know how easy it is to get quite the wrong impression of what most people think about this subject.

The Social Survey showed quite clearly that P.A.Y.E. is not the disincentive among workers in industry that it is generally considered to be. It may be so in its application to high levels of overtime earnings, as my hon. Friend the Member for Stoke-on-Trent, South said, but, taken as a whole, the answers showed that it is not a disincentive, preventing ordinary industrial workers from doing their best and working overtime. Now that the party opposite is in office and is responsible for our economy, I ask hon. Members opposite, who have made speeches against P.A.Y.E. time and time again, why they should not be proud of the effects of our economy.

It is true that since the Conservative Party has been in office it has not gone very much further than the position we achieved when we were in power, but in spite of the level of taxation, P.A.Y.E. and all the disincentives which are supposed to exist, we have never been so industrially expansive and prosperous as we were in 1950. Hon. Members opposite go round the country making speech after speech claiming for themselves the credit, the honour and the glory for putting the country in a situation where our balance of payments position is improving and our industrial production rising. Most of us think that it has not risen fast enough, but to argue that the level of Income Tax has been a disincentive is to be completely blind to the economic history of this country since the beginning of the century.

If it comes to a question of incentives and innovation, I think that more innovation is taking place today than has taken place at any time since the beginning of the First World War. It is no good hon. Members opposite, particularly the right hon. Member for Blackburn, West going on in their doctrinaire way, saying that this system cannot work. The hon. Member for Blackburn, West did not stress that argument so much today; he drew back and relied on the sociological argument that the State was becoming too powerful because it was spending too much money, and the ordinary people were therefore becoming serfs, or were not able to do things in their own way.

The people could not spend their own money on the Defence Services, or on many other things for which the Government have to be responsible today. There is no doubt that the people want their money spent on social and welfare services. I see no sign that the proportion of the national revenue being spent by the State is growing to an unreasonable extent. As our standard of living and productivity rises everybody will have more money to spend. We do not want a society in which the State does all the spending and takes all the decisions, but we must be realistic.

To say that we cannot continue in a situation roughly similar to what we have had since the war is to fly in the face of all the facts which right hon. and hon. Members opposite will stress during the next 12 months.

5.45 p.m.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I am sure that hon. Members on this side of the Committee found very agreeable the glowing tributes which have been paid by the hon. Member for Edmonton (Mr. Albu) in relation to the wise policies pursued by the Chancellor of the Exchequer in the last 3¼ years, which, despite the tremendous difficulties to which he referred, have enabled Industrial production, exports, and productivity in almost everything except coal to rise to record levels. It was very pleasant to hear the hon. Member say that, and it is a tribute which my right hon. Friend will gladly accept.

This has been a very useful debate, not least because of the extent of the agreement among hon. Members on both sides of the Committee—by the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith), by my hon. Friend the Member for Louth (Mr. Osborne), and by the hon. Member for Edmonton—that in the last 15 or 20 years differentials have shrunk far more than they should have done, and now represent a serious problem which requires immediate investigation and remedy. I agree that a differential form of taxation is probably not the best way of dealing with the difficulty.

The hon. Member for Edmonton also raised the question of the difficulties in which families found themselves today, and that is another very difficult problem. I am sure that he has read the majority recommendations of the Second Report of the Royal Commission. It very often happens that these reports are received so shortly before the Budget statement of a Chancellor that, to whichever party he belongs, he is able to say, "I have not had time to consider the recommendations of this Commission; therefore, I have been unable to incorporate any of them—even should I agree with them—in my Budget this year."

This Report has been published in very good time for April, 1955, and I hope that my right hon. Friend, between now and then, will be able to consider its recommendations, including the question of differentials with regard to both earned income and families, which has received support from both sides of the Committee.

The hon. Member for Stechford (Mr. Roy Jenkins) said that many Tories—I do not think he said all of them—expressed a demand for reduced taxation, based on prejudice and party dogma. As he was saying that I could not help thinking of a little paragraph which I read in "The Times" this morning. It is headed: "Need For Shipbuilding Tax Relief," and it says: Immediate alleviation of the tax burden on British shipbuilding, so that the industry could meet foreign competition, was urged by Mr. Tom Yates, general secretary of the National Union of Seamen, in his report to the union's annual meeting in London yesterday. I do not know whether Mr. Yates is a subscribing member to the Tory Party, or whether he is basing his demand for reduced taxation on prejudice and party dogma, but whatever the reason may be, I am in full agreement with what he has said.

The hon. Member for Stechford also said something which I have often heard from him previously, and certainly from friends of his in Socialist propaganda, that in these days directors of public limited companies have not the direct interest in dividends which they used to have 40 or 50 years ago, because share capital is so much more widely spread that they are, in fact, salaried directors and are not dependent upon the rate of dividend which is paid.

That is a great misapprehension of the situation. A board of directors is today just as interested in a wise and good financial record as was its predecessor 40 or 50 years ago, even though directors are not so directly interested in the rate of dividend payable to themselves as they used to be. Although their method of remuneration has changed their interest remains exactly what it always was.

My objection to a high level of taxation in peacetime is based upon four things. First, it has been claimed in the past that a high rate of Income Tax mops up excess purchasing power and, therefore, has a deflationary effect, but if we have too high a level of Income Tax for too long in peace time the effect must undoubtedly be inflation and not deflation. A very simple example will serve to illustrate what I mean. A limited company may normally have replaced a piece of plant or machinery out of its reserves—profits ploughed back into the business.

Quite obviously, the higher the rate of Income Tax the greater the proportion of profits that will be ploughed back to meet the cost of new plant and machinery. Conversely, the lower the rate of direct taxation the lower the selling price will be. That is a broad truth, and it is an obvious truth that too high taxation for too long in peace time is inflationary and leads to higher selling prices.

Secondly, I object to a high rate of taxation for too long in peace time because it reduces the ability of limited companies to plough back profits to reserve, which capital thus saved is the plant and equipment of the future. Without it our industry cannot compete in the markets of the world.

Thirdly, it reduces the possibility of personal saving. That has been referred to in the debate, but there is one thing which strikes me of immense importance that has not been referred to, and that is the effect upon the marginal liver. There must always be a great preponderance of marginal livers, and the marginal liver is not now the source from which the country can normally obtain its savings. These personal savings will come more in future from the highly paid executive.

In industry and business today one finds case after case—I do in my professional life—of directors deliberately asking for a reduced salary, which obviously will reduce their ability to save, in return for a "top hat" pension scheme, a pension scheme they cannot possibly provide out of their own savings. That that principle is not offensive to hon. and right hon. Gentlemen opposite is shown by the new Clause (Approval of retirement benefit schemes) put down by a very powerful body of hon. Members opposite, which would extend the principle even further.

As things are at present, with such a high rate of taxation, I see nothing whatever wrong in their seeking to make provision for their old age by means of these pension schemes, but, as I have said, the very fact that they enter into these arrangements will further reduce the individual ability to save, and, therefore, they are a bad thing.

Much has been said today about disincentives. I think that where some hon. Members who have read the Second Report of the Royal Commission make a mistake is in exaggerating what the Report says. That Report does not say that the Commissioners found evidence that there was no disincentive in high tax deductions through P.A.Y.E. The Commissioners suggested that the disincentive effect had been exaggerated. It is perfectly clear that there is a disincentive effect, and there is not the slightest doubt that it exists in all income groups.

