§ Order for Second Reading read.
§ 3.43 p.m.
§ The Financial Secretary to the Treasury (Mr. Henry Brooke)
I beg to move, That the Bill be now read a Second time.
During our debates on the Budget last week there were several loud explosions, but, by the time the smoke had cleared away, it was found that my right hon. Friend's proposals had emerged unscathed. Last Friday afternoon the House, without a Division, passed on Report the Ways and Means Resolutions, and thereby endorsed the general shape of the Budget proposals. It is now time to translate those proposals into legislative form.
On a similar occasion a year ago, my predecessor said of the 1954 Finance Bill:This Bill is mercifully short. It has 31 Clauses and five Schedules…."—[OFFICIAL REPORT, 3rd May, 1954; Vol. 527, c. 26.]By comparison, my right hon. Friend the Chancellor is this year a paragon of compassion, because this Bill has only three Clauses and one Schedule. The last time that the right hon. Member for Leeds, South (Mr. Gaitskell) introduced a Finance Bill, it started with 51 pages and ended with 63. If on that occasion he was imposing burdens grievous to be borne, they were not only tax burdens on the community, but also legislative burdens on the patience of the House.
On this occasion, my right hon. Friend the Chancellor, for reasons which he explained last Tuesday, decided to introduce proposals of a classical purity and simplicity. There is no doubt whatever about their purity, but I grant that anyone reading Clause 2 of the Bill might not be quite so sure about their simplicity. Therefore, I propose to make my speech today expository rather than argumentative, at the risk of "The Times" once again calling me didactic.
The main proposal of the Bill is in Clause 1, the alteration of the standard rate of Income Tax from 9s. to 8s. 6d. I need not repeat the cogent reasons which my right hon. Friend gave for making this the principal feature of his 626 1955 Budget. He intended to give positive encouragement and stimulus to every taxpayer, to individuals and to companies alike.
The right hon. Member for Leeds, South made a mistake in some figures which he gave in his speech. It was not the only mistake which he made. He said—I do not know why—that this reduction in the standard rate would give relief amounting to £45 million out of a total relief given by this change amounting to £100 million. Both of those figures are wrong. In fact, the relief to companies by the reduction of the standard rate will be £42 million—the right hon. Gentleman said £45 million—out of a total of £116 million, each of those figures in a full year.
A number of hon. Members opposite, and, indeed, so distinguished an authority as the "Economist," suggested that my right hon. Friend would have acted more wisely had he concentrated his reductions for the benefit of those who received earned income by an increase in the earned income allowance. There are two reasons at least why my right hon. Friend did not take that course. One is that not all the individuals who are suffering hardship from the heavy burden of Income Tax are recipients of earned income, as every hon. Member on both sides of the House knows. His second reason is that, quite deliberately, he wished to extend this additional incentive and stimulus to companies as well as to individuals, and he acted with his eyes open. I have no doubt that the effect will be as beneficial as the similar action which he took over companies in his previous Budgets, which, I remember, was derided by the Opposition.
Subsection (1) of Clause 1 proceeds to fix the Surtax rates for 1955–56, and makes it clear that there will be no change in the rates of Surtax, that is to say, the remission of 6d. goes right through to the top. I know that some people believe that those who enjoy and work for large incomes should be treated penally by the tax collector. We on this side of the House do not hold that view, and we have no hesitation in saying that the same incentives and encouragements should be applied to those who by making a great contribution to the nation's wealth are earning large amounts for themselves as to those who are at lower levels of 627 income and who are equally giving of their best.
I understand that this decision will be criticised by the Opposition. The Opposition are saying that for people whose incomes exceed £5,000 a year the rate of tax of 14s. in the £ is not enough, yet I notice that the Opposition fixed some of the incomes for people holding office in the nationalised industries at figures which would attract those enormous Surtax rates.
§ Mr. Brooke
In fact, under these new proposals the rate of tax for people receiving incomes in excess of £15,000 a year will be 18s. 6d. in the £, still a punitive rate.
The Opposition say that that is not a sufficient penalty. We say that to retain these rates at 19s. 6d. or 19s. is not a sufficient incentive. This subsection refers to Surtax for the year 1955–56, that is to say, the Surtax which will become payable on 1st January, 1957. Subsection (2) refers to Surtax for the past year, 1954–55, payable on 1st January, 1956, in which case, of course, no alteration is being made.
The proviso to subsection (1) deals with the P.A.Y.E. arrangements, and though these are somewhat technical I should like to give them to the House because they vitally affect all the millions of people who are liable to P.A.Y.E. This proviso, together with a similar proviso to Clause 2 (1), will ensure that tax can continue to be deducted under P.A.Y.E. in accordance with tables prepared on the basis of the existing tax rates and allowances until 6th July. By that time new P.A.Y.E. tax tables will have been distributed and the necessary recoding of taxpayers completed. In the normal case, of course, owing to the reduction in taxation, there will be an overpayment of tax for the period up to 5th July. That will be refunded automatically when the new tables come into operation.
The new tables will give effect to the reduction in the standard rate and to the new scale of reduced rate relief. It will also be possible in most cases to give effect to the increased allowance for single 628 persons and married couples without re-coding. There will, however, be a substantial number of cases which will require recoding. It is as a result of this that it is not possible to be ready for deductions to commence on the new scale until week 14 of the P.A.Y.E. year, that is, the week beginning on 6th July. All these adjustments will be made automatically by the tax office and there will be no need for the individual taxpayer to apply for them.
It will not be possible to make these adjustments automatically in the relatively quite small number of cases where the taxpayer is entitled to further relief by reason of the increase in the income limit for dependent relative allowance or the removal of the emoluments limit which has previously applied to claimants for a child allowance where the child is apprenticed. In this particular but limited number of cases it will be necessary for the taxpayer to make a claim if he thinks that an extra allowance is due to him. Forms for that purpose are being printed and will be available for issue at the beginning of July. Taxpayers affected will be able to ask for them then.
I come now to Clause 2. If I may, I will proceed straight to subsection (3), reverting to earlier subsections in due course, because subsection (3) contains the main proposal. This will enact the Chancellor's desire that the rates of personal allowance should be raised from £120 to £140 in the case of a single person and from £210 to £240 in the case of a married couple. I do not think that anybody has yet pointed out that these will be record levels in each case. These allowances have never before been above £135 for a single person or £225 for a married couple. It is as long ago as 1931 that they last were at those figures.
This proposal links up with line 13 of the table set out in Clause 2, where the Bill has carried out the Budget proposal that the lowest of the reduced rate bands shall be altered from £100 to £60. Of course, the House will realise that part of that, as it were, is cut off at the bottom, because the single person, instead of first getting his tax-free allowance of £120 and then the £100 taxable at the reduced rate of 2s. 6d., will, in future, be getting an extra £20 free of tax altogether. For the married couple the additional personal allowance of £30 means that, again, it is not just a sheer loss of £40 of reduced 629 rate, but a change which ensures that £30 will be free of tax altogether and only £10 taxable at a higher rate than before.
The Chancellor has been anxious to find some means to meet the conclusion of the Royal Commission on Taxation, presided over so ably by Lord Radcliffe, that the present starting points of liability to Income Tax are too low and ought to be raised in such a way as to benefit the people with small incomes, but not to carry the benefit right through to people with higher incomes. The Royal Commission, for this purpose, recommended a minimum earned income relief as well as a maximum earned income relief. The trouble is that the Royal Commission itself would not have had to operate its own proposals.
When these came to be examined, it was clear that they would give rise to serious administrative difficulties in the operation of P.A.Y.E. The Chancellor therefore decided that this was an alternative method of meeting the Royal Commission's recommendations and, indeed, its effect is to go further than one of the two alternative schemes which the Royal Commission suggested. Let me put it another way. At present, a single man pays no tax on earnings up to £155. In future, under the Chancellor's proposal, he will not begin to pay tax until he has an income of £180. The Royal Commission's figure was £183, so there is practically nothing between them. A married man without children at present begins to pay tax on earnings at £270. The Royal Commission suggested that he should begin to pay tax at £299 and the Chancellor's proposal will free him from tax up to £309.
It will be even more favourable in the case of married couples with children. The married couple with four children at present begin to pay on earnings of £707. Under the Royal Commission's scheme they would have to begin to pay on earnings of £736, and under the Chancellor's proposals they will not begin to pay tax until there is an income of £823. This carries out what I know has been one of my right hon. Friend's earnest desires, to benefit, so far as possible, the parents who are bringing up and educating children. By these proposals combined the Chancellor frees 2 million people entirely from Income Tax, and the further proposals of the Bill will free another 400,000.
§ Brigadier Christopher Peto (Devon, North)
My hon. Friend said that forms were being prepared and that taxpayers in certain categories who had overpaid could ask the tax collector for the forms so that they could make their claims. Would not it be possible to instruct the authorities to send the forms to those people who require them without application having to be made?
§ Mr. Brooke
I am sorry if I did not make the position entirely clear.
With P.A.Y.E. going on on the existing tables, there will be by July an overpayment of tax. In most cases, that will be corrected automatically and the overpayment will be made good by the operation of the new tables which will come into force from 6th July. There will be only one or two small categories of people whose needs cannot be provided for by the new tables; nor would it be possible for the tax authorities to pinpoint all of them and make sure that everybody had a form.
These are simply the people who are affected by the new provisions regarding the dependent relative allowance and the emoluments limit for apprentices. Others need not worry. They need not apply to their inspector. They need not ask for forms. The operation of the new tables will automatically put things right for them.
I was referring to page 3 of the Bill, and I think that this is the right moment to discuss Clause 2 (7) before reverting to the minor but valuable proposals in the earlier subsections. The effect of subsection (7) is to enact that each of the reduced rates will, in future, be 3d. less than it is now. For the benefit of hon. Members who are not familiar with all this—and I would not blame anybody for not being familiar with it—immediately above the tax-free personal allowances there is a band of £100 of income which at present is taxable at 2s. 6d. The Chancellor's proposal is that tax shall, in future, be charged on that band at 2s. 3d. The band itself will be not £100, but £60.
The next band—the middle of the reduced rate bands—is a band of £150 on which tax has hitherto been charged at 5s. Under this Budget it will be chargeable at 4s. 9d. Beyond that, the highest of the three reduced rate bands is also a band of £150, the existing tax is 7s. and it will be reduced to 6s. 9d.
§ Mr. Callaghan
Can the hon. Gentleman tell us why the Chancellor reduced the first of these bands on which relief is given from £100 to £60, in view of the fact that the remaining two bands have been left at £150 as they were before?
§ Mr. Brooke
The reduction of the first band from £100 to £60 is linked with the expansion of the tax-free allowances by an extra £20 for the single man and £30 for the married couple. The hon. Gentleman will appreciate that if one simply made those increases in the personal allowances and made no difference at all in the bands, the benefit which the Chancellor was desiring to concentrate on the people now paying quite small amounts of tax would have gone right up through all the taxpayers at the higher levels.
My right hon. Friend is anxious to give as much advantage as he can to the people at the lowest points; that is, to free as many as possible of them from tax while observing the Royal Commission's suggestion that concessions should be concentrated there and not carried right through the whole tax-paying field. The hon. Member will find that there is a good deal of money in it. If, in fact, the Chancellor had been, within his limit of not giving away more than half his surplus, still seeking to retain the lowest band at £100, it would have been impossible for him to increase the personal allowances as he has done.
I have brought these two together in my speech, because inevitably they cannot be close together in the law but they are indissolubly linked together in the mind of my right hon. Friend.
§ Mr. J. T. Price (Westhoughton)
I know that the hon. Gentleman is doing his best to explain a most complex matter, but is not the mathematical effect of what he has said simply that those people who are now paying tax at the lowest rate of 2s. 6d., which will be reduced to 2s. 3d., will have to pay at the higher rate on any income above the first £60, whereas previously it was £100? That means that £40 of their income will carry an increased tax, from 2s. 6d. to 4s. 9d., thereby compensating for any advantage.
§ Mr. Brooke
No. Everybody will get the benefit of the increased personal allowance. The married couple will get £30 extra free of tax and the single person 632 will get £20. There is, of course, the question which was urged by one or two hon. Members opposite last week, whether the Chancellor ought not to have taken 6d. off all the rates of tax. In fact, if hon. Members look back over the history of Income Tax they will see that, normally, the tax charged at reduced rates has tended to be proportionate to tax charged at the standard rate. When there has been a reduction in the standard rate, normally there has not been a full reduction but only a proportionate reduction in the reduced rates. That is a historical fact.
In 1951, the right hon. Gentleman the Member for Leeds, South took action which seemed to me somewhat harsh to the smaller taxpayers in that he increased the rate by 6d. not only on the standard rate but on all the reduced rates. In 1953, my right hon. Friend decided to put that right by taking 6d. off all the rates, but on this occasion he is reverting to the traditional custom with Income Tax and making roughly proportionate reductions.
He is taking one-tenth off the lowest rates compared with the one-eighteenth which he is taking off the standard rate. The proportionate reduction for the middle rate is just about the same as the reduction in the standard rate. The proportionate reduction of the highest of the three reduced rates is less than the reduction in the standard rate, but all the people concerned there will have had the advantage of the higher personal allowances and the higher proportionate reductions in the lower rates.
Obviously, these are proper subjects for debate. They are exactly the kind of thing on which we ought to exchange views in the House during this week—both the width of the bands and the figures at which the reduced rates should be fixed. If anyone has cause to complain against what is being done in either of these two respects, it certainly is not the Labour Party.
Under my right hon. Friend's proposals, a married couple with no children will pay no tax until their earnings reach £309. Under the 1951 Budget—the last Budget introduced by the Labour Government—that same couple would have started paying tax at £238—£71 lower. They would have paid at 3s. in the £ on the band of their income from £238 to £300, and 5s. 6d. above £300 up to £550.
633 Under my right hon. Friend's proposals that couple will, as I have said, pay no tax up to £309. They will pay at only 2s. 3d. in the £ from £309 to £386. They will pay at 4s. 9d. from £386 to £578, and at 6s. 9d. from £578 to £771. Under a Conservative Administration, therefore, not only will they be much better off at the lower levels, about which I understood the party opposite were specially concerned, but they will not start paying tax at the standard rate of 8s. 6d. in the £ until their income reaches £771. Under the last Labour Government, a similar couple would have started paying tax at the higher standard rate of 9s. 6d. when their income reached £550. If those figures are analysed, as I am sure they will be, they will indicate the immense improvement which my right hon. Friend's four Budgets have given to those who are in the lower ranges of Income Tax.
§ Mr. G. R. Mitchison (Kettering)
Before the hon. Gentleman becomes further dazzled by these figures, may I say that I was glad to hear him say just now that he would welcome discussion on these matters? I wonder whether the Money Resolutions, which he drafted and which were passed on Friday, were intended by the Government to enable any further improvement to be made, if the House thought fit, or whether, in fact, they preclude any agreement on higher relief being put into effect. Has he any information on these matters? He will remember that his right hon. Friend was asked about this.
§ Mr. Brooke
I am in the hands of Mr. Speaker, but I find it rather difficult to debate on Second Reading the terms of Money Resolutions which have already been passed, and which will be of particular relevance on the Committee stage of the Bill, which we have not yet reached. I hope, therefore, that the hon. and learned Gentleman will forgive me if I do not pursue that point at this moment in my speech.
§ Mr. Douglas Jay (Battersea, North)
As the hon. Gentleman said in his speech that he would welcome discussion on these particular points, can he assure us now that Amendments on these points will be in order on the Resolutions which he helped to draft?
§ Mr. Brooke
I cannot usurp the functions of the Chairman of Ways and 634 Means, nor can I think that the Opposition are so little versatile or resourceful that they can find no means of debating these important issues in Committee.
I now return to the earlier subsections of the Clause. Subsection (1) is purely descriptive. Subsection (2) deals with the important question of small income relief. The House will remember that my right hon. Friend in 1952 granted a small income relief to people who had unearned incomes below £250. If, of course, they were over 65 they would get the benefit of age relief, equivalent to the earned income relief, on their small investment incomes; but there are people, as we well know, who have not yet reached old age but who have very small investment incomes to live upon, and I would have said that one of the most beneficial small changes which my right hon. Friend has made in the Income Tax structure was the invention of this small income relief.
Under this Budget it is proposed to extend that relief from £250 to £300. There will, as before, be marginal relief so that somebody with an income just above £300 will not lose the whole benefit of the relief. I understand that under the present law this marginal relief tapers away to nothing at about £321. Under the proposals in the Bill, the marginal relief will taper away finally at a maximum of £397.
Subsection (4) deals with a kindred matter—marginal age relief. The Chancellor in a previous Budget extended the income limit for age relief from £500 to £600, and that, also, has been immensely welcomed by many elderly people. There, too, there has been a marginal provision to ensure that the person with an income of just over £600 will not lose the whole benefit of the relief. Indeed, although I think it is not generally known, the tapering provisions now extend some benefit from the age relief to single people with incomes up to about £912, and to married couples in certain circumstances with incomes up to £860. This subsection is so drafted that people who are entitled to age relief will continue to obtain marginal relief up to about the same points of income as heretofore. If we had not made any change in this Bill, the marginal relief would have run off at a lower figure, owing to the reduced rate of tax.
635 I now pass to subsection (5), which is also of interest to a great many of us. I suppose that I must declare my personal interest, because I have four children. This is a proposal to increase the child allowance from £85 to £100, and I personally am delighted to have a small share in supporting my right hon. Friend in carrying this through. [Laughter.] Yes, I am delighted not only for myself but because I am quite convinced that the Royal Commission was right in saying that our present tax structure tends to hit as hardly as anybody those people who have young children to bring up. The figure is now raised to a record level. It was £70 under the Labour Government in 1951. My right hon. Friend increased it to £85 in 1952, and this will bring it up to £100.
The Royal Commission said, among other things, that the existing tax structure tended to over-rate, at any rate in the middle and upper ranges, the taxable capacity of the family man as compared with the taxpayer without dependants—the same thing as I said a few minutes ago in my own simpler language. The Royal Commission recommended a somewhat more complicated scale which would have granted child allowances at different rates from £85 to £160 according to the parents' income.
To that recommendation also there are administrative P.A.Y.E. objections. I do not say that it would be impossible to carry it out, but it would be much more difficult; and that is one reason why the Chancellor has chosen the simpler course of granting £100, fixing the child allowance at £100 for everyone—an all-round increase of £15. In passing, I should like to point out to hon. Members opposite that this proposal by my right hon. Friend is more favourable than that of the Royal Commission to people with lower incomes.
Welcome was expressed during the Budget debate last week to the Chancellor's proposal in respect of apprentices. I grant that hon. Members who had not a photographic knowledge of the Income Tax Acts might not have identified it, but it is embodied in lines 41 and 42, in page 2, of the Bill. If the House approves those two lines, it will remove the special provision which hitherto has deprived parents of the child 636 allowance, if their child was an apprentice with emoluments exceeding £52 a year. This is another direction in which the Budget carries out the recommendations of the Royal Commission.
It is not proposed that the general income limit of £85 for the child should be changed, but it is proposed to remove this special limit, that is, the second limit within the main limit, which used to exclude the parents of certain apprentices.
§ Mr. Mitchison
Now the income limit will, of course, apply with a particular force to apprentices and others. Can the hon. Gentleman, in the course of his exposition, tell the House what are the reasons for not making an alteration in that income limit?
§ Mr. Brooke
There are many directions in which more money could be given away to the taxpayer, I grant that to the hon. and learned Member entirely. On this occasion, what my right hon. Friend had to judge was how he could remit a limited amount of tax to the best advantage. He came to the conclusion that those people who had a son or daughter with an income in their own right of more than £85 a year were not necessarily one of the most deserving categories of people to get the benefit of a special change in the law.
Finally, I come to subsection (6), which I trust the House will approve. This makes a valuable alteration in the conditions of the dependent relative allowance, which is at present an allowance of £60 conditional on the relative's income not exceeding £85 a year. As hon. Members are probably aware, the amount of the allowance now tapers off by £1 for every £ by which the relative's income exceeds £85, so that if the relative's income is up to £145, the allowance disappears altogether. Under this proposal, the previous limit of £85 will be raised to £105, and the figure of £145 will be changed to £165.
In other words, a taxpayer will still get the full benefit of the dependent relative allowance, even though the relative in question for whom he claims it has an income of £105, and it will not disappear altogether unless the relative's income reaches £165. There have been several changes in this allowance recently, as the House knows. I am quite sure that this one will be approved, because it makes 637 sure that the increase in the old-age pension which old-age pensioners are just going to enjoy will not have the effect of taking away from any other taxpayer the dependent relative allowance which, otherwise, he might have been able to elaim in respect of an old-age pensioner whom he was helping to support.
I hope that I have done as the House wished in going in some detail through these rather complicated subsections of Clause 2. The shortness of the Bill encouraged me to enter into rather more detail than is customary in a Second Reading speech. These are the Chancellor's proposals in the field of Income Tax, which will cost £132 million this year and £152 million in a full year.
If there are other recommendations, whether in the reports of the Royal Commission or the Millard Tucker Committee, which do not feature in this Budget, that does not mean that they have been forgotten. All of these will remain for further consideration in future years. I trust that before long we may have the final report of the Royal Commission and that will be the time to take stock of its findings.
§ Mr. Hugh Dalton (Bishop Auckland)
It is important that we understand what the hon. Gentleman has said. He says that other of the Millard Tucker proposals will remain for consideration in future years. That means that it is not contemplated—even in the event of Her Majesty's present advisers being returned—to have a second Finance Bill this year. I think we ought to understand that that is ruled out.
§ Mr. Brooke
I did not seek to put any gloss on my right hon. Friend's Budget speech, and I am grateful to the right hon. Gentleman for raising the point, in case my words should have been misunderstood.
If the House will examine what my right hon. Friend said, they will find that he indicated that what would be left over from this Budget straight away would be a number of detailed administrative taxing changes, rather than major Budget proposals. But he was careful—and I want to be equally careful—not to prejudice the future in any way. All I was seeking to do was to make it perfectly clear that, because proposals recommended by one of those important bodies 638 did not appear in this Budget, it did not mean either that they had been rejected or forgotten.
§ Mr. Brooke
Granted that no more than half of the Budget surplus can be given away in tax remittance, I submit that this is a fair and well-balanced way of proceeding. If the Budget is as bad as last week right hon. and hon. Members opposite were sometimes induced to say it is, then the Opposition will no doubt wish to declare their view by voting against the Second Reading of the Finance Bill. I say that the Budget will make life more worth while for everybody who pays Income Tax, and will make effort more rewarding for all those who work, in whatever capacity, by their hand or brain—and that is the main obejct of the Chancellor's Budget.
§ 4.30 p.m.
§ Mr. James Callaghan (Cardiff, South-East)
I thought for a moment that, in his peroration, the Financial Secretary was going to leave out the words, "to those who pay Income Tax," and say merely that this Budget would make life more worth while. Had he limited it to that, my task would have been a little easier; but he put in the essential qualification.
I must say that upon the premises from which the hon. Gentleman starts, this is a good Budget. It helps his friends a very great deal, and it helps the companies even more. It helps those who pay Income Tax. Judged by any Conservative test one cares to apply, it is a good Budget, and I readily acknowledge it. But when the Financial Secretary says that life is made more worth while for those who pay Income Tax, I should like to ask him about a case the particulars of which came into my hands on Saturday.
One of my constituents has an income which, at present, consists of 32s. 6d. a week, widow's pension; 7s. 6d. National Assistance; and £1 a week in respect of the death of her son, who was killed in action. The letter I have in my hand states that in view of the coming increase in the old-age pension her dependant's pension, in respect of her son, is reduced from £1 to 15s. a week. Does the Chancellor really feel proud of a Budget and 639 a Finance Bill which give away millions of pounds in reliefs to those who need them least, when his officers are sending out letters of this sort, taking 5s. off a miserable dependant's pension?
That is the test by which the Labour movement will judge this Budget, irrespective of what those in the City may think about it, or whether the Budget is popular among the hon. Members own supporters.
§ Mr. R. E. Winterbottom (Sheffield, Brightside)
Is my hon. Friend aware that in the case of a married couple in receipt of old-age pensions, with no supplementary pay at all, to whom a pension of £1 a week has been paid for the loss of their son who was killed in action and upon whom they were dependent, the sum of 5s. has been taken off? I only wanted to reinforce my hon. Friend's point by saying that not only in cases where supplementary pay is concerned, but in this case, where no supplementation has been given at all, 5s. has been taken off the money which was granted in respect of the death of their son, who was killed in action.
§ Mr. Callaghan
My hon. Friend reinforces the point that I am making. I am sure that the Government will hear much more from the Opposition upon this aspect of the matter, in criticism of this Budget.
§ The Chancellor of the Exchequer (Mr. R. A. Butler)
Will the hon. Gentleman let me have particulars of this case? The letter to which he refers obviously comes from the Department of one of my colleagues. I should like to see whether this person, who is very much to be sympathised with, is better off or not. I should like to compare notes with my colleagues.
§ Mr. Callaghan
I am much obliged to the right hon. Gentleman. This is a letter from the Ministry of Pensions, and I had intended to send it to the Minister, but if I can send it to the Chancellor I shall be glad to do so, if he will investigate it.
This is a common-form letter; it does not concern an individual case. I had to tell this constituent of mine that there was nothing I could do about the matter except send my strong protest to the Minister about this practice. As the Chancellor will see from the form of the 640 letter, it is a circular, in which names and amounts of pensions are inserted. I shall gladly send the letter to him, and if he thinks that the contrast which I have made is so striking as to warrant him doing something to protect the position of these widows who are enjoying dependants' pensions, based upon need, in respect of their sons who have been killed in action, I am sure that the Opposition will gladly help him to put through any additional Money Resolution which is needed to put right this situation.
§ Brigadier Peto
I think the hon. Member said that the deduction was made from the dependant's allowance. Would it not have been normal for the deduction to have been made from National Assistance?
§ Mr. Callaghan
I do not wish to give this lady's name, or her particular circumstances. We can look into the case again. I have stated her total income—£3 a week—and the fact that she is about to receive an increase in old-age pension. This letter says that her dependant's pension is accordingly reduced by 5s. a week. Those are the facts of the case, which can be investigated, and I am obliged to the Chancellor for agreeing to do so. I had not intended to mention it until the Financial Secretary, at the end of his speech, said that this Budget benefited those who paid Income Tax.
This brings me to the kernel of our criticism. Of course the Budget benefits people who pay Income Tax—but the Chancellor has a wider responsibility than for those who pay Income Tax. He has a responsibility to the whole community, and not merely to the Income Tax payers, and he has partially failed to discharge that responsibility by the way in which he has concentrated his reliefs upon the Income Tax payers as a class, especially upon those who pay Income Tax at the standard rate. As the Financial Secretary's speech proceeded it became quite clear what had been the starting point in the Chancellor's approach to the Budget.
I am sure he said, "I have got to take 6d. in the £ off the standard rate, and everything else must be adjusted to this." That is why, when the Financial Secretary was questioned about the reason for the reduction in the reduced rate band, he said, "With the limited amount of money which we have available to give away we 641 must use the best possible method." That is why, when my right hon. Friend asked him why the child allowance had not gone up further, he said, "We must do this in accordance with the best possible way when we have only a limited amount of money to distribute."
We know that there is only a limited amount of money—£150 million—to distribute, but the Chancellor did not have to take it off the standard rate, or relieve the companies of taxation in this way. He could have done what was done earlier in connection with the reduced rates, as the Report of the Commissioners of Inland Revenue says; he could have increased the bands of the reduced rate. He could have made them wider without altering the standard rate, as had been done in earlier years. If he had been so concerned about the family man, as the Chancellor said he was, he could have helped him by widening those bands at the bottom and not touching the standard rate.
But, no; the Chancellor's starting point was a clear one—6d. in the £ off the standard rate. That is the key to this Budget. That is where he started from. I concede that this will strengthen his position among his supporters. I never thought the Chancellor was an indifferent politician; I have always thought him to be a very good one indeed. I am certain that this 6d. off the £ will be extremely popular in the City, and with those whose support he needs in order to strengthen his position in the Conservative hierarchy, but he must not ask us to look at the Budget's consequences and effects upon the country from that point of view.
In developing the electioneering part of his case, the Financial Secretary said that the married couple without children and within the £300 limit had been relieved of tax altogether during the lifetime of this Government, although they had had heavy burdens imposed upon them by the Labour Government. If he wants to make the whole of his case upon that point he should tell the House what amount of tax was being paid by the £300 a year couple without children when the Labour Government came into office. Let us see the difference.
As far as I can see, what the Government have done is to reduce the liability of the £300 a year man without children from £7 10s. when they came into office to nil 642 this year. When the Labour Government took office—and I have here one of the early Financial Statements—the liability of the £300 a year man without children was £42 5s. When we left office the liability was £8 15s. I do not place much reliance upon this point introduced by the Financial Secretary, but if there is to be comparison between the Labour Government, who reduced this liability during their period of office from £42 to £8, and the Conservative Government, who have just managed to struggle down to the point where they take him out of liability by saving him that last £8, then that is the difference. When the Financial Secretary boasted about this matter in the electioneering part of his speech it seemed worth while to answer that aspect of his case.
I want to examine what the Budget means to particular groups of taxpayers. The three aspects of the Budget are, first, whether anything should be given away at all; secondly, whether, if anything is to be given away, how it shall be given away, and in what form, direct or indirect relief; and, thirdly, how the relief shall be divided and what benefit those who are supposed to derive advantage from the Budget actually get? I wish briefly to trouble the House, as the Financial Secretary did, with a number of figures.
From the Report of the Commissioners of Inland Revenue we see that the biggest group of single persons is of those who earn between £250 and £500 a year, the £5 to £10 a week man. There are 3,660,000 of them. I do not suppose that the Financial Secretary will want to follow me into this matter in great detail. I hope he will take the result I give as being right. At £250 a year, the single man will save £3 3s. 7d. in the course of the year, or 1s. 2d. a week. The £300 a year man will save £1 3s. 4d. a year or 5½ d. per week. At £400 he will save £2 2s. 9d., or 10d. a week. At £500 he will save £1 2s. 2d. a year, or 5d. a week. For this group of taxpayer the minimum gain is 5d. and the maximum gain 1s. 2½ d. per week—and one of my hon. Friends has just reminded me that in the first week of July he will pay another 1s. insurance contribution.
The Chancellor of the Exchequer ought to know that all this has been worked out in the clubs and "pubs," where they know what the Budget means to them.
643 Over the weekend there has been a lot of head scratching to decide whether this is the family man's Budget that it is supposed to be.
The biggest group among married couples is from the £250 to the £500 a year class, or the £5 to £10 a week man. There are 4,890,000 people in this class, according to the Report of the Commissioners. I will summarise that by saying that the maximum relief that anybody can get in that class—and I have taken the most favourable case I can—is £6 4s. 8d., or 2s. 5d. a week. Very few get that relief. Many get 1s. or 6d., and a great many get nothing at all.
I have selected from the Commissioner's report the two major income bands, who number between them more than 9 million people. Now we have all the people in the income bands below £250 a year who are not paying tax, and they come to about 3,005 million. If we take the single and married people earning up to £500 and the married people earning up to £500 we have a total of 12,740,000 incomes, say 13 million, for whom the maximum relief is 2s. 6d. in the best case and the minimum relief is nothing. Most of them get from 9d. to 1s.
There are 19,800,000 assessed, so 65 per cent. of them get a relief that is trifling. That is what the Budget means for two-thirds of the people who are earning money in the country today. I am now proposing to apply myself to particular trade groups and to see what the Budget means there. I am sorry if this is wearying the House, but people generally will be hearing a lot more about this soon, so the Government had better think out their answers.
For chemical workers, the average earnings—not wages—including overtime and Sunday work, comes to £10 6s., or a little over £530 a year. Married couples without children will save £3 7s. a year. The £500-a-year chemical trade worker—mind you, there is overtime, which means extra sweat, in this figure—will save £5 a year. If he has three children he will pay no tax. Where is the incentive to a man in the chemical trades? He has to pay his extra 1s. contribution. What do the I.C.I. get? Let us see. The tax saving to I.C.I. from this Budget is £760,000. No 644 wonder the Financial Secretary says that the Budget makes life easier for everybody who pays Income Tax. I will say it does.
What about the clothing workers? Their average weekly earnings, including overtime and Sunday work, is £9 4s. 3d. A married man with one child will save less than 2s. per week out of the Budget. He will soon have the extra National Insurance contribution coming along. For a married man with two children the saving will be nugatory. The man with three children will not pay tax. We can go through the whole of the list of workers, including those in gas, electricity and water, or food, drink and tobacco, where the average weekly earnings are £9 5s. 6d. There are Government industrial employees—but perhaps the Government do not want the highest productivity from them—whose average earnings are £7 17s. 4d. a week. How much benefit do they get from the Budget?
Take the group about which I am particularly concerned, the railway conciliation grades. They are the men who work on the footplate or who are employed as porters. They are covered by the conciliation machinery. The average earnings of the railway conciliation grades today—including everything, Sundays and overtime—is £9 2s. 10d. a week. Again, a married man with a family will get nothing out of the Budget. If he has one child he will make 1s. 10d. a week out of it.
Does not the Chancellor see what he has done? He has encouraged every trade unionist, everybody in the country, whether he earns profits or works for wages, to grab what he can. This is the major criticism of the Chancellor's tenure of office. My hon. Friend the Member for Fulham, East (Mr. M. Stewart) summed it up in his speech on the Budget. The Chancellor has not said, "To each according to his need," or even, "To each according to his ability." He has said, "To each what he can grab "—and that is the indictment of the right hon. Gentleman and much of the reason for the industrial trouble which we are going through at present, because we are living in an era of grab and he has encouraged it.
I come now to the position of the companies. The Excess Profits Levy which the Chancellor introduced in 1953, from 645 1st January, 1952, was repealed by him from 1st January, 1954. It lasted for two years. He never obtained the yield from it which he told us he would get. In his Budget speech he told us that he would get £100 million for two years, but the yield never reached that figure.
When he imposed the Excess Profits Levy he said, "I am going to reduce the Profits Tax because it is unfair to ask companies to bear both taxes," and he reduced it substantially. But when he repealed the Excess Profits Levy he did not replace the Profits Tax. That slid out of sight, underneath the Dispatch Box somewhere. He hoped that no one would notice it.