My fifth objection to high taxation is this. We have been told more than once in recent years that group savings have taken the place of individual savings. The necessity for national savings is not denied. I say again what I have said several times before to this Committee, that group savings by Budget surpluses or pensions schemes are no substitute whatever for personal savings. Thrift is an individual virtue, and if corporate thrift only is possible we shall lose a potent source of our national character. Those are five great objections to a high rate of taxation. If they are referred to as prejudice and dogma, I do not mind a bit. They seem to me rather powerful.

I am glad that so far anyhow in this debate there has not been a repetition of the Socialist propaganda that there was after my right hon. Friend took 6d. off the standard rate of Income Tax a year ago last April. The "Daily Herald" and the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), and his buddy, the right hon. Gentleman the Member for Battersea, North (Mr. Jay), said at great length that that was a concession to the wealthy. They said that as the wealthy had paid more tax in the past they would get the most benefit from the reduction in the standard rate of Income Tax, and so on. No suggestion of that kind has been made in this debate. No suggestion has been made that a reduction in the standard rate would not be a good thing for everybody. I am glad of that.

Some hon. Member opposite has said that it is all very well for us on this side of the Committee to say we must have a lower rate of Income Tax, but that we ought to say how we should achieve it. That was fair enough. There are two ways, or there is a combination of two ways, in which that can be done, first by a reduction in Government expenditure and, secondly, by an increase in the national product.

So far as the first is concerned, the outlook is gloomy. The defence bill remains heavy, and, as far as I can see, is likely to remain heavy for a considerable time. The National Insurance funds are rapidly running into debt. Nevertheless, my right hon. Friend the Member for Blackburn, West (Mr. Assheton) made a very wise suggestion of an inquiry to see if the system of control over Departmental expenditure could be improved. I hope that the Chancellor of the Exchequer is considering it, and will let us know whether he has formed any view on it.

I come to the other way, of increasing the national product. We have heard something today about that. I spend a good deal of my professional life in advising directors how so to organise not only their own affairs but also those of their companies as to ensure that the incidence of taxation shall fall upon them and their businesses as lightly as possible. That puts guineas into my pocket. I am always grateful to anyone who puts guineas in my pockets. However, giving that advice is a futile waste of labour, for it does not produce anything in any shape or form.

Mr. Douglas Houghton (Sowerby)

Why do it then?

Mr. Stevens

Because somebody has to, because, as the hon. Gentleman should know, as he usually manifests some knowledge of these things, the taxation laws are so complicated today that the ordinary director cannot possibly understand them. Unless he consults his taxation advisers he may take financial decisions that may lose his company literally hundreds of thousands of pounds. The hon. Member will agree that somebody ought to keep those directors advised.

Mr. Houghton

It is not, of course, that lack of understanding among his clients with which the hon. Gentleman is dealing. He is a creator of avoiding devices. That is his trade. It has become one of the biggest professions in the country.

Mr. Stevens

That is such a gratuitously offensive remark that I will treat it with the contempt that it deserves. I shall allow my profession to speak for itself.

There is not the slightest doubt that directors and even the members of the Inland Revenue Staff Federation spend a good deal of time today in trying so to organise their affairs that the incidence of tax shall be as light as possible. If they spent more time in directing their industrial affairs as distinct from their tax affairs the national product would rise rapidly. I say that taxation has been too high for too long in peace time, and that if it is not lowered soon savings will diminish, enthusiasm will run down, and the standards of living of all will fall.

6.0 p.m.

Mr. Anthony Crosland (Gloucestershire, South)

We have had a rather unusual debate in that the speeches which might properly be described as rather academic and theoretical have come entirely from the other side of the Committee, such as the speech of the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), which was extremely interesting but very philosophical in tone, and referred to Marx, the Utilitarians, de Jouvenel, and other distinguished writers. Now the hon. Gentleman the Member for Langstone (Mr. Stevens) has read us a lecture on the subject of taxation that seems to me wholly academic and theoretical, listing five reasons why taxation is supposed to lead to a decline in savings and an increase in inflation. The whole thing rang extremely hollow to me, and it did not convince the Opposition. I do not believe that it carried even all hon. Members opposite.

We have also listened to references by the hon. Member for Louth (Mr. Osborne) to Balliol men. Why he should have Balliol on the brain is not clear. Some 45 hon. Members opposite, including seven Members of the Cabinet, went to Balliol, and about three of my hon. Friends did so. If the hon. Member shares the antipathy which I certainly have for Balliol—

The Deputy-Chairman

I do not think that Balliol comes within the scope of our present debate.

Mr. Crosland

I am sorry, Sir Rhys. I was merely taking up the reference made from the benches opposite. You have stopped me from saying that when I was at Oxford we referred to Balliol as "Bloody Balliol" and that I have had no reason to change my mind since.

The discussion on this Clause provides the only occasion during the proceedings on the Finance Bill when the Committee can turn its attention to the standard rate of Income Tax, which is the most important single item in our whole taxation system. It is right for us to have a full and thorough debate on the subject, and I am only sorry that we have not had more contributions from hon. Members opposite. In view of what they have been saying during the last few years and the promises about taxation made in "The Right Road for Britain," it is extraordinary that we have had so few and such comparatively moderate criticisms of the present level of taxation from hon. Members opposite.

I doubt whether most hon. Members opposite realise that the weight of taxation three years after the Conservative Government came into office is almost exactly the same as it was the year before it came to power. It is true that in one or two of his Budgets the Chancellor has reduced taxation, and, in particular, the standard rate by 6d., but the reductions were only reductions of the increases in taxation which were imposed in 1951 to cover the specific burden of rearmament. At the moment our taxation—in particular, the standard rate—stands exactly where it stood when the late Sir Stafford Cripps ceased to be Chancellor.

Looking at the figures of net changes in taxation over the last few years, and concentrating on the standard rate, one finds a steady decline in taxation until the last Budget of Sir Stafford Cripps and then a substantial increase in order to pay for the 1951 rearmament programme. The increase was about £380 million. Then there were reductions of £55 million in the present Chancellor's first Budget and £288 million in his second Budget. In the present Budget there is virtually nothing.

The feature of our whole taxation picture at the moment is that the level and burden of taxation has just about got back to where Sir Stafford Cripps left it. All the reductions in taxation about which there was so much propaganda during the first two years of the present Government's life have been nothing more than a mere countering of the increases imposed to pay for the rearmament programme.

Turning one's attention to income taxation in particular, it is interesting to note—this is mainly due to the figure at which the standard rate now stands—that Income Tax is now collecting a far larger sum of money than it was when the Labour Government left office. In view of this, it is surprising that we have had only some three or four speeches from hon. Members opposite. I very much hope that hon. Members opposite have not been prevented by the Whips from speaking. It would be a disgrace if at the most important part of our Budget discussions hon. Members opposite were prevented from speaking by the Whips. It would be an intolerable abrogation of the functions of the Committee if the Whips went round the back benches and prevented hon. Members from making any genuine contributions which they have to make. I hope that hon. Members opposite will feel it their duty to give us the benefit of their views. Over and above the four speeches which we have so far had, there is a good deal to be said in putting forward the Conservative view which the Opposition would like to hear.

Mr. Stevens

Would the hon. Gentleman indicate how it would have been possible for more of my hon. Friends to have spoken so far in view of the fact that hon. Members on this side of the Committee have spoken in turn with hon. Members opposite?