I want the House to note what the Exchequer receipts have been from companies by ways of Profits Tax and Excess Profits Levy or Tax—because a little has "slopped over" from E.P.T.—during the last five years. In 1951–52 the proceeds of the Profits Tax were £307 million. In the following year they rose to £376 million. Profits Tax was yielding £376 million.
In the following year, because the Chancellor had cut it, it was reduced to £188 million—it was halved; but, instead, the Chancellor received £66 million from the Excess Profits Levy. The following year the proceeds of both taxes were roughly the same and amounted, together, to £249 million. But now the Excess Profits Levy has nearly disappeared and we have only half the proceeds which we used to have from the Profits Tax. The Chancellor estimates in his White Paper this year that the proceeds of the Profits Tax and the Excess Profits Levy will be £205 million, against a figure of £376 million from these similar sources in 1952–53.
Thus, the companies have benefited not only from the 6d. in the £ reduction in the standard rate of Income Tax. They have also had an uncovenanted benefit of £170 million, if we take the difference between 1952–53 and the present year in respect of the lowering of the Profits Tax.
This is one of the major reasons for which share values have risen and for which we have been enjoying such a boom. I do not know whether the Chancellor reads the "Investors' Chronicle" and has worked out from the article in it by how much share values have been increased as a result of the reduction of 646 6d. in the £ in the standard rate. The figures are there if he cares to follow the argument through. Of course, part of the boom which we have been living through has been brought about because it has been the Chancellor's deliberate policy, as the Financial Secretary said, with his eyes open to reduce the rate of taxes upon companies in this manner.
We all know that every self-respecting company does not believe it is doing its duty unless it has a cash bonus every five years or so and an issue of scrip; one-for-three or one-for-five. We cannot make anything out of company dividends today unless we see what the capital distribution has been over the last five years. The rate of distribution of dividend is meaningless unless we look at the way in which the shareholders have been advantaged by an increase in their capital, uncovenanted, unearned and undeserved. The shareholders sit in their nests squawking for higher dividends and waiting to be fed.
The Chancellor thought that my right hon. Friend the Member for Huyton (Mr. H. Wilson) was squalid in what he said about this on Friday. I propose to say more about it. The Chancellor's view is that the interests of the shareholders and the interests of the employees are not necessarily opposed. I say they are. The interests of the company and the interests of its employees are not necessarily opposed, but by virtue of what right does the shareholder assume that he is the company? He merely enjoys a legal fiction which puts upon him the opportunity of taking the profits and also says that he has to bear the losses up to the limit of the liability of his subscription. That is all.
These companies do not belong morally to the shareholders. The shareholders are lucky to get a reasonable return for their money, but they ought not to get more than a reasonable return for their money, and the distribution of dividends and of capital which has been taking place over the last few years has been an unreasonable and unfair distribution of these companies' money. I say to the Chancellor that that is where we differ with him.
We strongly believe that there is a limitation which should be placed on the shareholder's return for the investment of his capital when he does nothing to earn 647 anything over and above what he originally put in. If the Chancellor were to do what was done by Labour Chancellors of the Exchequer—if he were to appeal for, and to enforce by proper budgetary measures, restraint in prices, wages, incomes and dividends, there might be some case for saying that there was no tension, but the Chancellor's own policy creates that tension, and he should be aware of it and should know it.
§ Mr. James Ramsden (Harrogate)
Would the hon. Gentleman like to say what he considers to be a reasonable rate of remuneration upon risk capital?
§ Mr. Callaghan
I will not be drawn by that. Perhaps I will go into this generalisation—and I hope it satisfies the hon. Gentleman: the rate of return on risk capital should be much higher where there is a risk than where it is a gilt-edged investment; and do not let anybody tell me that a great many of the mature, built-up companies which we see around us today are anything but gilt-edged investments in the present period of world prosperity. They have been enjoying considerable prosperity.
What we say to the Chancellor is that instead of returning this money, which will be either invested by the companies or returned to their shareholders, and which, in any case, adds to the wealth of the company, there are a great many other social objectives to which he could have directed it. For example, he could have directed it towards increasing the number of schools, and decreasing the size of classes. He could have directed it towards the Health Service. There are plenty of measures which he could have adopted which would have increased social adhesion in this country instead of creating a situation in which the classes are fighting.
§ Mr. R. A. Butler
Perhaps the hon. Gentleman does not realise that as a result of the very prosperity of which he complains the Health Service Estimates have been increased and the Education Estimates have been increased by £25 million.
§ Mr. Callaghan
I wonder whether the Chancellor—probably he will not have done so—has ever thought of this. My 648 nine-year-old boy is in an L.C.C. school, and he came home just before the Easter holidays and told us that there were 50 boys in his class. Fifty boys in one L.C.C. class! The average for his school in South-East London is 45½ per class, and there is not a single class with fewer than 40 in it. It is no good the Chancellor boasting that he has increased the amount spent on education when that situation continues. Instead of relieving companies of 6d. on their rate of Income Tax and giving Unilever's more than £1 million, the Chancellor could well have doubled the amount being spent on school buildings, and even then he would not have done enough.
I want to deal with what the Chancellor has done for companies. What is the effect of a reduction of 6d. in the £ on their tax liability? I have taken these figures from the "Investors' Chronicle" of 23rd April. As the result of the Budget the Portland Cement Company will save £190,000. No wonder that the Budget will be popular among those who pay Income Tax. Rank Mills will save £134,000; they, too, are getting a substantial dividend. To Tate and Lyle, not unknown in this House, the Budget is worth £99,000. To Dunlop's, it is worth £193,000.
I now come to Associated Electrical Industries. Viscount Chandos returned to the City just in time. We knew him better as Mr. Oliver Lyttelton. The company reported a level of production exceeding in value and volume all previous years. I am not against profits, but I am against their maldistribution and the shareholders taking an unfair proportion. I am against the Chancellor giving the shareholders more relief when they do not deserve it. Surely the Chancellor can see that elementary case. Associated Electrical Industries made net trading profits of £132 million, and I estimate that its tax saving will be about £300,000. That is good for Lord Chandos. I am delighted that his expert knowledge and wise guidance should have enabled him to get to the position where he has a record level of production, but I do not see why he should get a further uncovenanted benefit of £300,000 from the Chancellor on top of it.
§ Mr. Callaghan
His company gets it. What are we arguing? Is it being argued that the companies do not get it because it is passed on to the shareholders? The point I am making is that Viscount Chandos is chairman of the company and the company is getting the benefit. The hon. Gentleman can say that the money is distributed to the shareholders, although that is not true, or he can say that it remains in the company. All I am saying is that the company has an uncovenanted benefit of £300,000. Is there no better way of spending £300,000 than that today?
I have a long list of companies here. I see it stated that the Ford Motor Company profits continue to expand dynamically, and I estimate that its tax savings will be about £400,000.
§ Mr. Callaghan
I believe that my right hon. Friend is employed by the Ford Motor Company, but even Socialists are still allowed to work under a Tory Administration.
There is also the Lewis Investment Trust, of Liverpool. That will not be unknown to Lord Woolton. I am delighted to see that, thanks to its enterprise and initiative, it made a record trading profit of £4. 6 million. I am with it so far, but I am against it when it declares a dividend of 40 per cent., and I am even more against the Chancellor for giving it a tax remission of £125,000. If these firms have record profits, if they are expanding dynamically and if they are doing better than they have ever done before, I would say to the Chancellor that there are a great many social welfare benefits upon which he could have spent the money instead of giving it away to people in the City.
I want to take up the Chancellor's loose broadcast statement that he wanted to reduce the standard rate by 6d. to show that it is worth while working for the country. Worth whose while working for the country? Is it only to be worth one's while working for the country if one is a standard rate taxpayer or a large company? Ought it not also to be worth while working for the country if one is not liable to tax? Ought we not at least to ask a Chancellor who says that he has 650 the national interest as a whole at heart why he did not distribute such remissions as he thought fit to make in such a way as to help people at the bottom of the Income Tax scale as well as those at the top of it? That is our indictment against him.
The Chancellor could have repaid part of the post-war credits. That is a debt of honour which was incurred many years ago. That ought to have a very heavy charge on any tax remissions which are made at any time. My right hon. Friend the Member for Bishop Auckland (Mr. Dalton) began the repayment, and the time has come to carry it a stage further. The Chancellor carried it a little further last year. As he had so much money to spare, why could he not have carried it a little further this year? There are many widows and disabled persons—we all have such cases brought to us—who could well do with the repayment of their post-war credits. It would be a costly business, but the Chancellor could have done something if he had not set himself a fixed star by saying, "I must reduce the standard rate by 6d." That is the curse in the Budget against doing anything else.
The Chancellor could have increased the unearned income relief which would have been an incentive to many taxpayers. I wonder whether the Chancellor feels quite comfortable about having adjusted the reliefs in such a way that a man enjoying unearned income gets greater benefit than a man who works for his income. Perhaps the Chancellor did not notice it. I am sure that even Chancellors wink occasionally.
§ Mr. Callaghan
I apologise to the Chancellor for not having been here on Friday. It was the Prime Minister's fault; I had to go to my constituency. However, the Chancellor could have increased the personal allowances. He has fallen into an elementary error in what he has done.
We are now in the position that we do not know whether the Amendments which we have tabled will be in order or not. It is undesirable for the Opposition to be reduced to that condition by the Government. The Government have drafted the Bill and the Money Resolutions in such a way that we are left in doubt up to the moment when the Committee stage 651 starts to whether the Amendments which were in order in previous years will be in order on this occasion. I regret it very much indeed.
The Chancellor could have reduced the fuel duty. I warn the Chancellor that fares are going up. Bus fares will be going up over the next few months. Some applications have already been made. I am not aware that any have succeeded, but I understand from one of my hon. Friend's that that is so. I am, however, aware that applications are in process of being made, and bus fares will undoubtedly go up. Does not the Chancellor think that those who travel to and from work, even though they do not pay Income Tax, are entitled to a little of his consideration? Could he not have done something to relieve their heavy burden of fares?
There is no doubt that this is a classic Tory Budget. The Chancellor said that it was classic and pure. It is classic Tory policy, but whether it is pure I will leave to the House and the country to determine. It cannot be denied, because of the wealth of evidence which has been adduced in this House, that what the Chancellor has done is to increase the rewards for the powerful and the wealthy, but he has done nothing to help those who need help most. That is the verdict of the Opposition upon the Budget.
We are glad to have had this glimpse into the Tory mind immediately before a General Election. Although the Budget may be popular among the Conservative Party's own diehard supporters, we believe that the country will look beyond it and will ask whether the Budget has been fair and equitable. I believe that the country will return the verdict that the Chancellor has nothing of which to be proud.
§ 5.10 p.m.
§ Mr. James Ramsden (Harrogate)
I think that perhaps the kindest thing one can say about the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan) is that, at this particular time, just before an Election, any one of his right hon. and hon. Friends might have made it, but that he does that sort of thing rather better than most of them.
Although I should like to follow his main argument, which is perhaps susceptible of a serious answer, I am not at all 652 sure that it was seriously presented. The hon. Gentleman was talking about the amount of money by which companies would benefit from the remission of 6d. in the £ on the standard rate of Income Tax. I am sure that it was very much in the mind of my right hon. Friend when he made that remission and channelled it in that direction that a great deal of this money will not be spent, which was the word used by the hon. Member, but will be saved.
As a budding economist, the hon. Gentleman will not overlook—I notice that he disclaims it, but he was speaking from the Front Bench on this occasion—the importance in the national economy of the level, not only of personal savings, but of company savings, and will have noticed how satisfactorily they have increased over the last two or three years. I believe that it was in the mind of my light hon. Friend that this remission of Income Tax will be matched to a great extent by an increase in company reserves.
To come to the point which I wish to put to the House, I should like to give this Bill an unqualified welcome. It is a short and a simple Bill, and we all understand very well the reasons why that is so. It had to be short and simple because of the present pressure on Parliamentary time. There are, however, some omissions from the Bill of proposals which in normal times many of us would have liked to see contained within it, on one of which I shall comment, but which we can excuse in view of the circumstances.
I hope that what I have to say will not be received as being in any way a criticism of the Bill, but rather as an expression of the hope that, eventually, when another opportunity exists of bringing forward fresh fiscal legislation, some measures may be taken regarding the subject of these remarks. I noticed that the Chancellor, in his Budget speech, made reference to there being some prospect of further fiscal legislation later in the summer.
The question which I wish to raise is that of the liability of amateur operatic societies to pay Entertainments Duty on the proceeds of their performances. It is a fairly detailed point on which I do not wish to dwell for too long. The position of these societies in respect of 653 Entertainments Duty is very much better as a result of what has been already done for them, and for that they are most grateful, but they are still liable to pay Entertainments Duty if they engage the services of a paid professional orchestra, and, in order to sustain a reasonable level of performance, most of them find themselves obliged to do that.
The Economic Secretary to the Treasury will know that they are in no sense profit-making bodies. They do not seek to make a profit; indeed, in most cases they devote any profit they do make to charity. For all that they are commercially non-profit making concerns, they cannot stand losses, and the effect of the Entertainments Duty upon their finances, as I know is the case with the operatic society in my own constituency, is that they are being forced to operate at a loss from year to year. This loss, in the special case of which I am thinking now, is just about the same as the amount of the Entertainments Duty to which it is liable.
The remarkable fact is that its liability to duty is not the end of the story. The officials of the Board of Customs and Excise are very reasonable and considerate people, as I have reason to know, having had dealings with them in a previous capacity, but they have to do their job, and the most important part of that job is to collect all the revenue they can. Their efforts in my constituency have produced a situation which might more appropriately come within the field of comic opera, if it were not so serious and inconvenient for the people of the society which is affected.
It arises like this. Patrons of the Harrogate Operatic Society, and, indeed, of other similar societies, having paid a subscription out of public spirit and devotion to opera and the arts, receive in exchange free vouchers entitling them to seats at subsequent performances of the opera. The officials of the Customs and Excise Department, quite rightly and properly, on technical grounds, say that, having given these seats, the society is liable to Entertainments Duty to the extent of the value of the seats given away by the issue of free tickets. That is all very well, but the trouble is that, having got a free ticket, the patron cannot always attend the performance.
654 It is a situation with which hon. Members here are very often faced themselves. One would like to be in one's constituency watching a performance of "Brigadoon," but one has to be in the House of Commons voting on the Finance Bill. So it very often happens that the Revenue authorities are asking for Entertainments Duty on seats which are in fact never taken up. But that is not the end of the story.
I ask hon. Members to consider the vouchers for seats which are issued to patrons and are taken up. They are liable to duty on the assumption that a subscription has been paid and that as a result the patron becomes entitled to the seat. But very often subscriptions are not paid. We all know that we may have a number of subscriptions on our lists, and that, from time to time, some are overlooked. That is what sometimes happens in the case of these operatic societies, so that, in effect, there arises a claim, which it is very difficult to sort out, made by the Board of Customs and Excise for Entertainments Duty in respect of seats that are occupied, but in respect of which no money has ever been received into the funds of the society. That scarcely seems to be a satisfactory position.
I do not want to labour this point any longer, because it is a constituency one. I know that, on the whole, my right hon. Friend is sympathetic to the cause of these societies; indeed, he has shown himself to be so in the past, and I therefore merely hope that he will bear in mind the fact of their unsatisfactory position, so that, in the future, he may see whether he cannot do something for them when opportunity for further legislation arises.
One general reason why I welcome this Bill is that it makes a much-needed concession to those who have to live on small unearned incomes—investment incomes, as they are called. That does something to help those who, for the last 10 or 12 years, or rather more, have had a rawish deal. I do not want to describe their plight in detail, but I think it is very effectively conveyed in a leading article in "The Times" this morning, which says:The degree to which the idea of inflation itself is now fatalistically accepted even by economists (their sole concern being reduced to the rate at which it 'creeps'—a euphemism if ever there was one), and the abject way in 655 which all Governments since the end of the war have surrendered on this matter rather than risk unpopularity with the electorate is the most serious indictment of them and of democrary that we have had.I would not by any means go the whole way with "The Times" in that general assertion. In fact, I think that, in not discriminating between the comparative success of the two Governments that we have had since the war, it exhibits a surprising degree of insensibility. The fact remains that when there is this creeping inflation, as it is called, and a tendency, more or less marked, for prices to rise, some people are left with little means of redress.
They cannot look for any help from increases in wages. Very often they have stopped earning or can only do part-time work, which is not available everywhere. They cannot hedge against inflation by prudent investment because they have not enough liquid capital. All their capital is tied up in producing the small amount on which they have to live. They are the people whom the Chancellor can help—and, I am glad to see, has helped—by this Bill. It gives them some long overdue redress. It is not the first time he has helped them. We have already heard from the Financial Secretary about marginal relief and old-age relief. This is an extra measure of relief which those concerned will also welcome.
I have spoken for rather longer than I intended. I hope that these concessions may perhaps be extended in favour of this class of people another year. There is a wholly respectable fiscal argument for further extending the relief to small unearned incomes. For some time earned incomes have had preferential treatment. The historical reason for that is that at one time the earned income of a man was thought to be "precarious"—that, I think, was the technical term the Treasury used—because jobs were then in rather less plentiful supply than now, and a man might lose his job and not be able to get another. Earned income was, therefore, considered to be precarious.
What could be more precarious than the small unearned income of the class I have mentioned in the years since the war, subject as it has been to the attack of a marked tendency for prices to rise and with no other means of redress than that which Chancellors have from 656 time to time been able to give? The tables are now turned. The precarious income is now the small unearned one. Therefore, any attention which the Chancellor can give, along the lines of what he has done this year, would be justifiable.
If the principle that because an income is precarious it should be less heavily taxed is valid, and were it possible to carry it on in future years, I think that the Chancellor would find that the acceptance of that principle would have a beneficial effect on the growth of personal savings. Many people are now deterred from saving by the consideration that by the time they want to live on the income of the savings—or spend them—the money will have fallen in value and their efforts will thus have been made to very little account. If people could look forward with some degree of hope to a willingness on the part of future Chancellors to redress, by fiscal means, this fall in the value of money as it affects small incomes—that is, to do so by tax reliefs related to the fall in the purchasing power of money—it would be welcome and just.
Having mentioned savings, I am tempted to enter into a longer argument which would call in aid the economic concept of the propensity to save as against the propensity to consume—I have already rather incoherently tried to marshal it against the hon. Member for Cardiff, South-East but I have already detained the House too long, and I shall hope for the opportunity to develop that argument on a future occasion.
§ 5.27 p.m.
§ Mr. Cyril Bence (Dunbartonshire, East)
I was rather interested in the remarks of the hon. Member for Harrogate (Mr. Ramsden) about inflation. I would remind him that we have had some inflation in the last few years—the value of the £ has dropped considerably in that time. It is quite mistaken to imagine that the fall in purchasing power is a phenomenon of the last 20 years.
Samuel Pepys was Secretary of the Navy in the reign of Charles II—a position equivalent to that of First Lord of the Admiralty today. His salary was £150 a year. He lived in a mansion in London, he wined and dined with Lord Sandwich, but, better still, on £3 a week 657 he flirted with Nell Gwyn. There must have been an awful drop in the value of money since then. This process has been going on for hundreds of years, and so long as society is determined to give a real evaluation to human beings—
§ Mr. Ramsden
I was not criticising the fact that money had become cheaper, as such, but merely suggesting ways in which it might be possible for the Chancellor to combat that process in its effect upon human beings.
§ Mr. Bence
The hon. Gentleman is, therefore, suggesting that those who work, produce, and act in industry and in the services of the country should contribute in taxes sufficient to alleviate the position of those people who live on unearned income to the extent that the value of money has decreased. That is a most shocking proposal. I presume that he means that the Chancellor should make provision for those who live on unearned income and whose income has dropped because of the fall in the value of money; that the Chancellor should give them further easement or remission. That can only be done for those having unearned income by extra taxation of those whose income is earned. It is suggested that workers in industry should provide tax not only for the benefit of people with unearned incomes, but also to maintain the purchasing value of the unearned incomes, notwithstanding the fact that the value of their own incomes is progressively falling.
§ The Economic Secretary to the Treasury (Sir Edward Boyle)
The hon. Gentleman keeps on talking about unearned incomes in general. As I understood him, my hon. Friend was referring specifically to people living on small investment incomes of £250 or £300 a year at the most, and I think he had a point in what he said.
§ Mr. Bence
Where is the line of demarcation? The Economic Secretary has stated a figure of £250. I should not be surprised if some other hon. Member suggested in due course that the amount should be £300. I think that is a very dangerous proposition, because there are plenty of people getting unearned incomes of £250 a year but who are also in employment. It is a mistake to think that all people with unearned incomes 658 do not occupy themselves. Many people are enjoying unearned incomes plus earned incomes. It seems to me that it would be difficult to sort out the complexity of whether, in many cases, unearned income is the only income or whether it is complementary to an earned income.
We have heard a good deal of talk about companies, and I was glad to notice that on both sides of the House there seemed to be agreement that shareholders are not running the companies. I have worked in a company which could have got on very well without the shareholders. If all the shareholders had passed away the company would have gone on just the same. It may be said that that company could not have functioned without the shareholders' money, but when the firm started we did not get much money from the shareholders. The concern was built up not by the shareholders but by the workers, the technicians, and the engineers. Much of the equipment and the wealth of the industry was created by the managers, technicians, and engineers without the shareholders' money.
Like my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) I have very little sympathy for the shareholders. It is unreasonable to suggest that the Chancellor should give the shareholders an incentive when the stability of the company, as stated time and time again by company directors, is dependent upon the workers in the industry. I frequently read directors' speeches. I always read the report of the chairman of two big companies for which I worked, and he is always paying compliments to the manager and staff, and saying how much the company owes to them.
Yet hon. Members opposite talk as if we engineers, technicians, and administrators in industry are always indebted to the shareholders. Actually the reverse is the truth. Shareholders should bless the day when we engineers and technicians were born. But they do not. I remember a shareholders' meeting at which they were throwing books at the company director because they were not getting sufficient dividends.
§ Mr. Bence
Perhaps, or perhaps they were books published by some hon. Members opposite.
According to the tables published by the Government, a married man with three children is being given by the Budget less than 1d. a week, or 4s. 2d. a year if his income is £600. In the opposite column, a man with an unearned income is shown as having 6s. 7d. a week remitted. That is a shocking state of affairs. A tradesman or a craftsman like myself earning about £12 a week—that is about the wage paid to a toolmaker in Scotland—gets less than 1d. benefit, and he has to pay another 1s. in increased National Insurance contribution, so that he is 11d. down.
This is the fellow who, according to the chairmen of companies, has made prosperity possible. The Chancellor remits 1d. a week, and by taking 1s., burdens him with another 11d. The man getting the same salary, and whose father or grandfather invested a couple of hundred pounds in companies and has had bonus shares year after year because of the industrial prosperity in the last 10 years, gets a remission of 6s. 7d. a week. That is a frightful injustice. I am afraid that when I point that out to some of my colleagues in the engineering industry, they will be furious.
After all these years of direct taxation amounting to £2,351 million and indirect taxation amounting to £2,035 million, I should have thought it was time that the Chancellor made an attack on indirect taxation. When we see in the Press banner headlines proclaiming that the Chancellor has removed over 2 million people from taxation, what nonsense it is. Everybody in the country, whether he travels on a bus or smokes or drinks or goes to football matches, pays tax. If things go on as they are, in about 50 years' time the biggest item of cost will be what the Chancellor takes and not what it costs to produce commodities, the present position in regard to whisky. The taxation element in the cost of a bottle of whisky is more than the cost to the distiller to make the whisky. That is a frightful situation.
Those on the lowest incomes pay as much indirect taxation as those on higher incomes. Nobody is released from indirect taxation. Some may be released from direct taxation but not from indirect 660 taxation. The Chancellor should have spread the benefit over all the people by cutting indirect taxation in some directions. There are many directions in which that could be done, but I will mention one.
We have had over the last 10 years extensive house building. There are new towns outside the old towns. Suburban areas have been spreading until families are now often rehoused 10, 15 and 20 miles from their places of work. Most public transport uses diesel oil. Every working-class family in Britain could be helped if the tax on diesel oil were cut. I have been informed that a cut of 25 per cent. in the diesel oil tax—this may be more than the Chancellor could agree to—would lead to a 25 per cent. reduction in omnibus fares.
Last week the Scottish Omnibus Company appealed for increased fares and they succeeded, and the fares in Scotland are to go up again. A family of four people working in Glasgow or Dumbarton or Clydebank who have been rehoused 10 or 12 miles outside the city, have to go into the city every morning by bus. This increase will affect every working member of that family, and especially those with smaller incomes, such as apprentices in the tailoring trade. Those transport charges are becoming a very heavy burden on working men and women. There is a way in which the Chancellor could have helped the working families of this country, but he has done nothing about it.
The Chancellor has taken 6d. off the standard rate of Income Tax. That benefits people earning £100,000 a year. Does anyone in this country earn £100,000 a year—earn it? How can he? He commands an income, appropriates an income, or receives an income, but he does not earn it. How could a person do so? I cannot imagine he could do it by working 24 hours a day. I can work, but I do not see how I could work enough to earn £100,000, even on today's values. These are appropriated incomes, incomes which one commands.
My hon. Friend the Member for Cardiff, South-East told us of the case of an old-age pensioner having the dependant's allowance reduced by 5s. One reads speeches on memorable occasions, especially after wars, when public men talk about a man or a woman having earned the gratitude of the nation. We 661 can all earn gratitude, but we cannot command it. Millions of people earn twice as much as they get but they cannot command it, and a lot of people command an enormous income which they do not earn. That is the difference between incomes and gratitude.
§ Mr. Bence
It is a tremendous number. I cannot give the actual number, but one could go through society and find people who command incomes but do not earn them. The other day I came across a man who had a salary of £600 a year. I said, "£600 a year, that is crazy," but he said, "I am getting £400 a year expenses." To what extent is that going on among the higher income groups? Because of taxation is the practice extending of arranging appointments with low salaries but high expenses allowances?
The Chancellor would have done well to have made an examination of that, because businessmen are very cute. They find ways and means, time and again, of escaping the clutches of the Chancellor. I know that the job I mentioned was worth £850 at one time, but the pay has been reduced to £600. This man told me that it was all right because he was getting £400 expenses. In other cases, men have told me that it is not the salary that matters, they make up on expenses. It is time that question was examined.
There is another way in which the Chancellor could have helped ordinary people considerably. For a long time in this House I have been trying to get a grant for Kirkintilloch, which is a well-known burgh in Scotland. It is one of the most ancient burghs in Scotland and its sewerage system is almost as ancient as the burgh. Some people say that the burgh was built by the Normans or by the Romans. However, it is a very ancient burgh and it is a "dry" one.
I have been trying for a long time to get a grant for a new sewerage system there. Only a few months ago the Treasury replied that there was no money, it could not be afforded. But the action of the Chancellor two years ago stopped grants for these purposes. Here is a case in which he has money to spare and could restore grants for this purpose. Before the Bank Rate was raised, that job would 662 have cost 3s. 7d. in the £ on the rates, as it is only a small burgh. Now that the Bank Rate has gone up, possibly the cost would be 4s. 1d. in the £. Yet the Chancellor is giving Unilever nearly £1 million. When the Provost of Kirkintilloch hears that Unilever is to get nearly £1 million and he cannot get £150,000 to replace the sewerage system, I am sure he will be disappointed with this Government again.
I conclude with my final grouse against the Government. I am one of those unfortunate mortals about whom the then Chancellor of the Exchequer, Sir Kingsley Wood, spoke in 1942 or 1943, when he said, "We are going to increase your taxation and keep some of it for you. It will be a post-war credit for you." The Chancellor still has some of mine. Since I have been in this House I have three times seen the Chancellor, by increased interest, pass on to the moneylenders in London £200 million. Now that sum totals about £600 million. Yet the Government have had my post-war credit for 13 years, the value of money has gone down and I have not had a penny. I have received no interest.
§ Mr. Bence
I do not know anything about finance—I am an engineer—but I understand that from time to time Governments convert one lot of loans to another. If they have to pay out £2,000 million of redeemable bonds and have not the money, they ask those concerned to allow the bonds to be converted. They cannot pay out £600 million of post-war credits because that would be like maturing a redeemable loan and would be too inflationary. Why not convert those credits to a bearer bond?
I have not discussed this with my right hon. Friend the Member for Battersea, North (Mr. Jay). He is an expert, and I am always in favour of consulting the experts, because my ideas may be looked upon as crazy. We laymen have to be very careful when we go to the experts, but to me it seems a practical proposition to convert post-war credits into bearer bonds at, say, 27½ per cent., the same as the Post Office Savings Bank interest. They could be redeemable on a date stated. Then I could sell mine; it would have a market value. My hon. Friend the Member for Central Ayrshire (Mr. Manuel), who has plenty of money compared with me, would willingly buy it.
663 That would be a transfer of purchasing power from my hon. Friend to myself, because he has a credit balance. It would cost the Treasury only £18 million a year, which is a fraction of what the Treasury has paid to financiers in the City of London over the last three years.
§ Mr. Bence
Of course it is.
I put this as a serious proposition. After the General Election, naturally, we shall be the Government, as obviously the electorate will never swallow this Government again. It would be beyond my comprehension if they did after a Budget like this. After the Election I shall go after my right hon. Friend the Member for Battersea, North, who no doubt will be at the Treasury then. I shall see him on this issue. I want postwar credits converted to bearer bonds at 2½ per cent.—the same as the Post Office Savings Bank interest. I shall be generous and shall not ask for back pay.
There are hon. Members opposite who, when in opposition, supported some of my hon. Friends in their demand to convert post-war credits. The hon. Member for Bristol, North-West (Sir G. Braithwaite), for example, spoke in an Adjournment debate on post-war credits. After spreading largesse to moneylenders and financiers, and having, when in opposition, criticised the Labour Government for not paying out the post-war credits, it is not good enough for the Government simply to allow the matter to drift on with just a little bit of encouragement here and there.
Why has not something practical been done about it by the Government, who believe in the principle that people who lend money should have a fair return for it? When it comes to a matter of our money that we earned in the factories during the war—and, make no mistake, 664 we earned it—the Government hold it and never pay us a penny interest. It is time that they did something about it.
I do not think that any Chancellor of the Exchequer, Labour or Conservative, will ever rid himself or the country of the frightful fiscal problem that we get every year, with the inflationary pressure that comes with full employment. If one tries to start a policy of deflation, there are liable to be unemployment difficulties. If sterling and foreign primary products rise in value, they are unfavourable terms of trade. If sterling products fall in value, there is an unfavourable balance of payments because we do not have the dollar earnings. It seems to me, therefore, that under the system in which we live there is no solution. It is just a series of crises time and time again, and they are coming closer together.
The time must be coming when we have to realise that the principle upon which the production relationship between consumer and producer is established must be radically changed. It may be that if the profit motive is limited considerably, it will be maintained for some time, but there is no doubt that the pile-up with compound interest, with the whole economy dependent upon interest rates, with an ever-increasing National Debt and with Government expenditure increasing—even the present Government, who said that they would bring down expenditure, are spending more than we spent—demonstrates to everyone that the whole capitalist system, the system of accounting and reckoning in consumption and production, is faulty at the roots. There is endemic within it grave errors and contradictions that prevent the full expansion of our productive resources and consuming capacity.
I hope that when we get back to power next time, the people will keep us there longer than they did last time, for I am certain that only by the kind of movement that I advocate—and perhaps before many years are past we will have support from the other side of the House—shall we bring about a position which does away with the present free-for-all and the idea of weighing one against another, of slicing off something here one year and there the next year and of trying to capture votes, as the Chancellor has 665 done this time, by conceding a little taxation relief to one section of the community.
Let us hope that we live to see the time when the system which necessitates that sort of thing is abolished or is watered down so considerably that we in the House of Commons can debate, not how to placate this or that section of society, but how we can really plan and organise a cohesive production, export, and consumption programme that will give the country a balanced, happy, and cooperative process of living.
§ 5.56 p.m.
§ Mr. C. E. Mott-Radclyffe (Windsor)
It is about six years since I last intervened in a Budget or Finance Bill debate and I am provoked to do so today only because of some of the speeches made from the benches opposite last week, speeches which were epitomised by the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan) this afternoon. I am sorry that the hon. Member is not in his place. Although I know nothing whatever about chemicals or electric light bulbs, I should have thought it was a curious statement from the hon. Member when he told the House that the interests of a company and of its shareholders were entirely separate. I do not know how any company gets its funds unless the public invest as shareholders, nor do I know how a company runs its affairs properly unless it can command the confidence of the public who invest in it. I should have thought that the interests of the two were entirely complementary.
I would also have thought that when companies make good profits, that is a measure of a country's prosperity. Hon. Members opposite must get out of their minds the Socialist conception of economic progress, which, if I recollect rightly, was that all economic progress is measured by the amount of taxpayers' money that a Government can lose. But we have passed on from those sorry days.
The hon. Member for Dunbartonshire, East (Mr. Bence), whose enjoyable speech preceded mine, seemed to be upset and rather shocked that in certain cases salaries were slightly reduced and an expense allowance increased in order to avoid taxation. No party point can be made about that. If I remember correctly, during the lifetime of the previous Government it was found necessary, when 666 appointing some of the more highly paid officials to nationalised industries, to adopt precisely that device. If I also recollect correctly, it was the leader of the Opposition, when Prime Minister, who found it necessary to make special arrangements in relation to taxation on the Prime Minister's salary, without which it was impossible to make ends meet, in view of the heavy financial commitments of anyone who holds office as Prime Minister. We thought that that was wholly right. No party point, therefore, can be made about it. Perhaps I do the hon. Member an injustice by thinking that he was trying to make one.
§ Mr. Bence
I was not making a party point. I have always been against the payment of expenses in that way. I believe in offering a man a job or contract and saying to him, "This is the salary. If there are any expenses attached to it, you must bear them." I objected to it when my own party was in office and I still object to it.
§ Mr. Mott-Radclyffe
I would only point out to the hon. Gentleman that the need for an expense allowance arises precisely at the point where the general level of taxation is much too high. It is one of the inevitable results of high taxation.