Mr. Crosland

My complaint so far is only about the length of the speeches from hon. Members opposite. Those speeches have been considerably shorter than the speeches from the Opposition. But I was also alarmed by the fact that, when the hon. Member for Langstone rose, no other hon. Members opposite stood up. I hope that we shall hear more of his hon. Friends.

In the light of what I have said, it is curious that we have not had more protests from hon. Members opposite about the present standard rate of Income Tax. My hon. Friend the Member for Stechford (Mr. Roy Jenkins) quoted statements which were made two or three years ago by hon. Members opposite. They were saying that the standard rate must quickly be reduced to 7s. 6d. There were speeches at the Conservative Party Conference a year or two ago demanding a 2s. reduction. The implication of "The Right Road for Britain" was that as soon as the country got a Conservative Government there would be large reductions in the standard rate.

Where are those reductions? The position today after three Conservative Budgets is the same as it was when Sir Stafford Cripps was Chancellor, and yet all we have had is four quiet, moderate speeches from the back benches opposite. There has been no sign of revolt, no amendment, and no fire. It has been left to the Opposition to keep the debate going. It is left to the Opposition to ensure that the Committee has a proper discussion of the standard rate, for there has been little help from hon. Members opposite.

Miss Irene Ward (Tynemouth)

We are enjoying the conversion of hon. Members opposite.

Mr. Crosland

There is still time for the hon. Lady to speak. She listens to our Finance Bill debates, but in recent years we have not heard her speak in them. I cannot believe that the Whips have frightened her, of all people.

The hon. Lady's intervention reminds me to take up a point made by the hon. Member for Langstone. I think he was rather out of order in making it because we are considering not corporate saving but the standard rate of Income Tax. He twitted the Opposition by quoting a trade union leader who asked for a tax reduction for shipbuilding. The Opposition are alive to the fact that certain industries may require an alleviation of their burden of taxation. Indeed, we have put down an Amendment asking that investment allowances should be doubled on machinery for shipbuilding. Consequently, our attitude is consistent with that of the trade union leader.

The Conservatives appear to have been substantially converted to our point of view now in that even this level of taxation, although it produces difficulties, does not appear to be quite so ruinous as they thought four years ago. Nevertheless one or two arguments have been used by hon. Members opposite which need a little more attention.

There has been a lot of discussion about personal incentives and incentives to effort. The hon. Member for Langstone very reasonably quoted from memory and stated that he thought that what the Royal Commission said was merely that the effects of P.A.Y.E. on the incentive to work had been exaggerated and not that they were nonexistent. This is not just a question of what a lot of Balliol men said. The hon. Member for Louth, who has just come in was not present when I analysed his dislike of Balliol and showed that he ought to have a dislike of his own Front Bench and not the Opposition.

The Royal Commission on Taxation was quite specific about this. It said that, from the replies received from industrial consultants, it was clear that those consultants had no evidence to show that P.A.Y.E. had any significant effect on absenteeism or extra effort. The Royal Commission concluded that the marginal tax rates seemed to have little significance in affecting the behaviour of workers. We may disagree as to whether that conclusion is right or wrong, but there is no doubt that that is the considered view of the Royal Commission.

I want to turn, not so much to the question of incentives on personal effort, but to the effect of taxation on investment. This has been raised by hon. Members who have spoken from the other side of the Committee. We are all agreed that if it can be shown that our present system of taxation is having a serious effect on the level of investment, then that is an extremely powerful argument against it. But that cannot be true of personal taxation. We are not here discussing corporate taxation or whether we ought to have a higher or a lower investment allowance, but the present standard rate of Income Tax as it affects the person and not the corporation. [HON. MEMBERS: "No."] I am not denying that it does affect corporations, but what I am saying is that our discussion this afternoon has, in fact, revolved round the standard rate on personal incomes, and that is the aspect of it that I want to take up.

It was said by the hon. Member for Louth and, I think, by the right hon. Gentleman the Member for Blackburn. West that Income Tax and Surtax at their present level on persons had a bad effect on investment. In that connection the hon. Member for Louth accepts the point of view put by Mr. S. P. Chambers in a broadcast which he made last week.

It is extremely hard to see how in an ordinary, large public company the rate of Surtax which members of the board of directors pay can have any effect whatsoever on the decisions which they take about the level of capital expenditure. The hon. Member for Langstone said quite rightly—I agree with him—that in these large public companies where most of the directors and the higher executives are being paid a salary—that even in such a company these directors and higher salaried executives will be concerned with the profit of the company and its financial strength. I entirely accept that. I am certain they are, but that does not show that the level of Surtax which they themselves pay as persons will have, or could possibly have, any effect on the decisions that they take in the future about capital programmes. For myself, I am quite unable to see how that is so.

I want to mention another objection to this argument which is more fundamental and which has not been mentioned this afternoon. The object of our discussion is, as we are agreed on both sides of the Committee, to increase investment. The suggestion has been made by hon. Members opposite that we can do so by cutting the standard rate of Income Tax and increasing the incentives of business executives. But is that going to increase investment? Surely the first effect of the cutting of the standard rate of Income Tax is going to be an increase, not in investment or in savings, but in personal spending.

Mr. Osborne

Not necessarily.

Mr. Crosland

Perhaps the hon. Member will interrupt when I have finished this part of my argument. The greater part of any reduction in personal taxation—I do not say all of it, but the greater part of it—is going to increase consumption and public spending. Everyone knows this. The Chancellor knows it, and that is why he has not reduced the standard rate of Income Tax this year, and he is absolutely right. It is inevitable that the effect of a large reduction in Income Tax and Surtax is going to result in an increase in personal consumption, and it is impossible to imagine that as a result there will be an increase in investment, and for the perfectly simple reason that the resources will not be there.

Today we have something like full employment. If we have a reduction in taxation and there is in consequence a large increase in personal spending, because we have full employment of our resources there will not be the additional resources available for a large increase in investment. So my submission about this policy is based not merely on the fact that the incentives point is not justified, but because it is a self-defeating one. That is not a matter of theory. We had evidence of it in last year's Budget. Last year substantial decreases in personal taxation were given and were justified by the Chancellor largely because they were going to help a higher investment. But what happened?

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

They would lead to a higher production.

6.15 p.m.

Mr. Crosland

I certainly was not distorting anything that the right hon. Gentleman said. He did say he hoped that these reductions would lead to higher production generally, but the higher production that he wanted was mainly higher investment. [HON. MEMBERS: "Oh."] Certainly. I imagine that that was what was in his mind. We have got the higher production, but we did not get it in the form of higher investment, and it is perfectly clear that if we are going to seek higher investment merely by reducing taxation, we shall get greater consumption; but we will not get higher investment by such a policy.

The last point I want to put concerns the reason why our views on taxation differ from those held by Members on the other side. This has been mentioned again and again year after year in these debates, and it is that we cannot divorce the present level of taxation from the question of the equality of incomes that we want. The right hon. Member for Blackburn, West, in an extremely thoughtful speech, made one point which I could not follow when he said that the high level of taxation which we have had in recent years gave us what he called a horizontal redistribution of income but no vertical redistribution. That is to say, that it did not substantially redistribute income from the rich to the poor.