I want to deal with the criticism made by hon. and right hon. Gentlemen opposite that the Chancellor should not have reduced the standard rate of Income Tax by 6d. throughout all the scales, applying the reduction both to earned and unearned income. I wonder whether hon. and right hon. Gentlemen are either right or wise to make a rigid dividing line between earned and unearned income, so that people whose income is wholly earned have all the human virtues attributed to them—provided, of course, that the earnings are not too high—and all the human vices are attributed to those whose income is unearned. I do not believe that we can make this rigid dividing line between the one and the other and I will tell the House why. I will also tell the House why I think it was right that the 6d. off the Income Tax should apply both to earned and unearned income.
Let us take the case of a man near the top of his profession, earning a high income and attracting a high rate of Surtax. He may be an engineer or an artist or an architect or a surgeon—perhaps a surgeon is the best example. The skill 667 of that man's hands, by which he earns his livelihood, probably does not remain at its highest level for more than a comparatively few years. Are hon. Gentlemen opposite going to say that this surgeon or architect or engineer is wrong, when at the top of his profession, to want to put by something from his earnings, not only for his own retirement but for his wife and children or for his widow, if he should predecease her? And are his widow and children to be regarded as parasites upon the body politic if, after he has died, they live in comparative comfort on his original savings, well invested, drawing an income which is technically unearned? I give that example of what I believe to be proof that no case can be made out for saying that all earned income is so much more deserving of tax concession than is all other income.
It was my hon. Friend the Member for Harrogate (Mr. Ramsden) who raised the question of the small investment income, to which, quite rightly, my right hon. Friend the Chancellor has given concessions. I am sure that there are large numbers of people eking out a precarious existence on small unearned incomes to whom this concession will be welcome. We have only to walk down some of the streets in South Kensington to see poor old people, mostly single and very lonely, hard put to exist on an unearned income, living in single rooms in mediocre private hotels and boarding houses. This concession will be of great benefit to them.
Secondly, I think that our conception of the functions of a Chancellor and of a Budget is rather different from that of hon. Gentlemen opposite. Unless I have misunderstood what was said last week and what has been said today, the party opposite conceive of the Chancellor presenting the Budget in the guise of a headmaster at a school prize-giving handing out the prizes to the good boys and giving six strokes of the cane to the bad ones. I do not think that that is the function of a Chancellor in the Budget. The Budget is the main economic weapon of a Government by which they attempt to shape and to mould the economic life of the nation. I do not think that we can shape and mould the economic life of the nation upon the basis that no concessions must be given to anybody unless similar concessions are given to that 668 section of the community whose earnings come below the figure to which Income Tax applies.
Lastly, I beg hon. and right hon. Gentlemen opposite not to be too scathing about those whose earned income is high. I believe that our capacity to pay our way and to keep ahead in this highly competitive world depends largely upon the industrial, the technical and the commercial skill and "know-how" of those whose wits, experience and intelligence entitle them to command the higher salaries. I believe that the party opposite, in its more lucid and honest moments, knows that very well.
This is a good Finance Bill, and when my right hon. Friend the Chancellor said that his object in giving a flat rate of reduction in Income Tax right through was to stimulate incentive to all sections, both individual and collective, he was speaking no less than the truth.
§ 6.6 p.m.
§ Mr. H. Rhodes (Ashton-under-Lyne)
I hope that the hon. Member for Windsor (Mr. Mott-Radclyffe) will pardon me if I do not follow him on many of his points, though I will take up two of them. The first was about the Budget being an instrument to mould and shape the economic state of the nation. However closely we look at this Finance Bill, we cannot see much in it that relates to the economic state of the nation. Secondly, I agree with the comments of the hon. Gentleman about handing out prizes and administering punishment. I do so because in this Finance Bill Lancashire has been given six strokes of the cane by the omissions from this Budget and Finance Bill which the Chancellor could have rectified.
Two years ago we on this side of the House pressed the Chancellor to introduce incentives in order to increase the building of industrial premises. Last year the right hon. Gentleman brought in a helpful measure which contributed in no small manner to the building of such premises on a scale probably not equalled since the war. The point I want to make is that the investment programme, as it is now to be put in operation by the provisions in the Finance Bill of last year and the omissions from this Bill, is such that large areas of our county are being practically by-passed by present industrial investment.
669 We can divide the manufacturing and distributing areas roughly into four—at any rate for the purposes of comparison four will do. There is London, with its tremendous octopus-like sprawl, unmanageable, a headache for future administrators. Then there are the other large cities and towns which have become identified in the last 20 or 30 years with the modern-type twentieth century industry. There are the new towns which have come into being since the war, such as Harlow and Stevenage, and areas like Worsley, near Manchester, which have been accompanied by the building of houses and the introduction of factories to provide work for the people on the spot.
There is also a fourth category, consisting of older towns, where the majority of the buildings are nineteenth century style, where very little building indeed has gone on since the war and where there are industries which had their birth during the last century, which have declined somewhat this century and are now feeling the pinch for a variety of reasons, competition being not the least of them.
It is with that last example that I want to deal, because it affects my own division, which embraces the townships of Ashton, Mossley and Droylsden. It is interesting to look at the figures for the development which has taken place since the war in a constituency like mine. I find that in my division—this type of example could be multiplied throughout Lancashire—the development since the war has amounted to floor space to accommodate under 1,000 men and women, and that floor space includes new buildings and alterations and extensions to old buildings.
A Government of the future, perhaps the next Government, will be faced with the acute problem of attracting industries to some areas in Lancashire, perhaps to the areas in which there has been too much dependence upon a single industry. I wish to address a few remarks upon this subject to the Economic Secretary, and I hope that he will have some comments to make upon them when he speaks.
My contention is that this important and vital area has not made the progress in industrial building to which its record entitles it. In order to be competitive 670 in modern business, at least three factors are needed, and the main one definitely is suitable buildings to house suitable machinery upon which suitable workers can be employed. My constituency has suitable workers, but it has not suitable buildings in which suitable machinery can be housed.
We should not be misled by the fact that there has been full employment in these areas since the war or that the principle which guided those who put into operation the Distribution of Industry Act was that existing unemployment only should be the first consideration in deciding whether a place was suitable for attention under the Act. I should like to know what view the Economic Secretary has upon the prospects of an area having old buildings in which is housed machinery installed 50, 60 or 70 years ago, and, because of the prosperity throughout the world during the last 10 years or so, nobody bothered to think out what its prospects would be when competition became severe.
The Government ought now to be considering the situation which is arising. Competition is increasing in intensity. Cloth coming from India and other places is taking the place of Lancashire cloth, even on the home market. Nothing has been included in the Budget with regard to Purchase Tax which is of real benefit to Lancashire. I should like to know what the Government intend to do—in the long-term, if they wish—about the buildings with which we are saddled.
The people of Lancashire are entitled to earn a living just as people in any other part of the British Isles are. We cannot suddenly divert people accustomed to working inside a factory to such work as agriculture, and in any case that opportunity does not exist. The authorities in these areas during the last few years have provided the houses which are necessary and accepted the situation of having a settled population, and the people of such areas, who in the past depended upon single industries—thank goodness the industries are becoming more diversified nowadays—are entitled to look to the Government for action.
When the situation became acute or unmanageable years ago in various parts of the country, because, for instance, the iron mines of West Cumberland or the 671 coal mines of South Wales were worked out, or because the shipyards were not working to full capacity in places like Jarrow, the industries were discarded because they were marginal investments, and the people were discarded along with the investments. We cannot tolerate that sort of thing any longer. The country would not stand for it. The Government will have to think seriously about an extension of or a substitution for the Distribution of Industry Act. It may be that additional powers will have to be given to the President of the Board of Trade to allow him to put into operation a scheme or schemes to enable building to take place so that there will be buildings in which workers can be employed.
If first-class buildings with first-class machines and first-class workers are needed for us to compete in a modern world—and we know full well that there are areas in our county with old mills and old machinery—at some time we shall have to face this problem, whether we like it or not. It is no use waiting as we did on the last occasion until need overtakes events and then coming along years afterwards with a Distribution of Industry Act trying to catch up with events of years before. Here is an opportunity for taking time by the forelock. I ask the Government very seriously to consider now the erection of factories—standard factories if they like—on a modest scale in many areas in Lancashire.
I am perfectly certain that this would give some hope and encouragement to the people in such areas. It would give hope and encouragement to people looking for sites in this country. The Economic Secretary may not know that three major American companies who wished to start business in Lancashire went elsewhere simply because suitable buildings were not available in that county. That state of affairs cannot be allowed to continue. Some action must be taken—modest at the beginning—which will give the opportunity to industrialists from outside to come into the area. The Government have a duty to the folk who work in the textile industry, and I hope that it will not be long before they are able to promote a scheme on the lines I have suggested this afternoon.
§ 6.23 p.m.
§ Mr. Charles Doughty (Surrey, East)
The hon. Member for Ashton-under-Lyne (Mr. Rhodes) will, I hope, forgive me if I do not follow him in all the points he made. There was, however, one point which he made, which was that in the Bill the Government had done nothing to help Lancashire. I am sure that he has read the Bill, as I have, and has overlooked the fact that Purchase Tax on textiles has been cut by half.
§ Mr. Rhodes
I did not say that the Government had done nothing, but that they had done nothing substantial.
§ Mr. Doughty
I still challenge the hon. Member, because cutting Purchase Tax in half is certainly substantial.
I come to other points raised by hon. Members. I have listened with care to most of the speeches made so far, and the general theme of the Opposition seems to be that the Government have reduced taxation, but that the Opposition think they should have done it in different ways, or that they ought not to have reduced taxation at all, but should have given money in extra social benefits. There are, of course, various fundamentals which are forgotten in that theme. We have been and still are an overtaxed nation, and the reduction of taxation is vital for all classes in the community.
If we accept the principle that taxation cannot be reduced any further, we are condemning ourselves to a poor outlook if the trade of the country should be put under any form of pressure in the future. The Opposition does not seem to have given the Government credit for the reductions of taxation which have been made. In fact, more than 2 million people, about 2,400,000, in fact, who paid Income Tax before have been relieved from paying Income Tax at all, and 17 million people will directly benefit by reductions of taxation. Including dependants, that must mean that 34 million or 35 million people have benefited, and that is the majority of the population of the country. That is one of the reasons I support the Bill.
Much has been said in the debate on the Budget and on this Bill about the payments of dividends, as if there were some sort of iniquity, something wrong, something of which to be ashamed, when 673 somebody receives a dividend or a company pays it. I should like to reduce that general conception to a few figures. Those figures have always been difficult to obtain, but at last the Council of the Stock Exchange has produced, after much vigilant research, the actual figures of invested capital in this country. Those are much more valuable than the sometimes wild and often wholly inaccurate statements made in the House and outside it.
The invested capital of the people of this country—and when I speak of people I refer not only to individuals, but also to the large holdings of institutions, trusts, trade unions and other bodies of that kind—is divided in the following way. About two-thirds, 65 per cent. to be absolutely accurate, is in what is called loan capital and only 4. 5 per cent. is in preference shares, and that amounts to about 70 per cent. of the fixed interest-bearing securities. About a third, 30. 5 per cent. to be absolutely accurate, is in ordinary shares, very properly called risk capital. Let me say at once that having heard, even at this distant end of the Chamber, the right hon. Member for Bishop Auckland (Mr. Dalton) say that "blue chips" are the same as "gilt edged," I can only hope that he will not be in charge of public funds in future.
When we discuss that vast majority of the amount invested, one must remember that the people who have held these sums for any length of time are receiving approximately what they received before the war. I wonder how many supporters of hon. Members on that side of the House, or indeed on this side, would be satisfied if they were receiving only exactly what they received before the war. If they are holding Consols and things like that, they have not had a cost-of-living bonus attached to them, nor has there been an increase because of the fall in the value of money. If they held £100 worth of Consols before the war, they get exactly the same amount of money today as they got then.
On fixed-interest-bearing securities, loan capital, the rates of interest were 291 per cent. in 1950, 294 per cent. in 1951, 290 per cent. in 1952, 296 per cent. in 1953 and in 1954 there was the enormous rise of 04 per cent. to 3 per cent. That is all. The average rate of interest for preference shares was 5. 99 per cent. in 1950 and it fell to 5. 85 per 674 cent. in 1954. On all the shares, of whatever kind, on which interest is paid in this country the average rate on the total capital was 425 per cent. in 1950 and 4. 64 per cent. in 1954.
Hon. Members may say that I have ignored the ordinary shares, risk capital. If one invests risk capital, one does it because it is a risk and one is going in for something with considerable chance of losing one's money altogether, unlike Government securities and things of that sort. At market value of these shares, the average rate of interest on preference share capital was 563 per cent. at 30th June, 1954, and the average rate on ordinary share capital at market value at 30th June, 1954, was 601 per cent.
I have here a book which is full of figures. I have selected those which will completely refute the suggestions put out by various people, including hon. Members of this House, that there is something wrong, something wicked, something extravagant taking place to the detriment of one section of the community and to the advantage of the other. I assure hon. Members that those who are fortunate, or unfortunate, enough to have a certain amount of money invested receive a very small return upon their capital. The figures which I have quoted are gross figures before taxation is levied.
I hope that hon. Members opposite will be a little more careful before they make wild and wholly unfounded allegations about those who, in risking their capital, provide the means for industry to continue. I hope that they will not even talk about dividend limitation upon that type of share. If they do they will threaten to dry up the sources of capital upon which our industry depends. Our future mining ventures, and other risks and ventures, depend almost completely upon this type of capital. People will be compelled to put their money into loan capital so that they draw a regular interest without taking any special risk.
I pass from that to deal with another matter, and that is to put forward a plea for further consideration of the Millard Tucker Report. I should declare an interest, as I think should every hon. Member when he refers to the Report, though probably I have a slightly greater interest than most Members of Parliament. The lot of self-employed professional and non-professional men is very 675 hard when they come to retirement. The person who is not self-employed very often, and indeed generally, has the advantage of some form of pension scheme for which he pays either not at all or only in part. The capital sums of these pension funds are not subject to tax, and often the employee's contribution is not subject to tax. He, unlike the self-employed person, is in a very favourable position, so much so that the excellent Millard Tucker Report was produced.
I fully appreciate that, in the somewhat peculiar circumstances of this Budget and the events of the next few months, it has not been possible to deal with the matter at all. The Chancellor was careful to explain that his Budget must be of lily-white purity this year. He could not lay himself open to the charge that he might be looking more favourably upon the self-employed, but in future years, when he is sitting on the Government Front Bench, as I know he will be, I ask him to consider the position of the self-employed once again in view of this Report. I am sure that he will find in it much to praise and I am sure, also, that if he finds himself able to make any concessions in future he will bear this question in mind.
My last words are to say that the only reason why we can discuss here at all the question of whether there should be reductions in taxation, and what lines they should take, is because the Government have been able drastically to reduce expenditure where, before, it was extravagant. We know, because they have been fair in explaining what they will do if they come back into power, that the Labour Party would increase expenditure if, by any chance, they were returned to office. That would put an end to any sort of tax concessions, Millard Tucker Reports or anything of that kind. For these reasons I support the Bill.
§ 6.34 p.m.
§ Mr. John Taylor (West Lothian)
Having, I hope, a proper sense of proportion, I have not attempted hitherto to enter either the general debate on the Budget or the discussion on the Bill today. I thought it more appropriate to allow those who wished to speak on general principles and those who are experts on those subjects to have their say. There are, however, two points which I do not 676 think have yet been mentioned in these debates. They are matters on which I feel very strongly and which I regret are not included within the provisions of the Bill. The fact that I have left mention of them until rather late in these discussions does not mean that they are of less importance, to myself and to my constituents, than other questions of finance.
We were assured that the Budget was designed to encourage incentives. It was to be an incentives Budget, and its incentives were to spread over the majority of the electorate. The hon. and learned Member for Surrey, East (Mr. Doughty) reassured us, to his own satisfaction if to no one else's, on that point.
I wish to mention an industry, and the workers engaged in it, where there is great dismay and misgiving at the omission of any assistance or incentives for it. There have been several references to the oil industry and the advantage which would accrue to the whole of the community from a tax remission, especially on diesel oil. I want to speak about those who are engaged in the indigenous oil-producing industry.
In my constituency and in the neighbouring constituency of Midlothian we produce oil—diesel oil and petrol—from the shale in our soil. This industry is the pioneer oil-producing industry of the world. It owes its existence to the inventive genius of "Paraffin" Young, a scientist who produced paraffin oil from cannel coal in the Lothians. Today this is a great and important oil-producing industry. There are other indigenous oil industries, but there the oil is largely a by-product. In the Scottish industry it is the main product; but this is not a cheap way of producing oil.
Today it is much easier to import oil from other countries where it exists in great natural deposits. We import it in its crude form and refine it in the great refineries developed here since the end of the war. The pioneer oil industry in the Lothians wins oil from the shale which is mined as coal is mined. I was about to say that the industry is in a parlous state, but I do not want to over-paint the picture or over-stress the difficulties; it is certainly facing very great financial difficulties and it is in a state of continuous crisis.
Indeed, it has been mooted that it would be as well to cut losses and to close 677 down. If that were done 20,000 people in Central Scotland, in my constituency and that of my hon. Friend the Member for Midlothian and Peebles (Mr. Pryde), would be affected. The industry employs directly 4,000 people who, with their dependants, total about 20,000 people. There is no way in which the industry can avoid further losses other than by a remission in taxation.
I have stressed this point not with the present incumbents of the Treasury offices but with their predecessors. Two years ago the then Financial Secretary to the Treasury, in consultation with his right hon. Friend, recognised the justice of the case and made a remission of 6d. in the tax on indigenous oil in an endeavour to help the industry. Later I met him before he moved from that office and gave him figures, with which I will not weary the House, to show that that remission was insufficient. It was merely enough to cut the losses for that year.
The miners engaged in the industry, working alongside coal miners as they do, know that the latter have had several increases in wages. When they ask for wage increases they are faced with the fact that they cannot receive any because that would mean a heavier loss to the industry and possible closing down. Apparently their wages are static. A small remission to this industry would enable those of my constituents who are engaged in it to have the increase in wages to which they are entitled. It is a bad thing, if one regards this Budget as in any way giving an incentive, that they are faced with a practically static wage rate at a time of rising prices—a wage rate which has been static for far too long. It is because I believe that it would be possible to make this small remission, at an almost infinitesimal cost in comparison with the whole financial picture of the Budget, without making similar remissions to other indigenous oil industries, that I make this plea.
It has been argued by the Treasury with my hon. Friend the Member for Midlothian and Peebles and myself on previous occasions when we have made this plea that, if remission were made to this part of the indigenous hydrocarbon oil industry, other sections of the industry which produce oil by other methods would require, expect, and, indeed, demand the same remission. I do not see the logic of that argument. The other 678 sections of this industry are already pretty well off in comparison with the shale oil industry. They are not doing too badly. Profits are made and dividends are high, whereas in my own industry there are no profits and the dividends are non-existent. Therefore, I think that it should be possible to do this.
Finally, it is surely a good thing strategically, economically and in many other ways to give assistance when it can be done at such low cost to an important industry of this kind. The industry has its by-products, which are all valuable. Sulphate of ammonia of the best quality known today is produced as a by-product of the shale oil industry. It is used in agriculture and is of beneficial effect to the economy at large. Wax, another by-product, which is cut from the crude oil, is used in a multitude of industries. The spent shale is used in making bricks for houses, and there are other by-products, such as detergents, which are of commercial value. Indeed, it is on these by-products that the industry continues to exist.
It is assistance for this industry which I am advocating, and if the Financial Secretary will give me his attention for a moment, I want, in my usual kindly way, to give him pre-warning that our disappointment that some remission is not included in this Bill will not deter me from coming back after the Election to worry the appropriate Minister on this matter.
§ Mr. Taylor
I shall worry whoever occupies the Government Front Bench.
It is a very good thing that we should encourage and help this industry which is producing oil. It has unseen advantages. This oil which is being produced is costing nothing in shipping, costing no dollars and is saving money in many unseen ways which are, I think, never fully recognised when this plea is made. After all, it is British oil and—what is most important to me—it is Scottish oil. I think that this industry has a cast-iron case, and I am sorry that it has not been recognised in the Budget, because to have done so would have cost so little and have meant so much.
I want to say a few words about another industry—the cinema industry, 679 which is of particular interest to those of us who represent county constituencies with a number of small towns and large villages. I do not think that the cinema industry has been mentioned in any of these debates. I believe that those in the industry were convinced that they would get some assistance on this occasion, and the disappointment will therefore be the greater. I do not want to spend a lot of time on this subject, because it is so well known to the House and to the Minister.
There is, however, one small aspect of this industry with which I especially want to deal. It has been mentioned in previous debates that this section of the industry has been treated with contempt, if not contumely, as one hon. Member on the other side of the House treated it on an earlier occasion. The small cinema serving a small community in a small town or large village, as for instance in the mining areas, is doing a job which no other institution in a district does. It provides cheap entertainment largely for the women and children of these areas. The men have their football matches, their clubs and "pubs," and other means of escaping from the dull and drab surroundings of the village or small town. But the women and children have not.
These small cinemas have been steadily losing money. I have the figures for the past six weeks of some 32 cinemas in central Scotland, all of them in small communities. Most of them are small cinemas owned by one person or by small companies owning not more than two or three cinemas. The over-all picture of their losses during the six weeks—I admit that the figures were taken during very bad weather in January and the beginning of February—show very heavy losses in comparison with their bookings, and in every case the losses are almost entirely due to the high incidence of tax on the low prices of these cinema seats.
These are cinemas which cannot increase their prices. If they did, they would empty themselves. It is not altogether true—it may be true in the larger centres—to say that the growth of television is a reason for decreasing cinema attendances in these smaller communities. Cinema-going has become a habit. There 680 is not the number in proportion to the larger cities of television sets in these communities. That may improve, but at present this is the one cheap method of family entertainment that remains. I think that it should have been possible for the Chancellor to recognise that, again at a very small cost, he could have helped these cinemas which are facing bankruptcy.
It is not over-stressing the fact to say that they are facing bankruptcy unless they are given some help by remission of tax. It is not possible for those concerned to increase the prices of the seats. They have not the opportunity of getting the extra income through entertainment which they had before the end of sweet rationing. They are faced with demands, long overdue, for increases in the wages of their staffs. They have allowed the cinemas to deteriorate and they need to spend additional capital on replacements. They cannot possibly afford the high expense of going in for modern development in cinema techniques. They are possibly limited in any case to a brief existence of a few years, and I think that it is a shame that some little assistance was not given to these smaller cinemas, those with halls which seat 500 or 600 or less, to help them out of difficulty.
Again I give notice, to whichever of my hon. Friends will be holding office after the Election, that I shall be asking again for assistance in this matter.
§ 6.50 p.m.
§ Mr. R. E. Winterbottom (Sheffield, Brightside)
I should have liked to have replied to the hon. and learned Member for Surrey, East (Mr. Doughty) but, unfortunately, he has left the Chamber. I do not believe in hitting a man behind his back, so I shall refrain from saying anything about his speech, except to refer to his description of this Budget as being of a lily-white purity. We may find that in the next few weeks this Budget will become considerably spotted in the election storms and as a result of the criticism which it will receive during the election campaign.
My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) mentioned the case of some pensioners in relation to the increased old-age pension. I wish to bring to the notice of the Chancellor as forcibly as possible the case 681 to which I referred in an interjection. I have in mind an old couple, both over 65 and in receipt of a pension. Their son was killed on the Burma Road and they receive a dependant's pension, which was originally £1 a week. Because they receive that pension, they are not entitled to supplementary assistance over and above their old-age pension.
Now that the old-age pension has been increased, the dependant's pension has been reduced from £1 to 15s. They pay 18s. 6d. rent. The paradox of the situation is that they are now receiving less money than they would receive by way of pension and supplementation, including rent. That state of affairs exists in hundreds of homes. I am glad the Chancellor said that he would look into this matter, but, even so, I think that such a situation should be ventilated in this Chamber in order to ensure that the matter is gone into thoroughly.
I wish to refer to the problem of the theatres, but not to repeat the arguments used by my hon. Friend the Member for West Lothian (Mr. J. Taylor) in connection with small cinemas. I wish to discuss the live theatre, because, although the subject may have been referred to previously, it has probably not been dealt with in the manner in which I shall attempt to do.
Some live theatres are State-aided by direct Treasury contribution through the Arts Council. There are other theatres which have been freed from Entertainments Duty. I approve the present Regulations and the law which frees non-profit-making theatres from Entertainments Duty. I believe that a great cultural purpose is served by the nonprofit-making theatres. But when we begin to analyse the situation generally we find the curious anomaly that some theatres are exempted from Entertainments Duty, even though they have a full professional staff, fully engaged, while other theatres are obliged to pay exorbitant amounts of tax.
Non-profit-making theatres were exempted from Entertainments Duty in the first place because they fulfilled an educational purpose. They then had to prove that they were fulfilling such a purpose. At present, the fact that they happen to be non-profit-making theatres—having accepted the principle of giving entertainment plus education—does not 682 guarantee that every play performed will be of educational or cultural value. We know that plays like "No Orchids for Miss Blandish" have been performed in non-profit-making theatres.
I suggest that such a situation should be closely examined and similar treatment extended to profit-making theatres in order to assist the living theatre to survive. Such a reform is essential if we are to preserve the cultural life of the community. I believe that the omission of this reform by the Chancellor will be regarded with apprehension by those who have some regard for cultural values.
I approve the remission in Purchase Tax for the textile industry, but I wish that it had been much greater. The way in which the Treasury has tinkered with this problem will not only cause grievous disappointment in Lancashire, but will-as it ought—swing almost the whole of the votes in Lancashire against the present Government. Industrial workers in Lancashire will feel that they have been slighted by the meagre concessions in Purchase Tax.
I have said that in order to introduce the problems confronting the Sheffield cutlery industry. This essential craft industry has made a notable contribution to the export drive, and is well known throughout the world. The name "Sheffield" on any blade is a guarantee of quality and craftsmanship. More throats have been cut and more gizzards slit with Sheffield steel than with any other lethal instrument, but this industry is now dying on its feet. That is the paradox of the situation. It is dying because its export markets have been closed and encouragement for home trade is being restricted by Purchase Tax.
During the last four years almost half the craftsmen in this industry have had to leave it because there has been no work for them. That is a serious situation for Sheffield. We have made fruitless representations to the Treasury. There is great disappointment in Sheffield that the Chancellor has done nothing to help the cutlery industry to recover its export trade.
The one thing which could help it out of its difficulty would be the removal of the burden of Purchase Tax. Proportionately, this industry is in a worse situation than the textile industry, but nothing has been done for it. I wish to voice 683 the protest of Sheffield that the Chancellor has completely ignored this industry, and I hope that the people engaged in it will remember that fact, not so much for all time as for the next five weeks.
That is my contribution to this Second Reading debate. I hope that the Economic Secretary will tell his right hon. Friend about the curious situation of the live theatre, and about the serious disappointment of the cutlers in Sheffield, not to mention its general population. I hope that he will express himself with as much vigour as I have tried to do today, and that it will have some result, both for the live theatre and for Sheffield in particular.
§ 7.2 p.m.
§ Lieut.-Colonel Marcus Lipton (Brixton)
Listening to the Financial Secretary this afternoon, I could not help feeling that this might be the last opportunity open to me in this Parliament to make some comments upon the inadequacies of the Budget and of the Finance Bill. It is true that various Amendments to the Bill have appeared on the Order Paper, but there is no guarantee that any of them will be called, or that we shall have an opportunity of dealing with the points which they raise. For that reason I take the opportunity of drawing attention to one grave injustice, which may be cured by an Amendment during the Committee stage of the Bill, but, as that is doubtful, I must raise it now.
This afternoon the Financial Secretary said that it was of great merit that the concession of 6d. off Income Tax went all the way up the scale, that is to say, that it applied to Surtax payers as well as to the lower groups of Income Tax providers. If it is good enough to carry this 6d. concession right up to the highest scale of Income Tax, why should it not be carried down to the lowest scale which comes within the field of Income Tax collection? The only argument adduced by the Economic Secretary in favour of maintaining the present reduced rate values was that the previous Government had carried out that distinction. It is a feeble argument to say that a previous Government adopted the same course.
Conditions are now quite different. We suggest that the 6d. concession should be conveyed not only to the topmost flights of large earners, but to the people who 684 come just within the Income Tax scale. It may be said that that would be a disadvantage, because the Surtax payer would also gain. There is an easy way of overcoming that difficulty. Let us carry this 6d. concession right down to the lowest rate band, but make it applicable only to people whose income does not exceed £1,000 or, perhaps, £2,000, a year, gross. I hope that the Government will reconsider this matter, because this concession ought to be made worth more to the lower income groups, if that is at all possible without upsetting the tax collecting organisation or making it too complicated.
I support my hon. Friend the Member for Brightside (Mr. R. E. Winterbottom) in his plea for disregarding war pensions in assessing National Assistance. The Economic Secretary and the Financial Secretary know that disability pensions paid to ex-Service men are altogether exempt from Income Tax. If that is so, it is not asking too much to suggest that dependants' war pensions, paid to the parents of deceased ex-Service men—and some of those parents are now quite old—should not be used as a means of subsidising the expenditure of the National Assistance Board. That is what is happening now. I hope that this rather mean handling of war pensions will not be continued and that these very hard-earned war pensions—earned by reason of the loss of life of a son—will not be used as a basis of calculation in order to save the Government a few shillings upon some other Vote or Departmental expenditure.
If I were asked to say what irritated my constituents most about this Budget, I should not say that it was because the £ is now worth only 18s. 6d. compared to 20s. in 1951. My constituents expected that to happen when a Conservative Government came to power—and they were not disappointed. Nor is it because certain widows receive a pension of only 10s. a week. Such widows know that they may have to wait a long, long time under a Conservative Administration before their disability is remedied. The old-age pensioner receiving National Assistance supplementary benefit, who has discovered that his increase is not quite as much as he thought, has already begun to reconcile himself to the fact that the much-vaunted increase of 7s. 6d. is whittled down to 2s. 6d. in the case of a single 685 person and 4s. in the case of a married couple.
What irritates many of my constituents and probably many other people—and they are people to whom the 6d. off the Income Tax does not mean a thing—
§ Mr. F. A. Burden (Gillingham) rose—
§ Lieut.-Colonel Lipton
I will not give way, because hon. Members opposite have been given permission to take part in the debate if they wish to do so, and the hon. Member has plenty of time.
What irritates so many people is the fact that the Government have determined not to make a start in repaying post-war credits. It is wrong that persons entitled to post-war credits should be compelled to apply to the National Assistance Board for supplementary benefits, supplementary grants or other grants to enable them to live, when, if they live long enough, they will be entitled to the repayment of those post-war credits.
Payment of post-war credits to this category of persons would not increase inflationary pressure so much as cause a collapse of the financial system. We were told by Government supporters that this payment would create inflation, but that increasing the income of companies was giving an incentive. The Government play about in that way with the words "incentive" and "inflation." It would be easy to repay post-war credits if the Government adopted the simple principle that people who were entitled to National Assistance and were also entitled to a post-war credit should have the credit repaid to them. That would satisfy people much more than going to the National Assistance Board.
I hope that the Economic Secretary will take note of some of these points. I do not think I have put anything forward which is unreasonable or impracticable. In the short time that remains to them, the Government may want to make an impression on the public with a view to the General Election on 26th May. I make them a present of one or two valuable suggestions which would stand the Government in very good stead if put into effect.
§ 7.13 p.m.
§ Mr. Douglas Houghton (Sowerby)
It is a new experience to me to be in this House when the date of the dissolution 686 has been announced and Parliamentary business is still to be done. I find it very depressing. This Parliament is visibly petering out. It has lost its life and vitality, which is bad at a time when the economic welfare of the nation should be under close Parliamentary scrutiny.
We are all hurrying to the hustings and are not paying enough attention to the important matters which the Bill and the Budget generally raise in the national interest. It is obvious that the Bill, from its shape and contents, has been influenced by the nearness of the General Election. This is not the Budget which the Chancellor of the Exchequer would have introduced had we not been within a few weeks of a General Election. I am sure that he would have wished to pay greater heed to the proposals in the Second Interim Report of the Royal Commission on Taxation. He could not have taken notice of the very important recommendations which no doubt are still to come in the Final Report of that Commission, but in the Second Interim Report, to which the Chancellor made a passing reference, there are things about which the Chancellor has done nothing.
Despite the Chancellor's desire to give an incentive towards expansion and to be forward-looking and hopeful, I do not believe that he would have given quite so much away on the standard rate of Income Tax as he has done. He would have wished to pay more attention to personal reliefs. No proposals in the Budget bear such obvious traces of a hurried Election as those regarding the child allowance. The right hon. Gentleman had to keep the Finance Bill within the limitations of the Parliamentary time still left before the General Election, so he said, "I cannot go into refinements or things which will provoke long discussion. I must keep the Finance Bill short and must narrow the scope for amendment so that I can keep short the debate and the time spent in Committee." Therefore we are to have only one day for the Committee stage.
What has the Chancellor done in regard to the child allowance? He has given a straight increase from £85 to £100 in the amount. That is a welcome additional relief to the family man. As a matter of fact, it is a reform which we urged upon him last year. He has ignored the criticism from these benches, which he has no doubt read in the Second Report 687 of the Royal Commission on Taxation, regarding the absence of a tapering provision for children. In paragraph 183, the Royal Commission's Report says:Despite our preference for simplicity in all these matters we think that the present one"—that is the absence of tapering—is so arbitrary as to be unfair.That is what we and some Government supporters have said about the present arbitrary limit to the child allowance. If a child's income is only 20s. over the limit, the parent is totally disqualified from receiving any tax relief for the child at all.
A difficulty in discussing this abbreviated Finance Bill is that if we try to alter it favourably we make this Income Tax man's Budget more so; but if we are doing things for taxpayers there is a good way and a not-so-good way of doing them. I will not say that there is a best way. It is a pity, now that the right hon. Gentleman has raised the limit and is relieving £100 of taxable income, that he should not do something about the tapering provision.