I cannot see why he should say this, because there is no evidence in the figures that it does not have this effect. All the figures that we can get show a substantial redistribution from rich to poor. If we take the obvious guide—it is not a perfect one, but it is fairly good—to the distribution of the income, namely the proportions of wages compared with the proportion of property incomes. After taxation, we find that wages before the war were about 39 per cent. of the total of personal incomes but today are 48 per cent. We find that property incomes before the war were about 34 per cent. but now are only 25 per cent. This is a very substantial redistribution in income.

What this amounts to is that 10 per cent, of the total of personal incomes has been redistributed from property incomes to wages. These figures are after taxation and it must have something to do with the taxation structure which we have had since the war. I think it is hard to argue, as the right hon. Gentleman did, that the present taxation system had no effect whatsoever on distribution of incomes. It would be inconceivable if the present Surtax rates had no effect on distributing income from rich to poor.

Mr. Assheton

I know the hon. Member does not wish to misrepresent what I say, but if he looks in HANSARD tomorrow at what I said he will see that my argument was that, whereas previously redistribution through taxation was mainly from the personal incomes of the rich to the poor, under the present high level of taxation it is chiefly transferring incomes horizontally. If he will look at Table 56 of the Report of the Commissioners of Inland Revenue he will see an awful lot of evidence there to show that that is right.

Mr. Crosland

I am sorry if I misunderstood the right hon. Gentleman, but after he spoke I took some trouble about this matter. I went outside and looked up the National Income White Papers, and I still stick to my conclusion that the vertical redistribution is much greater than what the right hon. Gentle- man calls the horizontal. He is quite right in drawing attention to what we so often ignore in these debates, the fact that there is a horizontal redistribution as well, but I think the vertical one is a good deal larger and there cannot be any doubt that if we did what most hon. Members opposite would like us to do, namely, take 2s. 6d. off the standard rate of Income Tax straight away, the effect on the distribution of income would be very large indeed.

If we took the matter further and went back to the kind of tax structure we had before the war, we would go back to the distribution of income that we had before the war. So we must emphasise that our attitude to taxation on this side of the Committee is not that it is merely a revenue raising device but it is also a device which gives us the distribution of incomes which we want.

I should like to close as I began by saying that I hope that we have not heard the end of this debate from hon. Members opposite. This is a major matter, and they went to the country three years ago making really elaborate, forthright promises of large reductions of personal taxation. All that they have done after three Budgets by the present Chancellor of the Exchequer is to get us back to where we were in 1950 under Sir Stafford Cripps. It is really a major betrayal of the electorate, and before we pass from this Clause we ought to have some more explanation of it.

Mr. R. A. Butler

We have had a very satisfactory debate on this important Clause which, as my hon. Friend the Member for Louth (Mr. Osborne) says, raises about 43 per cent. of our revenue. I differ with the hon. Member for Gloucestershire, South (Mr. Crosland). I think that it would be in the general interest of the Committee to bring the debate in due course to an end. I do not ask anything unreasonable, but we have a very important Clause to follow upon which hon. Members wish to speak, and anybody who studies the Order Paper will realise that we have a lot of very heavy work before us. I hope, and I am sure that the Committee hope, to conduct the debate on the Finance Bill in such a way as to give everybody an opportunity to express their opinion, and try not to sit too late. If that is the case, we must practise moderation, otherwise we shall never end and we shall be forced into very late sittings and difficulties.

This debate has been described, quite rightly, as important and the level of speeches has indicated that. I suppose that the hon. Member for Stechford (Mr. Roy Jenkins) who opened the debate will be no longer on speaking terms with his heavenly twin, the hon. Member for Gloucestershire, South. I will leave the Balliol row to be settled between them. I was brought up at another completely different institution, and though I should not like to call any Oxford college by the unparliamentary epithet used by the hon. Member for Gloucestershire, South, I would treat all Oxford colleges with a degree of contempt.

The first point raised by the hon. Member for Stechford relates to indirect and direct taxation. The only valuable service that I can render in a debate of this kind is to answer the debate and not come here with a prearranged speech. The hon. Member, supported by several other hon. Members, notably the hon. Member for Edmonton (Mr. Albu), more of whose speech I heard than he imagined, for I would not miss it if I could help it, raised the question of the level of direct and indirect taxation under this Government as compared with the previous Administration. I have had the figures taken out rapidly. It happens that the indirect taxation proposals for 1954–55 amount to 42 per cent. of the total tax revenue and direct taxation to 58 per cent., the figures being £1,776 million and £2,467 million respectively. The proportions in fact are exactly the same as in the 1951–52 Budget of the right hon. Member for Leeds, South (Mr. Gaitskell), when the proportion of indirect taxation was 42 per cent. and of direct taxation 58 per cent.

If there is anything sinister imagined in my proposals, with regard to the shifting of the balance between direct and indirect taxation, the figures indicate no substantial change. There was a change in the 1952–53 Budget, when indirect taxation was 41 per cent. and direct taxation 59 per cent., but it was back in the receipts for 1953–54 to the levels of 42 per cent. and 58 per cent., respectively.

Although that answers any sinister innuendoes by the hon. Member for Stechford and removes the matter from an area of very lively controversy, I do not think that there is very much in the point. Direct and indirect taxation mix and intermingle so much in the daily life of the people and, as pointed out by the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) direct taxation has such a bearing on the skilled workers and many sections of the working population, that there is not much in it nowadays as a class matter. However, in so far as there are finance and taxation purists in the Committee, they may be glad to feel that I have preserved the balance which they regard as utterly moral, coming from the stable of the right hon. Member for Leeds, South.

The next point of any substance is the controversy between Mr. Chambers and the hon. Member for Gloucestershire, South. Indeed, how fortunate we are in this Committee to have the hon. Member for Gloucestershire, South alone and not to have to listen to Mr. Chambers as well. As I see it, the position in the controversy is that some views have been put forward by Mr. Chambers and to some extent supported by my right hon. Friend the Member for Blackburn, West (Mr. Assheton) in what I agree was a very thoughtful speech which was widely followed in the Committee. I notice that when he made a reference to Karl Marx the right hon. Member for Dundee, West (Mr. Strachey) looked somewhat uncomfortable.

Mr. John Strachey (Dundee, West)

At that moment I hoped to take part in the debate.

6.30 p.m.

Mr. Butler

I should be very sorry it any words of mine should make the right hon. Gentleman rise to his feet.

This controversy evidently centres round the question whether if one relieves the rates of taxation upon the person one will obtain more investment in industry. That brings me back to the hon. Member for Stechford, who started very sensibly by saying that he did not like high taxation for its own sake. 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. To say that it has strange moral virtues, as the hon. Member for Gloucestershire, South tried to make out, is really an exaggeration.

I could, of course, enter into this discussion as to whether the release of more spending power in the Budget would have led to an improvement in the economy. Frankly, I do not think that it would, although, in answer to the hon. Member's question about resources, I do not think that we are working fully up to our resources yet, that is there is not at the moment a danger of any severity of inflation returning. Therefore, had there been money to spare, I do not think that it would have been immoral to reduce taxation, whether one looks at it from the point of view of the economy or one looks at it in any other way.

The answer to all hon. Members who have taken part in the debate is that, to use the words of the hon. Member for Stechford, we are carrying such very heavy burdens that it would not have been possible to balance the Budget, with the consequent flow of confidence which has followed from the last Budget—however dull it may have been—as evinced in foreign interest and foreign confidence in our affairs, if I had reduced Income Tax further in the Budget from the level of 9s.