I am glad that the right hon. Gentleman has not accepted the Royal Commission's recommendation for a child allowance graduated according to a total income. That proposal is virtually impossible unless Pay-as-You-Earn is to be seriously complicated for many taxpayers and made very unsatisfactory. Child allowance could not be finally determined in many cases until the total income for the year was known, at the conclusion of the financial year and not at the beginning. Therefore, the coding may have been wrong over the whole year and deductions made either too much or too little, with all the irritating adjustments which would be bound to take place at the end of the year.
Since the Inland Revenue try to make adjustments easy for themselves and for the taxpayer, when they find an adjustment to be made at the end of the financial year they "code it in," as the Inland Revenue jargon has it, for the tax deductions for the ensuing financial year. If the taxpayer has something to get back he usually gets it by instalments unless, as he is entitled to do, he asks for immediate repayment.
§ Mr. H. Brooke
I wonder if the hon. Member would examine his previous proposal about tapering in relation to the objections which he is now making to the Royal Commission's plan of a graduated child allowance? I think he might find that his present arguments apply with some force to the proposal which he was advocating a moment ago.
§ Mr. Houghton
I do not deny that a tapering provision would have some complications, but in my submission the income of a child is usually a less variable amount than the income of the parent. After all, children whose own income, in their own right, is a factor involved in a tapering provision usually have a fairly stable amount of income. I do not say that that is so in all cases, but it is either unearned income or, in cases where children are just leaving school to go to work, it may be earned income for a portion of the year in which they begin work.
In certain cases there would be adjustments to be made at the end of the financial year when the total income of the child was known—I admit that—but I am sure that it would not be anything like so difficult to administer as an allowance over the whole area graduated according to the income of the parent. That is a very different kind of graduation, involving a very much larger number of cases.
We notice that, in increasing the amount of allowance from £85 to £100, the Chancellor has left untouched at £85 the income limit of a child. Previously, if the child's income was £86, the parent got no child allowance; if the income of the child was £84, the parent got the full child allowance. Now, at £85, the same limits of income will govern the admission or refusal of the higher allowance of £100.
I do not know of any reason for leaving the limit of the income of the child as it was, unless the Chancellor felt that the comments of the Royal Commission on Taxation regarding gifts of capital assets to children, with a view to securing some additional tax relief, was a matter which should discourage him from raising the income limit from £85 to £100.
Hon. Members will know that if a parent gives away his income to a child, that income is still deemed to be the income of the parent if the child is a minor, and, in a case of a girl, unmarried. 689 Accountaats, solicitors, lawyers and taxpayers are a very ingenious section of the community. They can pick holes in the side of a battleship. They have found that there is a way of hiving off one's own tax liability if one is prepared to give away capital assets. Not all parents, of course, like making their children a gift of capital assets; they are not too sure whether they would use them properly when they got full possession of them, and all that kind of thing.
The Royal Commission drew attention to the growing practice of securing additional relief where a child's income could be brought to a figure just below the disqualifying limit, which enabled exemption to be claimed on that part of the income which the child enjoyed, and the parent receiving, in addition, the tax relief on child allowance. I think that the Chancellor should have done something more comprehensive about child allowance, having regard to the fact that he says he has tried to encourage the family man.
It is to be observed from the Financial Statement that the increase in the child allowance is costing the Exchequer actually more than all the other personal reliefs to single and married persons, which shows its importance in the Chancellor's mind, and its importance also in the total of tax reliefs given in this Budget.
There are other recommendations made in the Second Report of the Royal Commission about which, in normal circumstances I am sure, we would all have hoped the Chancellor would have done something. It is regrettable if such deserving types of cases as the 100 per cent. disabled—who are specially mentioned in the Report—and a number of other anomalous cases which the Commission recommended should be remedied, must wait for relief because the Chancellor was too inhibited by the shortness of Parliamentary time before the General Election.
Though I hesitate to make my next criticism, because it is purely a matter of administration, I think that the House should know that the arithmetic of Income Tax has been made a great deal more difficult by the Finance Bill. All the calculations made both by taxpayers and tax-gatherers will take longer. These odd amounts of 6s. 9d., of 4s. 9d. and 2s. 3d.,
690 will be a great nuisance in the rapid calculation of tax liability. And, of course, the reduction in the first reduced-rate band also makes an odd amount. The total reduced-rate band is now £360; previously it was £400. That is another spanner in the works. I am the last person to say that a Chancellor should adjust tax reliefs to the easy calculation of either taxpayer or tax-gatherer, though simplicity does count for much in taxation. Many anomalies in our tax system are tolerated for the sake of simplicity.
The Chancellor cannot very well claim any original thought for the adjustment in the dependent relative allowance. As the House knows, he has lifted the limit of income merely to take into account the higher rate of retirement pension, but the House will have noticed that, although he has adjusted the limits of income, he has not increased the allowance for dependent relatives.
My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) and others of my hon. Friends have already drawn attention to the very small amounts of tax relief that many people will receive. In fact, it can be said that, generally speaking, the workers will not get more than 2s. a week tax relief out of this Budget. It is a little difficult to see where personal incentives are to flow from these proposals. Even if one goes up to as much as £1,000 a year, a single person will only get 2s. 10d. a week relief; a married couple without children will get 3s. 8d. a week, and a married couple with two children will get 6s. 3d. Those are really not very large amounts of relief for those several categories of taxpayers who are getting about £1,000 a year. If one takes the figures for half that income, the relief is 5d. a week for a single person; 1s. 8d. a week for a married couple without children, and 5d. a week for a married couple with two children.
The truth of the matter is that the lion's share of tax relief in this connection goes to industry. The Chancellor may have purposely designed his Budget to give that relief, though industry has had a very large total of reliefs in Budgets under this Government. There is no official figure for it, but the best calculation I can make is that industry has received reliefs amounting to £200 million a year under the Budgets of this Government.
§ Mr. Houghton
Yes, though it was very short-lived, as the hon. Gentleman will remember, and it was accompanied by a reduction in the standard rate of tax and a reduction in the Profits Tax at the same time. It is true that a considerable sum did go out in Excess Profits Levy in that year, though I think the House will agree that industry has got it all back since, and some more besides.
The hon. and learned Member for Surrey, East (Mr. Doughty) referred to dividends, and remarked that those who invest their money in industry are entitled to a reasonable return. That is true; I do not deny it. So long as we have our mixed economy, where we have to rely on capitalist enterprise, it is obvious that private investment, whether personal or corporate, will look for some return on money invested, and investors will expect to have rewards which reflect their judgment of the comparative risk of the investments they make. We all accept that as an inevitable part of our present industrial system.
The hon. and learned Gentleman will, I am sure, appreciate that substantial rises in dividends are provocative to industry. It is not one of those things that one can argue about. There is no doubt that it is provocative to workers in industry. They feel that people are taking too much out of the industry for no active participation in the labour, skill and toil. That has a psychological effect upon workers, which finds its way into trade union branch meetings and annual conferences, and eventually translates itself into a wage demand and the declaration that unearned incomes are too high and wages and salaries too low. It is an irritant to the general set-up.
§ Mr. Doughty
Would the hon. Gentleman agree that he and I, as well as other hon. Members, could be well employed explaining the true facts to those people who learn only part of the facts?
§ Mr. Houghton
I am not sure that the true facts would help. The truth about a great deal of investment in the last four or five years is that there have been substantial capital gains, as has already been pointed out. There is no doubt that bondholders and investors have generally 692 received quite substantial tax-free capital gains. A tax-free capital gain is worth to many taxpayers twice its nominal value, looked at as a tax-free addition to their income or as an addition to their capital assets.
I can quite understand that professional men, for instance, who may not have large capital assets, although they probably have large incomes when they are at the height of their professional skill and power, feel disgruntled at seeing the bond-holder and the shareholder getting substantial capital gains while the professional man can get no more than life assurance relief on money that he is trying to invest in an endowment policy or a deferred annuity to provide for his old age.
There are many inequities about the present system whereby many people with unearned incomes, such as the bondholder, should not make the claims they do on the yield of increased productivity and prosperity. Very often the Sond-holder is not the most deserving member of the community, because he has probably done nothing to earn his wealth. It may have been left to him, or he may have won a substantial prize in a Stock Exchange gamble, or a football pool.
It must be borne in mind that last year wages rose by 7½ per cent. and dividends by 14 per cent. I know the big difference in the claim on the national income of wage increases on the one hand and dividends on the other. The increase of 7½ per cent. in wages made an additional demand on the national product of about £645 million. The increase in dividends by 14 per cent. could not have meant anything like that total additional demand on the consumer goods and services. That must be admitted. Nevertheless, in looking at comparative rewards, workers do not look at totals so much as the sort of percentage increase over and above previous experience.
§ Mr. Doughty
Did the hon. Gentleman hear the figures I gave, which showed that his figure for dividend increases of 14 per cent. did not relate to two-thirds of all invested capital, and that even if there had been this increase to which he referred it relates to only about one-third of all invested capital? In any case, we do not accept his figures.
§ Mr. Houghton
I do not wish to press this point, but I would offer one comment on that matter. I believe that it is becoming more and more necessary for companies to take their workers into their confidence regarding the financial structure and operation of the companies. I am very glad to see that many firms are now doing so. I have seen most interesting and lucid explanations printed in an attractive way and published by many firms for circulation among all their workers, so that they may clearly understand what their companies are doing, how the capital formation is made up, where the money is coming from, the dividends in past years, and so on.
I think that is a much more convincing way of doing it than by giving global figures to workers about industry generally, because each worker at least has an interest in the organisation for which he is working, and he takes a pride in his achievements and wishes to add to the prosperity of the company for which he is working. All he asks is that he should get a fair share of the increased productivity and prosperity of the organisation for which he works. That is something to be borne in mind by hon. Members opposite more than by hon. Members on these benches, because we are not the capitalists. Many of us are, of course, trade unionists and are able to speak from close contact with the trade union point of view.
I close by regretting the limited opportunity that the whole House has for considering the nation's economic and fiscal affairs this time. Although I do not question the judgment of the Prime Minister in reaching the decision he did, I think it is an ill service that any Government does the House of Commons to announce the dissolution while we still have the most important financial and economic Parliamentary business to do before we break up. This, after all, is the most important period of the Parliamentary year from every point of view. I think it very sad indeed that we have to rush through it with inadequate discussion, inadequate proposals and a Budget which has been roughly hewed out of an electoral situation and which I think is much less satisfactory on that account.
§ 7.40 p.m.
§ Mr. Alan McKibbin (Belfast, East)
I will not delay the House for more than two or three minutes, but I feel I must 694 say something on behalf of the Northern Ireland linen trade. The Chancellor had an opportunity of doing something for the Ulster linen trade and what he did was very disappointing indeed.
The reduction in Purchase Tax given to linen, in common with cotton, rayon and other non-linen materials, was helpful and we must be grateful for this very small mercy, but my right hon. Friend failed to appreciate the fact that the special position of linen, which is a craft product, required an adjustment to help it to compete against cotton, rayon and other more easily produced and cheaper materials. The D scheme which replaced the old Utility scheme improved the position of cotton and rayon, but worsened the position of linen in comparison. It was hoped that if the Budget did not abolish the Purchase Tax altogether it would at least restore the differential which existed before the D scheme between linen and other fabrics cheaper to produce.
I think I am also correct in saying that the reductions announced apply only to textiles for household use, whereas linen handkerchiefs, which provide a very considerable amount of employment in Northern Ireland, still retain the 50 per cent. Purchase Tax. That hits some firms particularly badly. After all, the only good handkerchief if one has a cold is a linen handkerchief.
The loss to the revenue if Purchase Tax were done away with altogether would be infinitesimal. I appeal to my right hon. Friend to make a concession which would be psychological and would far outweigh the monetary loss. It would not only do justice to an ancient craft industry almost entirely run by small family businesses in Northern Ireland, but would help to ease the serious unemployment problem which, as the whole House knows, exists there.
§ 7.43 p.m.
§ Mr. Douglas Jay (Battersea, North)
As the last brief but eloquent speech has shown, there has been remarkably little enthusiasm for this Bill from hon. Members opposite this afternoon. The hon. and learned Member for Surrey, East (Mr. Doughty) produced some figures from the Stock Exchange to refute what he regarded as our case—that it was very wicked for shareholders to get anything 695 at all. That is not our argument, and in any case I do not think the figures the hon. and learned Member produced refuted it.
Our argument is that, generally, shareholders are better off than wage earners. The figures the hon. and learned Member gave did not touch that argument at all. If he questions what I have said, I advise him to look at the Report of the Inland Revenue this year, which shows that, of Surtax incomes, as high a proportion as one-third are unearned. I think that that is fairly good evidence that, generally, unearned incomes are higher individually than ordinary wage incomes.
This debate has shown that it would have been far more equitable if the Chancellor had concentrated reliefs on those who really need relief—the taxpayers at the lowest end of the scale, in particular the large family—instead of loading them on to higher incomes and great companies. We welcome the reliefs by way of child allowance and on some of the small incomes, for which we have been pressing for the last three years. But I think it is clear, as my hon. Friend the Member for Sowerby (Mr. Houghton) said, that the Chancellor has not clearly understood the force of the arguments of the Royal Commission on Taxation and Profits on the subject.
In his Budget speech, although he and the Financial Secretary paid tribute to the Commission, the Chancellor admitted that, in fact, he was rejecting the main proposals of the Commission. He said that his proposals were administratively preferable. The essence of the argument of the Commission was that the family with many dependants is much worse off compared with the single man today than it was before the war. The Report stated:We doubt, for example, whether the needs of revenue could justify the fact that the married man with two children who before the war, on a pre-war income of £400 a year, paid an identical amount of tax as the single man at £150 a year and the married man with no children at £250 a year should now be asked to contribute, on the same real income, wore than three times as much as the corresponding single man and one-and-a-half times as much as the married man.I believe that that curious situation was one which was never deliberately intended and, indeed, never foreseen by any Chancellor. It arose from two causes 696 —the fall in the value of money on the one hand and successive individual alterations by various Chancellors on the other.
Incidentally, the Financial Secretary when he made comparisons with the situation under the 1951 Budget, entirely ignored two things. First, of course, that was a Budget mainly intended to finance an increased defence programme, which was supported by both sides of the House. Secondly, the Financial Secretary must surely realise that the cost of living has risen by 14 per cent. or 15 per cent. since 1951, and that that is highly relevant to these allowances.
This year, although the Chancellor has raised the child allowance he has really only touched the fringe of the problem. Take, for instance, the case of a man earning £700 a year. If he is single, he gets £1 15s. out of the Budget; but if he is married and has two children he gets £11. The difference is about £9 a year and I can assure the Chancellor from personal experience that 4s. a week does not go very far in feeding two children at present living costs.
We have put down on the Order Paper proposals for higher reliefs; but we still do not know whether we shall be allowed to discuss them during the Committee stage. They would have the advantage of excluding more taxpayers altogether from paying Income Tax. The Chancellor has excluded only 2,400,000 out of about 16 million, who are paying the tax. But one of the most astonishing things about Income Tax is that out of a total yield of £1,700 million from the tax—the Chancellor can say whether these figures are wrong—there are about 5 million taxpayers at the bottom of the scale who contribute altogether barely £50 million in total revenue. I would have thought it better to exclude the whole of that 5 million rather than the 2½ million whom the Chancellor has excluded.
Also, the Chancellor has entirely ignored the important argument of the Royal Commission that the conventional changes in Income Tax, which he has made, cannot exempt a number of taxpayers at the bottom of the scale without also giving higher concessions further up. The Commission pointed that out, and produced a careful scheme for avoiding the difficulty; but the Chancellor has done precisely what the Commission 697 wished to avoid. I should like to know whether he rejected the proposals because he had failed to perceive the point, or was deliberately seeking to give bigger reliefs further up, whilst purporting to be exempting those at the lower end of the scale. As the Financial Secretary told us today that the Chancellor acted with his eyes open, I presume it was the latter and he was deliberately seeking to give larger reliefs on the higher incomes.
A large part of the case for more reliefs to the smaller taxpayers is the steady rise in the cost of living and the fall in the value of money, which the Financial Secretary today ignored. Under a Tory Government, as far as we can see, that rise is likely to continue. How do we know that if the present Chancellor of the Exchequer returns in two months' time, he will not sweep away the remaining food subsidies altogether?
Already the right hon. Gentleman has sent to me, and, I suppose, to other hon. Members, an interesting document from the Information Division of the Treasury summarising the Sixth Report of the O.E.E.C. That document contains the important information that the Government are now, apparently, opposed to the principle of rent control. The actual words used in the summary of the O.E.E.C. Report are "vehemently opposed" to rent control. These are the words of the Treasury document:The findings of the Report are important when it is recalled that they are … the agreed views of the member Governments.I do not know whether this means that the Government have communicated to O.E.E.C. a proposal for undermining rent control without informing us here, but perhaps the Chancellor himself has not been informed. The country would like to know whether that is now the Government's policy. The tax reliefs which the Budget proposes would have little benefit for a great many people if rents were to be doubled or trebled at the same time.
I take this occasion to congratulate the Economic Secretary very warmly on his appearance in his distinguished office. I think that I first met him when I held that office and he was an undergraduate. What we really want to know from the hon. Gentleman this afternoon is why the Chancellor, if he really believes his argument about incentives, applies it only to the higher incomes and to the companies? Why is it an incentive to the company to 698 get a big tax relief, and an incentive to the ordinary £10 a week family to pay the extra shilling a week in insurance contributions? Why does the Financial Secretary want to make life worth while, as he told us today, for those who pay Income Tax, but not for that half of the community which does not pay the tax at all?
The 1s. insurance contribution appears to the wage earner very much in the same light as an increase in Income Tax. It is cut off his wage or salary, just like P.A.Y.E., before he sees it. Why is there some mysterious difference in the psychological reaction? The Chancellor made some surprising statements about his favourite children, the companies, being responsible for our production. He said that they were the very basis of national prosperity. I thought that the workers in industry had something to do with production. Would it not be fairer to call them the very basis of national prosperity?
§ Mr. Jay
The right hon. Gentleman says, "Hear, hear." If he believes that the workers are the basis of national prosperity, how does his argument justify taking £50 million or so from the workers in insurance contributions and giving it away, to use his own words, to the shareholders? Perhaps the Economic Secretary will explain the argument to us.
When the Chancellor says that the companies are his favourite children, does he really mean simply the directors and shareholders, or does he mean the workers as well? If he means the workers, why is the money taken from them to give to another section of the community? We have not had any answer to that. At any rate, our position is perfectly clear. We believe that the productive workers are the main source of production and prosperity and productivity; and that any incentives that are possible should be concentrated mainly on them.
I should like to know, also, whether the Chancellor studied the figures in his own Economic Survey before deciding to bolster up the large companies with further reliefs this year, or whether the idea simply popped out of his head like one of those cats out of the bag, of which he spoke last autumn, without any serious study of the facts. The Survey of this, year—my hon. Friend the Member for 699 Cardiff, South (Mr. Callaghan) gave a number of examples of how individual companies would fare under these proposals—shows that companies as a whole after covering depreciation, taxation, dividends and fixed investment, in both fixed capital and stocks, had £400 or £500 million surplus available in 1952, 1953 and 1954. In that case, where is the need for this extra injection of money to finance investment? Is there the slightest evidence that it will stimulate increased production or will increase investment in any way?
We already have in existence both the initial allowance and the investment allowance, both of them, incidentally, dependent upon a firm actually carrying out investment and not available to be used for dividends or capital appreciation. If that was the Chancellor's purpose, I should like to know why he could not have increased the investment allowance rather than to make this, as he calls it, "simple, classical and pure" reduction in the standard rate. It seems to me that when he used those rather meaningless adjectives, he was really admitting that he did not have a serious argument to put forward.
The evidence proves overwhelmingly that, as in 1954, these new reliefs for large companies will mean another spate of higher dividends and bonus issues, with all that that means in an already inflated economy, with more wage claims, more industrial unrest, and so on. Indeed, the Minister of Labour at present is spending almost all his time coping with the industrial unrest which is the secondary effect of the Chancellor's Budget policy. The irony of this is that the £42 million—that is the figure given to us by the Financial Secretary today with great care—required for this extra relief for companies is almost precisely the same amount as the yield of the shilling increase in insurance contributions by employees as opposed to employers.
The Prime Minister has made one contribution, we understand, to this debate. We have it from the Chancellor that the Prime Minister accused my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) of uttering "class war stuff," because he pointed out—the Prime Minister probably had not noticed it before—how outrageously unfair was the 700 incidence of the tax reliefs in the Budget. If the Chancellor introduces a Budget of that kind, with such a very unfair distribution of benefits, he cannot really accuse other people of class war propaganda because they denounce it as being what it is. It is typical of the Tory Party to start a class conflict and then to denounce other sections of the community for defending themselves.
We have been asked—this was supposed to have been a very clever question which was put to us—whether we regard this as an electioneering Budget, on the one hand, or a very unfair Budget, on the other hand. We say this: the Government think this is an electioneering Budget; but we think that it is an extremely poor Budget. That is the difference between us. Why did the Chancellor rush into all this anyway? Why, incidentally, is he going to unprecedented lengths to suppress Parliamentary discussion or amendment of his Budget proposals? Why is he going to the length of using the procedure for Purchase Tax Orders, for a purpose for which it was never intended, to rush through the main part of the Budget without detailed discussion?
I hope that some of our correspondents outside, who write to both sides of the House at this time of the year about many interesting topics—such as sport and entertainments and, as we have heard today, cutlery, linen, diesel oil, and transport—will realise that this year the Government have made it virtually impossible for almost all these topics to be examined seriously by the House in the passage of the Finance Bill?
Why are the Government acting with such reckless haste? Perhaps the Economic Secretary will tell us? I suppose the explanation is to be found in the first sentence of the leading article in the "Observer" of yesterday, which stated:It is not impossible that by the time most of us go away for our summer holidays—and I devoutly hope that we shall—the country will be in the midst of a balance-of-payments crisis more serious and more menacing than that which afflicted us in the autumn and winter of 1951.If there is substance in that, and if that is the reason—I do not know what other reason there is for all this haste—I do not think that the country will judge well 701 of a Government which thus hurries through a totally unfair Budget, and refuses to face up to the real problems which are confronting the country at the present time.
§ 8.2 p.m.
§ The Economic Secretary to the Treasury (Sir Edward Boyle)
I should like to thank the right hon. Gentleman the Member for Battersea, North (Mr. Jay) for the kind reference he made to myself. Those hon. Members who were fortunate enough to hear the pulverising speech of my right hon. Friend the Minister of Supply last Thursday will realise that I rise with considerable diffidence as his successor in my present office. In fact, over the week-end I could not help recalling the story of the young and inexperienced amateur who was playing in his first match as captain of the Yorkshire cricket team 35 years ago.
On the first day of the match the seasoned professionals, headed by Wilfred Rhodes, knocked up a most imposing score off the opposition bowling. Half way through the second morning the time arrived for the new captain to present himself at the wicket. As he was about to walk out of the pavilion he was met by one of the older professionals who said to him, "You had better be taking those pads off, Geoff; Mr. Rhodes has declared." I am glad to remember that this captain, despite his inauspicious start, nevertheless maintained his place in the side for three seasons. I will give his name and batting average to any hon. Member who is interested after the debate.
§ Mr. Rhodes
May I interrupt the Economic Secretary? That was the day on which an argumentative batsman who said that the wind had blown the bails off when really he had been bowled was told by the umpire that he had better see to it that the wind did not blow his cap off as he was going back to the pavilion.
§ Sir E. Boyle
The right hon. Member for Battersea, North ended his speech by quoting the first sentence of the "Observer" leading article. I want to make two brief comments on that leading article, which was not a helpful one. I am not thinking simply in political terms—it was not helpful to the national economy.
702 It is worth remembering that in October, 1951, when we took over, in that one single month alone our gold and dollar reserves fell by 300 million dollars. Today, according to the latest information, the official rate for sterling is 2. 79¾ and the transferable rate is 2. 77. I suggest that, although we cannot be satisfied or complacent about the present position, our economic affairs are today in better shape than when we came to power in 1951.
Before I come to the main part of what I have to say, I wish to make one acknowledgment and my right hon. Friend has also asked me to make one announcement. I should like to say how much the Government depend on the information which flows in from firms throughout the country for a properly balanced and up-to-date view of the economic situation.
Granted that economic policy is necessarily an act of judgment, sound policy must rest on a statistical foundation which is largely made up of the various returns of production, employment, prices, orders on hand, and so on, that are supplied by firms to Government Departments or to trade associations. I want to acknowledge the co-operation which the Government receive from industry over the provision of these facts.
My right hon. Friend has, however, asked me to emphasise the importance of promptness. Much of the information we get would be even more useful if it were received sooner. Here, of course, we are very much in the hands of industry. Often our statistics cannot be compiled and published because a comparatively few firms have not provided the necessary information.
I think it is worth remembering that the Government have a responsibility, not only to keep themselves informed, but also to provide Parliament, business and the public, with a detailed picture of the continuous and sometimes rapid shifts in the balance of the economy. This is the object, for instance, of the "Economic Survey." In a free and competitive economy, it is more important than ever that the true facts should be quickly available and widely known. Ill-informed rumours and suspicions are the worst possible guide to intelligent action in government or in business.
But it is not good enough only to record the past—and here I come to the 703 announcement. We need to collect from industry their views about future prospects. One way of doing this, which has proved invaluable in other countries, is to invite a number of firms to give estimates of their investment intentions for a year or so ahead. We propose to introduce a simple request for information on these lines in the immediate future. I am sure that the firms approached will co-operate fully in stating their plans as accurately as possible, and I am sure the House will approve of this announcement and of the proposal.
I do not propose this evening to dwell at any length on the general Budget strategy of my right hon. Friend, because that was debated at considerable length last week. After the speeches, first of the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) on Wednesday, then of my right hon. Friend the Minister of Supply on Thursday and, finally, of the Chancellor of the Exchequer in his winding-up speech on Friday, there is very little left to say on that subject.
Therefore I want to come straight on to the principal Budget proposal of my right hon. Friend, namely, the reduction of 6d. in the standard rate. The hon. Gentleman the Member for Cardiff, South-East (Mr. Callaghan) said this afternoon that 6d. off the standard rate will be popular in the City. I want to make it clear that my right hon. Friend has made this reduction the central point of his Budget simply and solely because he believes that it will strengthen the economy. That is the purpose behind his policy.
I was extremely surprised at the remarks made by the right hon. Gentleman the Member for Leeds, South about corporate savings when he spoke on Wednesday. I thought it was more or less common ground in this House that our level of taxation on industry was still dangerously high in view of the heavy foreign competition we had now to meet. I was particularly surprised to hear those remarks coming from the right hon. Gentleman because, if hon. Members will turn back to his Budget speech in 1951, he went out of his way then to emphasise the importance of corporate savings of industry. In column 855 of his Budget speech he said, "a high level of corporate savings is essential." And in the previous column he said this: 704There are some who disapprove of profits in principle. I do not share their view. In an economy three-quarters of which is run by private enterprise, it is foolish to ignore the function of profit as an incentive.—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 854.]It is exactly in accordance with this view that my right hon. Friend has given this extra relief to industry.
The right hon. Gentleman the Member for Battersea, North dwelt at some length on Friday on the article by Professor Cairncross in the most recent number of "Westminster Bank Review." I should certainly read anything by Professor Cairncross with great attention. He is the author of one of the standard economic text books, printed, fortunately, in its last edition in legible form. It is an extremely interesting article.
It is only fair to say that the figures on which the right hon. Gentleman based his argument simply compared the situation of companies in the financial years 1948 and 1949 with the pre-war years 1936 to 1938. It is fair to remember that neither 1948 nor 1949 was an absolutely typical post-war year. In any case, even though we should agree that companies as a whole have not been short of funds in the last two or three years, as is clearly shown by the Economic Survey of 1955, that does not affect the fact that some companies have been held back from investment by lack of finance, and, therefore, there are some cases where a tax relief will provide financial means for expansion. It would be unwise to dogmatise too much about this simply by considering the total of companies' savings and the liquidity of companies as a whole.
There is another point that I wish to put to the right hon. Gentleman. In his speech he rather confused the wherewithal to invest with the incentive to invest, but they are not quite the same thing. By his reduction in the standard rate, my right hon. Friend has given a real incentive to companies to invest, because it is quite clear that he intends to manage the economy by a combination of expansionist policy and, at the same time, monetary discipline.
At this point I should like to reply to something that was said by the hon. Member for Cardiff, South-East about Profits Tax. The figures which he gave were, innocently I am sure, misleading, 705 and I think they might be widely misunderstood if they were not corrected. He said that receipts from Profits Tax had fallen from £376 million in 1952–53 to £188 million in the following year. It is important to remember that at the time when companies paid £376 million in Profits Tax, that tax was deductible from profits before Income Tax was charged, and, therefore, the £376 million of gross profit reduced Income Tax payments by some £180 million. When the Profits Tax was reduced in 1952, the new rates were not deductible from Income Tax. Therefore, the true fall in receipts is not from £376 million to £188 million but from about £196 million to £188 million, which gives a different picture.
§ Mr. Callaghan
I am much obliged to the hon. Gentleman, and I do not dispute at all what he says. I would, however, repeat my question, and no doubt he will answer it. Why has not the Chancellor reimposed the Profits Tax that he took off because he was applying the Excess Profits Levy?
§ Sir E, Boyle
I can answer that quite simply. When we were discussing the Excess Profits Levy—as a back bencher at that time, I remember the days very well, and I am sure that the hon. Gentleman remembers them even more vividly—my right hon. Friend said that he would reduce the level of Profits Tax. As soon as the question of doing away with the Levy arose, my right hon. Friend said he thought that the level of taxation on industry without the Excess Profits Levy but with the reduced level of Profits Tax would be about the right level of Profits Tax for industry to bear. My right hon. Friend made this clear upon more than one occasion. He made it plain that he did not intend to raise the Profits Tax again after the Excess Profits Levy was done away with. Hon. Members opposite disagreed with this, and we had a number of very sharp debates on the subject. I remember that the hon. Member for Stechford (Mr. Roy Jenkins) raised the matter on a number of occasions. However, my right hon. Friend made his position quite clear.
I come now to the 6d. reduction on personal incomes. We have heard a great deal in these debates about the undesirability of a reduction which gives more to those who are well off than it 706 does to those who are not so well off, and more to those with investment incomes than to those with earned incomes. I do not want to get bogged down this evening in a dispute about redistributive taxation, which is far too big a subject to discuss tonight. But I will say this. It is all very well for hon. Members and right hon. Members opposite to talk about a reactionary Budget and regressive taxation. We had a tremendous indictment last Wednesday from the right hon. Member for Leeds, South who said:The whole assumption on which was that a Budget of this kind is produced in order to get back to the palmy days when the rich were taxed much less heavily.Anybody who did not know the facts would, after listening to that remark, be surprised to know that the Budget had exempted 2,400,000 people altogether from paying Income Tax, that the most wealthy section of the population were still paying tax on a very large slice of their income at 18s. 6d. in the £. Indeed, all people with £8,000 a year and upwards are paying approximately three-quarters of their income to the Chancellor.
I will not be too precise about this or I may get into trouble, but when we think of the very high rates of tax which those who are best off are still paying and the number of people who have been exempted altogether from paying tax, I think that most hon. Members would agree that, honestly, we still have a pretty steeply progressive tax rate in this country, and it is silly to talk as if we were going back to the 'thirties.
I have another point to put to hon. Members opposite. If we jam rates of taxes right up to the ceiling on unearned income in normal peace-time, we cannot impose an extra burden on those people when some emergency arises. In 1951 the right hon. Member for Leeds, South justified his Budget, in which he raised Income Tax by 6d. in the £, on the ground that it would lay the heaviest burden on the section of the population which could most afford it. The Conservative Party did not vote against the proposal because we recognised that in the emergency of those days an increase in taxation to pay for rearmament was inevitable. However, it cannot be right to keep taxation on unearned incomes 707 right up to the war-time level in times of peace. Otherwise if some emergency comes along and more revenue has to be raised one can only raise it from the productive workers of the country, which is not a good thing.
Do not let us get into the habit in these debates of supposing that all income belongs by right to the State except that small section of our income which the Chancellor allows us to spend. I am sure that as soon as one gets into that state of mind, it is the death of personal liberty. I am absolutely sure that we need to adhere firmly to the view that all our money is our own except that which the Chancellor takes away, rather than to suggest that the State has a sort of prescriptive right to all income except that which we are allowed to keep.
I felt that the whole of the speech of the hon. Member for Cardiff, South-East was a plea for penalties on success. One simply cannot run a trading nation if one is going to penalise success. We have to give adequate incentive to the creation of new wealth. If we are to maintain our social services and secure to the old people of the country an adequate real standard of living, we must give adequate incentive for the creation of new real wealth by the combined efforts of all sides of industry.
This Budget reduces the standard rate of Income Tax to the lowest figure at which it has been since the second year of the war. That is something for which we on this side of the House make no apology. We do not believe that in normal peacetime the rate of tax should be that which is appropriate to wartime or to the difficult transition period between war and peace.
708 I do not want to keep the House much longer, but I should like to say a word about the relief which we give in the Budget to those living on small investment incomes. I was very glad that this was mentioned this afternoon by my hon. Friends the Members for Harrogate (Mr. Ramsden) and Windsor (Mr. Mott-Radclyffe). There is no doubt that the people living on small investment incomes have had a very difficult time indeed during recent years. They have found it extremely difficult to make ends meet in the difficult post-war period, and they are people who are very unwilling indeed to accept National Assistance. I am glad that the Government have twice done something to help them.
In conclusion, I believe we have to go back a very long time in our history to find a Chancellor of the Exchequer who has shown such consistently sound judgment over a period of three or four years. I believe that that is the opinion not only of political supporters of this side of the House, but of very large numbers of people in all parties and, in particular, of the many people who are not committed to any of the political parties. I believe that in the country as a whole there is a very great deal of confidence in my right hon. Friend's policies and in his judgment. It is for that reason that I am confident that the electors will wish him to continue his work and will return my right hon. Friends to power on 26th May.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Committed to a Committee of the whole House.
§ Committee Tomorrow.