The hon. Member for Stechford says that I have not achieved very much because I have only got things back to the level at which Sir Stafford Cripps held them. The figures are very similar, but the hon. Member must remember at the same time—and we on this side of the Committee take some pride in this—that we are carrying a defence burden without precedent in the history of the country—a figure of £1,455 million which is extremely hard to hold at that level. It is a figure which we are examining, as I promised in my Budget speech, but which must be regarded as one of considerable importance in view of the news that we receive from foreign parts. It must cast over all our minds not necessarily a feeling of gloom but of the undoubted difficulties that there are in the world, and of the vital interest to this country to remain strong and armed and play her part in peace.

Not only is this burden much greater than my revered predecessor, Sir Stafford Cripps, carried, but there are the social services which have actually increased in cost by no less than £60 million in the last financial year. We are carrying these burdens as well as maintaining one of the highest levels of employment that the country has enjoyed, and one of the highest levels of production that the country has ever reached. These are not bad achievements, and I am not at all ashamed that at the moment I have imposed on the country the burdens which it is my duty to impose. That, in short, is the answer to the hon. Member for Gloucestershire, South and his reference to the general achievement which stands to our credit over these three years.

My right hon. Friend the Member for Blackburn, West mentioned a book by Mr. de Jouvenel. I have read the majority of his books, but not that one. Had I a little more leisure—which, unfortunately, is not my opportunity at the moment—I would turn to that book. The point made by my right hon. Friend was that Mr. de Jouvenel feels that we should devote more help and care to man in society than to the machine or to the corporation. That I agree with.

That was the point put by the hon. Member for Orkney and Shetland (Mr. Grimond). He showed great reticence in not insisting on making a speech on children's allowances. He said that he would make it later and, therefore, I shall not refer to it until later. But this point leads me to the Royal Commission on Taxation, which, when it went into the matter on which the hon. Member touched in his speech, coupled with the recommendation that the Surtax exemption limit of a married man with dependent children should be raised, a recommendation that the exemption limit for a single person should be lowered.

The hon. Member very rightly said that he only put down one limb of an Amendment which otherwise would have followed the recommendation of the Royal Commission. I thought that he was a little hard on the efforts we have made for married people. We have made a considerable advance in helping married people. For example, the married man's allowance in 1954–55 is £210 compared with £190 in 1951–52. Children allowances are £85 compared with £70 in 1951–52. That indicates that we have tried, even in this three-year period, to move towards helping the family man. I will not follow the hon. Member into his disquisitions on love, family life, bankruptcy, mistresses and so forth, but leave that to him. His ideas are rather too liberal to suit me. We can say that we have made a great effort towards helping the family man, and that is indicated by the figures I have been able to give.

The other main point which has been raised on the subject of the Royal Commission related to the various proposals—not only major proposals but minor proposals—in the Report. At the moment I cannot, in discussing this Income Tax Clause, add anything to what I said on the subject in my Budget remarks. Those were very carefully weighed submissions by the Royal Commission. One thing which strikes one when reading the Report is that they hang together. If we isolate one, as the hon. Member was frank enough to admit, we lose the value of the recommendations. Therefore I am afraid we must leave them, not with any promise that they will be implemented next year, but with the promise that they will be carefully studied and, if things go better for us and we are able to reduce expenditure, they will come before the judges as candidates for consideration. Naturally I do not agree with all the details, but they make a contribution to our thoughts on this matter of personal reliefs.

The other big issue raised was the question of incentives for the skilled worker. This was raised by the hon. Member for Stoke-on-Trent, South and my hon. Friend the Member for Louth. One would think, when listening to the speeches, that very little had been done to give inducements to those who are at work, so I thought it would not be out of order if I reminded the Committee of some remarks I made when introducing the 1952 Budget. I said: I am convinced that the present weight of direct taxation, particularly on the lower and middle income groups, acts as a very positive discouragement to extra efforts. I went on to say that I would make proposals: designed to lighten the burden of the tax, particularly on extra earnings, and thus to encourage people when they put in longer hours overtime or earn more by harder work. The Committee will remember that the effect of these proposals was very definitely to raise the levels at which single men, married men, skilled men—men in all ranks and in all rates of Income Tax—were taxed, very substantially. I used this expression: The change in the reduced rates structure will mean that the standard rate will not now become payable until earnings reach £13 Is. a week for the single man; £15 6s. for the married man without children; £17 8s. for the married with one child; and £19 10s. a week for the married man with two children."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1302–3.] That is a full explanation of the effect of the Budget of 1952 on those who earn and do the skilled work of our country.

I often think it is a great pity in our controversies, however much we differ from one another, if we automatically forget the benefits we have had, and I pass on as a bequest to my successors that they must not be disheartened because they do not hear a word of gratitude later on when they have given tax reliefs. I would ask the hon. Member for Stoke-on-Trent, South and my hon. Friend the Member for Louth to remember some of the reliefs given over the years in the lower rates and higher rates. The burden of Income Tax on industry was also reduced by £45 million last year. That is the answer to the hon. Member for Gloucestershire, South when he said that we were only discussing personal matters; we must remember that Income Tax covers the burden on industry as well.

With these observations, I hope the Committee may soon come to a decision on this Clause. I conclude as I began by saying that it really is quite an achievement for the country to carry the burdens it does. Despite our overseas expenditure and the part we play in so many parts of the world, the social service benefits, of direct advantage to the people of this country—which we intend to maintain—and the housing programme, we are able to keep afloat and more than afloat, to increase the reserves and the confidence of our people in our affairs. Let us be thankful for small mercies. In answer to my hon. Friend the Member for Langstone (Mr. Stevens), who always plays an important part in our debates, I say that we shall continue to prune and control expenditure. Only in that way shall we have a prospect next year for the further benefits of relief which the Committee wants.

Mr. Strachey

First I assure the Chancellor that nothing he said has brought me to my feet. He seemed to add very little to this debate. Once again he took a bad bat to the bowling and really did not tackle the essence of the question which the Committee has been considering. Among hon. Members opposite, I thought that the right hon. Member for Blackburn, West (Mr. Assheton) really did deal with the essence of the matter, because he took up the question of whether taxation was merely a matter of raising revenue or whether it was a matter of redistribution of income and the modification of the pattern of income distribution throughout the community. That is what really matters when we are considering Income Tax and Surtax.

The Chancellor made it clear in only a passing reference to the subject that for him taxation was merely a matter of raising revenue to meet expenses with which we had to deal. But, of course, taxation at this level cannot possibly be considered merely as that. As hon. Members on this side of the Committee and the right hon. Member for Blackburn, West recognise, it has a profound effect on the whole working of the economy—as we think for good, and as the right hon. Member thought for bad—by modifying the distribution of the national income.

The main point I want to take up is the new argument introduced by the right hon. Member, which I thought a new and curious one, that today the effect of heavy direct taxation by way of Income Tax at this rate and Surtax was not to redistribute income as between the rich and the poor, but to redistribute income as between private individuals on the one hand and the State on the other. Putting it rather crudely, that is, I think, the essence of the right hon. Gentleman's argument. When we come to think of it, however, surely that is an untenable argument because it only looks at the taxation side of the transaction.

The State does, of course, raise this vast sum of money, but it does not then just sit on it; it expends it again—the whole of it, as the Chancellor is only too well aware. Broadly speaking it expends it as the Chancellor intimated, on defence and the social services regarded as a whole; practically the whole of State expenditure comes under those two headings.

Therefore, when it is expended in that way, indirectly perhaps in the case of defence expenditure, and quite directly in respect of social service expenditure, it becomes private income once again. Therefore, there is a redistribution which in the last resort must be between individuals. It cannot be redistribution from individuals as a whole, on the one hand, to the State, as an abstraction, on the other. The State is merely the agency which redistributes the money between different individuals.

I thought that the right hon. Member for Blackburn, West showed he realised that, because at a later stage in his speech he talked about this income being channelled through the State. That expression is a correct one; the State is merely a channel. Therefore we must face the issue whether the redistribution which is being effected, surely undeniably, between rich and poor by taxation at this rate and of this character is a good thing or not. That is surely the real gravamen of the difference of opinion between us on the different sides of the Committee.

It is quite true, as the Chancellor said, that he cannot reduce taxation unless he cuts defence expenditure or social services expenditure. But that is only a practical expression of the fact that this rate of taxation is necessary if we are to modify appreciably the capita distribution of the national income.

Sir Robert Boothby (Aberdeenshire, East)

Supposing that the Chancellor could cut expenditure on defence and social services, would the right hon. Gentleman still hold that taxation should be maintained at the present level in order to effect a redistribution of income?

6.45 p.m.

Mr. Strachey

If we could cut defence expenditure we should all be in a better position, and we should all be in favour of that, if it could be done with safety. Whether the resultant saving should be used to reduce taxation or improve the social services is a different matter which would have to be looked at very closely. Indeed, it might well be that the best use for it would be to increase old-age pensions and not reduce taxation at all. Therefore, we cannot for one moment regard taxation as an unmitigated evil, as the Chancellor expressed it. It is simply an instrument which affects the redistribution of the national income. My hon. Friend the Member for Gloucestershire, South (Mr. Crosland) gave us very interesting figures to the extent to which income has been redistributed, largely by this means. It is not as great a redistribution of income as many people suppose; it represents only about 10 per cent. taken from property-type income and 10 per cent. added to the wages and salaries type of income. But there has been that amount and degree of redistribution. I agree with the right hon. Member for Blackburn, West that taxation is a somewhat clumsy instrument for doing this, but under the present economic system, the capitalistic system, as it has developed in this country, I do not know of another way in which to do it.

The pattern of the distribution of the national income which results naturally, unless the State interferes by taxation or some other means is to an extreme degree inequitable, as we knew in the 1930s, and produces not only, as the Chancellor seems to think, moral objections—of course we have moral objections—but also profound economic disequilibrium. This pattern of distribution of income is intimately bound up with economic stagnation, with slumps and mass unemployment. That is the evil.

More important, I think, than the moral evils, is the profound economic evil. If the economy becomes as lopsided as that it works unjustly; indeed, it does not really work at all. We get the phenomena of the '30s. Unless some force majeure, whether taxation or some other method, were used to modify the distribution of the national income, we should go back to the economic conditions of the '30s. It might be said that this modification could be effected by other means—by raising the rate of wages, by extremely aggressive trade union action. There are other methods—

The Deputy-Chairman

I do not know whether the other methods would come under this Clause.

Mr. Strachey

We are debating whether this level of taxation should be maintained or not, Sir Rhys. I believe that it must be because these other methods, which I only glanced at, seem to me to be, in practice, impracticable. But I submit, both to the Chancellor and to the right hon. Member for Blackburn, West, that some method for modifying the pattern of the distribution of the national income from what it would be if it were natural under the capitalistic system of the country, is absolutely indispensable in order to make the economy work, not only justly but at all.

That, in different words, is what a good many Members have said. I am sure that that expresses the real difference of opinion between us. It is, perhaps, not expressed in practice this year because the Chancellor has to raise this amount of money and he cannot get out of meeting this expenditure. Behind that, however, there is a much more profound difference of economic theory, which was well brought out by the right hon. Member for Blackburn, West in his speech. We should argue it out because it is the most important economic issue which arises on the Finance Bill this year.

Mr. Houghton

I would not ignore the Chancellor's appeal to the Committee to allow us to pass on to another Clause, but I have sat through the whole debate this afternoon, and there are one or two things which have not been fully dealt with so far upon which I wish to comment. The Chancellor was quite right to remind his hon. Friends behind him of the tragic outlay of resources on defence expenditure.

There was scarcely a mention of that in the speeches made earlier in the debate. Yet practically the whole of the yield of revenue from what is dealt with in this Clause has to be devoted to defence—£1,400 million this year out of a total yield of the standard rate of Income Tax of probably £1,600 million. Some of the speeches made from the benches opposite are surely unrealistic unless that is taken into account. What has befallen this country since the end of the war is something that none of us expected—having to bear this defence burden in 1954 after the successful end of war operations in 1945.

After the war, taking advantage of this high rate of taxation for war purposes, the Labour Government decided—in my view rightly—to utilise some of the revenue, already being collected, for the expansion of social provisions and social services; which seemed to be the unanimous desire of the British people, if the reception of the Beveridge Report was anything to go by. But now, unhappily, having undertaken the expansion of expenditure on social provisions and social services of one kind or another, education and the rest—the benefits of which we all see around us today, and none of which the party opposite dare destroy in present circumstances—we have to accommodate within our economy both that expenditure and this heavy and unexpected burden for defence.

It seemed to me therefore that it was futile for the right hon. Member for Blackburn, West (Mr. Assheton) in his reflections and lamentations, and for the hon. Member for Louth (Mr. Osborne) in his speech, to speak as if substantial reductions in the level of taxation were now possible, or could be possible in the foreseeable future. There was also another fallacy, I think, both in the speech of the hon. Member and those of other hon. Members, that it would be a wholly good thing for the nation and for the strength of our economy if a substantial reduction in taxation could be made in present circumstances.

That I believe to be a very arguable proposition, because, as my hon. Friend for Gloucestershire, South (Mr. Crosland) pointed out, everything would depend, in present circumstances, upon how the money was spent. It could not possibly be accepted by hon. Members on this side of the Committee that a reduction in taxation, irrespective of the uses to which the money would be put, could be regarded as a wholly good thing.

The speech of the hon. Member for Langstone (Mr. Stevens) brought me to my feet in an interruption, and in his absence I wish to apologise to him if anything I said was personally offensive to him. But it seems to me to be a remarkable confession from an hon. Member to make that he is largely occupied in his professional work in advising persons and corporate bodies on ways and means of lightening the tax burden upon them. It is to this that I wish to refer, because I know that many hon. Gentlemen opposite hold the view that it is the high level of taxation itself, the standard rate of 9s. in the £, coupled with Surtax, which is largely responsible for the difficulties and controversies which now exist in regard to directors' expenses allowances.

I do not deny that the high rate of taxation is a stimulus to the search for tax-free remuneration, tax-free facilities and tax-free amenities. It undoubtedly is, but I think that probably the main cause of much of this expenditure is not taxation, but the prosperity of industry—the lavish level of expenditure which industry can bear in present circumstances in providing facilities and amenities for their executives and directors.

In the Finance Act, 1948, the House introduced into the Income Tax Act a whole series of Sections to bring within the scope of taxation the money value of many of the benefits in kind being excessively enjoyed by those in a position to obtain them. In recent days and weeks we have seen some of the unhappy consequences of the difficult job which the Income Tax Act imposes upon Inland Revenue officials who are called on to seek for the tax on expenses and other allowances which give personal benefit to the taxpayer.

As an illustration of the length to which this kind of thing has gone, I see in the "Accountant" for 12th June an example of a company director who is paid 5s. 9d. a week, and the whole of his other living costs and expenses come out of his company. At the standard rate of 9s. in the £ the Inland Revenue has assessed the personal benefits in kind at £2,500 a year. The adviser of this taxpayer says, "How can my client pay this tax when he receives only 5s. 9d. a week? The company say they will pay him no more. He has no financial resources out of which to pay. He is not allowed to trade his amenities and facilities for cash, and therefore he is a poverty stricken taxpayer on whom an unjust charge is to be made which he has not the resources to meet."

If that is an example of the sort of thing which is happening at present, it shows that Part VI of the Act of 1952 was necessary and that facilities of this kind are rightly brought into charge at the standard rate, or at any rate to which the taxpayer is liable.

Mr. Frederic Harris (Croydon, North)

Would the hon. Member agree that works canteens are likewise a great subsidy for the workers who enjoy the facilities thus provided.

Mr. Houghton

I fully agree, but I think that the hon. Member for Croydon, North (Mr. Harris) would also agree that there is a great difference between the welfare services of a works canteen and the level of personal benefit of the taxpayer whose case I have quoted.

I am bound to say to the Chancellor that recent events have caused widespread concern among officers of the Inland Revenue. They feel that their position has been weakened, and I hope that the right hon. Gentleman will do his best to repair that situation. This House has given these officials a very unpleasant task—

The Deputy-Chairman

I do not think that that comes within the ambit of this Clause which deals with the standard rate of Income Tax.

7.0 p.m.

Mr. Houghton

I am fully aware of the bearing which the standard rate of Income Tax at 9s. in the £ has upon this matter. I have already acknowledged that it is an important factor, though probably it is not the sole reason for some of the things which arise. It may be that if the standard rate of tax could be reduced, much of this work would be unnecessary. But since it is at 9s. in the £, and this Clause proposes to continue it at that rate, I think that the Committee must accept the fact that this unpleasant work must continue to be done. I think that the Inland Revenue officers are entitled to the support of the Committee and of the Chancellor in the discharge of the task laid upon them.

If this is one of the consequences of the high level of taxation, then it must be faced, just as are other consequences of the high level of taxation.

If the standard rate of Income Tax is levied on those workers, salary earners, who have no access to expenses allowances and have no amenities and facilities provided in kind and who must pay up to the hilt on all their income, it is not fair if others in higher positions of greater responsibility and power who have closer access to the means of providing themselves with these benefits escape a substantial amount of taxation under this Clause. I am sure that the Committee would not approve of that.

If the Committee agree with me about this, then it is necessary for hon. and right hon. Members opposite, whose glee when they hear an apology being given by the Inland Revenue is only too noticeable, to give backing to the Chancellor which he in turn should give to those officers who have to carry out the will of Parliament and who do so in some cases under very trying circumstances indeed. They are fully entitled to the support of all here who are in a position of legislative responsibility.

Mr. Hugh Dalton (Bishop Auckland)

I do not know whether the Chancellor will get this Clause without a Division. That mainly depends upon the state of mind of those on his side of the Committee, some of whom have criticised the continuance of this high rate of Income Tax. In the event of a Division, we shall have to reserve our liberty as to what we shall do, but, whether or not this debate ends in a Division, we have had a very interesting discussion. I am sure that the Chancellor does not grudge the time which has been spent upon it, because this is one of the central issues which must be confronted each year by the Committee.

Income Tax is a central feature of our public finance. Mr. Gladstone lost an election once because he promised to repeal it. The electors were against that and returned a Conservative Administration, as the Chancellor will remember. Ever since that date no such promise has been repeated, but we have had many debates on the general assumption that, in some shape or other, the tax would continue.

The question is whether or not the standard rate should be 9s. in the £. I should like to recall that the Chancellor after three years of Conservative Government has now just got the standard rate down—or last year he brought the standard rate down and he is retaining it unchanged this year—to the level to which I brought it down at the end of the war after less than three months of peace and Labour rule. I reduced it by ls. at one go—he has never done a big thing like that yet—but I also adjusted the Surtax.

The hon. Member for Langstone (Mr. Stevens) is not present, but I should like to say in reply to the point he made in a very interesting and suggestive speech, that this year none of my right hon. or hon. Friends have spoken of the evil consequences of a reduction in the standard rate uncompensated by a readjustment of the tax rates on the larger incomes. The reason why we have not developed that theme this year is because the Chancellor has made no proposal to change the standard rate.

If he had made a proposal to reduce the standard rate, we should certainly have deployed once more the argument that, unless the cut in the standard rate was modified by some readjustment of the tax upon the higher incomes, it would be inequitable and, as we said last year, it would give the greatest advantages to those who least needed them. However, it has not been necessary to use that argument this year. That does not mean that we take back anything of what we said last year.

Broadly, the question that it is worth while to consider is whether the standard rate now standing where it stood at the end of my first post-war Budget—and where it remained through my other Budgets and all the Budgets of Sir Stafford Cripps up to the point when my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) put 6d. on the standard rate—if it were possible to make further reductions in taxation, it would be desirable to do it by a further reduction in the standard rate below 9s. Here let me, from another angle, re-emphasise the point which I was making just now.

Although my right hon. Friend put 6d. on the standard rate he took great care, being sensitive to equity, to make sure that that increase did not fall upon the poorer classes of Income Tax-payers at that time. He did this by increasing the allowances both for single and for married persons. As a result of this, although he put up the standard rate by 6d., he reduced the Income Tax, by small amounts, for the majority of Income Taxpayers at that time—at any rate, for a very substantial proportion of them, and for all the poorer people then liable to pay tax.

This again illustrates the fact that, in the interests of equity, the movement of the standard rate, either up or down, should not stand alone, but should be compensated or supported by other movements in other elements in the tax system. We should consider whether, if it were possible to make further reductions in taxation, it would be desirable to do it by a further reduction in the standard rate below 9s. It is very doubtful, as things are and as they have been shown to be since the war—sometimes rather in conflict with our anticipations; and I will illustrate what I mean by that in a moment—whether we should contemplate a further reduction in the standard rate at this time as being desirable, even if there were some reduction possible in total taxation.

When I reduced Income Tax by 1s. I did so because I believed, as I clearly stated in my Budget speech, that it would have a very valuable incentive effect at the close of the hard years of war. In that opinion I was supported by practically all circles of political thought. The reduction in the standard rate, especially combined with the readjustment in the Surtax rate which I made, was welcomed by the supporters of the Government at that time and it was not resisted, although the readjustments in the Surtax were, by the Conservative Party. There was a general chorus of approval in the Press for making the sharp cut in the standard rate in the belief that it would be an incentive, a tonic and a stimulus to all sections of our people, tired, though triumphant, after war.

Perhaps we were wrong. Some evidence has come to hand lately to suggest that perhaps we were wrong, all of us, in over-estimating this incentive element. There are two kinds of evidence that have come to light, and they have both been referred to already. One is the evidence which has shown itself over the years that, in spite of the high taxation, both under our Government and under the successor Government which now sits in the seats of responsibility, nonetheless production has prospered, or did until 1951. With the exception of one year of Conservative rule, out of all the years since the war, on the whole production has prospered, and there may have been special reasons why it did not in that year.

Viscount Hinchingbrooke (Dorset, South)

rose—

Mr. Dalton

These are facts. They cannot be denied, even by the noble Lord. In spite of this high taxation production has gone ahead. People have worked well, and for a few years at least it seemed that investment also was proceeding on a satisfactory scale. There were doubts about that later.

Apart from this empirical evidence, there is now the very important Report of the Royal Commission, which has been referred to several times today. I wish to refer to it once more and to begin by drawing attention to what a formidable and variegated body this Royal Commission was—indeed still is, for it is now at work on its next interim Report. The chairman is a very distinguished legal personality, with a fair, lucid and constructive legal mind. He was appointed by the present Chancellor after some differences of opinion had revealed themselves as to who would be a suitable chairman to bring to these difficult studies a mind completely fresh, untrammelled and unhandicapped by any past public declarations of firm opinion.

In consequence of this, the present chairman, Lord Radcliffe, was chosen. He has discharged his task with great distinction. He has been assisted not only by a number of academic figures—there are a few of them on the Commission—but also by a number of other very able people, such as Sir Geoffrey Heyworth, whom, I suppose, everybody would put in the first rank of industrialists at this time, and some other very able legal authorities, including Mr. Millard Tucker, whose reports on other kindred matters are of much assistance to us and a great stimulus to thought. In other words, it is a Royal Commission which deserves collectively to be taken very seriously. Indeed, the Chancellor has told us that he will most carefully consider what the Royal Commission has advised and recommended.

I am not going to quote from the Report or to repeat what has already been said. I merely wish once more to put upon record that the Royal Commission has very largely disposed, by its judgments and by the evidence which it has collected through a specially contrived social survey, of the argument that, at this time—I do not speak of what may have been the case immediately after the war, for that was an exceptional psychological moment—there is any serious disincentive effect in heavy taxation upon either large income earners or upon wage earners under P.A.Y.E. That is a very important consideration which, it seems to me, must be borne in mind by all Chancellors of the Exchequer in future.

I am, therefore, led to think—and I offer this thought to the Chancellor as he will be considering these matters in the months before his next Budget—that there are certainly two matters which ought to take precedence, if tax reductions are in question, over any further reduction in the standard rate at this time.

One is the matter, which has been much discussed, of finding a stimulus to investment in the private sector. The public sector is doing very well. If all the private capitalists would copy Lord Citrine, and take a dose of whatever tonic he takes, and then go ahead with big, imaginative, constructive schemes such as he puts forward for the British Electricity Authority, we should have a livelier private sector and be able to dispense with a lot of the special financial inducements which now have to be given in the form of investment allowances and the like, to get these people to play up and do their stuff.

Not wishing to be thought to be dealing with this grave subject too lightly, I seriously suggest to the Chancellor that there is great value in the type of arrangement—I do not tie myself now to the particular details which the Chancellor has put in his Finance Bill; we shall discuss investment allowances later—whereby tax relief is tied to a specific beneficial act of investment, not letting the thing merely drift into the possibility that, if one reduces the standard rate of Income Tax, some people will save part of what they gain and that out of what they save some investment be made by private capitalists. As President Roosevelt used to say, these questions are altogether "too iffy"; there are too many "ifs" about them. However, when we take the investment allowance type of arrangement, that at any rate makes sure that a reduction in the burden of taxation on industrialists will lead to a specific addition to real investment. I therefore suggest that in his reflections on the future the Chancellor should prefer an extension of this kind of arrangement to a reduction in the standard rate. I now turn to the other matter which is much in our minds, particularly if we are considering the broad question of the distribution of income. The earned income relief has been steadily increased through successive Budgets by successive Chancellors. When the war ended it was a relief of only one-tenth. It is now some awkward fraction between one-fifth and one-quarter.

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

It is two-ninths.

7.15 p.m.

Mr. Dalton

That is an awkward fraction. I argued last year that we should rationalise it at a quarter, but the Chancellor would not do that.

Those of us who have held the office of Chancellor of the Exchequer have from time to time attached importance—this has generally gone through as a non-controversial proposal—to increasing the earned income relief. But there is now another very valuable and interesting suggestion in the Royal Commission's Report. I am not going to expound it in detail because it will be familiar to all hon. Members who have read that very interesting Report. I hope that the Report is being, and will be, widely read, not only in the House of Commons but also throughout the country.

This is the proposal for what can be called, for short, a minimum earned income relief. This appears to me to be well argued in the Report. It also coincides with an idea which was put forward last year by my right hon. Friend the Member for Battersea, North, who deserves a prize for having been the first hon. Member to think of it or at any rate, to expound such an idea in our debates. When he suggested it last year, it was hinted that it might not be very practical. It was said that administrative difficulties would appear, and so forth. However, my right hon. Friend is now greatly supported and the idea is much reinforced by the very careful and favourable study which has been made of the proposal in the Royal Commission's Report. Therefore, I hope that this will be one of the ideas which may find a place in the next Budget.

The difficulty about the earned income relief as we have hitherto known it is that, if one increases the relief, it is rather like reducing the standard rate. It is, arithmetically, equivalent to reducing the standard rate over a certain range of earned income, subject to a ceiling. The difficulty has been that one has caused the rain to fall upon both the just and the unjust and that one does not discriminate at all as to need. We have found that, if we make a further increase in the earned income relief as we have known it up till now, that is bound to be reflected right up the scale to the point at which one fixes the ceiling. I am not arguing that the ceiling should remain always where it is now—that is another matter—but, if there is a ceiling, up to that ceiling of earned income one increases the benefit in proportion to the total earned income which receives the benefit of the relief.

The beauty of the other plan, recommended by the Royal Commission is that one can give a benefit to the lower groups of income earners but is not compelled to extend this benefit right up the line. For these and other reasons, the proposal is well worthy of consideration and introduction into the right hon. Gentleman's next Budget.

I have only one other thing to say, and my right hon. Friend the Member for Dundee, West (Mr. Strachey) has already said part of it very effectively. This is by way of comment on what the Chancellor said. The Chancellor did not say very much, but one of the things that he said was that he regarded taxation as a necessary evil. That is an old gag. We have heard it before. I think somebody said it 150 years ago, or even 250 years ago.

However, the point which my right hon. and hon. Friends have been anxious to emphasise, and which my right hon. Friend the Member for Dundee, West, brought out, is that if one has a society, which in its structure is a very unequal society, in which few are much richer than the average and the great majority are poorer, and some of them much poorer, than the average, then taxation ceases to be an evil at all, if it is combined with proper social expenditure in such a way as to narrow from both ends the gap between the richest and the poorest people in the society.

If we had a different kind of society, and in some parts of the world they have made experiments in such alternatives. we might not need, as my right hon. Friend has said, to correct its inherent inequalities by so carefully developed a system of progressive taxation as we have now got, combined with schemes of social expenditure and provision for those whose need is greatest. It is a rather superficial old saw which says that taxation is a necessary evil. If the proceeds are well spent, it need not be an evil at all.

Indeed, the net effect of collecting taxation according to a just and well-considered plan and of expending it upon good social purposes, in addition to the necessary expenditure on defence, the combined effect of raising revenue in a just and effective manner and expending it in a just and effective manner is a change from an intolerable situation to one which has, within itself, great hopes for the future of our people. Such are the hopes which we on this side of the Committee entertain.

For this reason, we do not accept the slightly superficial view of taxation which has been put forward by the Chancellor of the Exchequer this afternoon.

Question put, and agreed to.

Clause ordered to stand part of the Bill.