Clause 1.—;(CHARGE OF INCOME TAX FOR 1955–56 AND SURTAX RATES FOR 1954–55.)

HC Deb 27 April 1955 vol 540 cc945-83

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

3.33 p.m.

Mr. G. R. Mitchison (Kettering)

During the last two days we have had a considerable discussion on the amount that the Chancellor can allow in relief of taxation for the coming year. On a question of that sort, no doubt the economists will have their views, but it has always seemed to me that much of the essential information necessarily lies with the Chancellor himself, and I do not propose to revert to that question in discussing this Clause.

The fact remains that the Chancellor has come to the conclusion that£155 million can be remitted during the coming year, and out of that sum practically the whole is to come from Income Tax concessions, the most important, the most fundamental, of which, of course, is the reduction in the standard rate.

I think that in the course of Answers given yesterday to Questions considerable light was thrown on the practical effect which this reduction in the standard rate will have in the coming year. When I speak about the practical effect, I am referring to the effect which it will have on the ordinary people in the country—those whom we represent in this Committee. Out of the£155 million, no less than£42 million goes otherwise than to individuals; that is to say, it goes to corporations, particularly companies, to which my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) referred on Friday.

I shall not say any more about it than that it seemed to me somewhat incongruous that, when we had a reply to that speech, we were told that the remissions of tax in this Budget would provide relief to all those who work by hand or by brain. It seems to me somewhat difficult to understand how a company, which is, no doubt, a necessary part of the economic structure, can be regarded as something which works by hand or by brain.

When we come to the actual workers, we have to consider the individual relief. It amounts to£110 million altogether. It is given mainly by the change in the standard rate of Income Tax, but for the sake of simplicity I will refer to the total of the relief including not only the standard rate reduction but also some other minor concessions. It is obvious that the standard rate is far the most important part.

The first thing which strikes me is that it is remarkable that the total relief given in this Budget to individuals, by Income Tax standard rate reduction and otherwise, amounts to almost exactly the same as has been put upon the people by Tory dear money policy, that is to say, to the amount of the increase in the National Debt charges and to the amount of the increase which may be expected next year. The figures of£30 million and£85 million were given by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell). They add up to£115 million, which is a little more than the£110 million which is given by the Budget to individual taxpayers. The conclusion follows that if it had not been for the dear money policy the relief given to individuals could have been doubled.

I wonder what conclusion we are to draw from this. We are told that the protection against any inflationary effects, against any consequent trouble in our balance of payments—any general restriction on consumption that may be required in consequence of these reliefs—is to be made by a further use of the Bank Rate. We are told that it is a flexible weapon. I remember the impact of flexible weapons when I was younger, and I can assure the Chancellor that a flexible weapon, particularly one with knots in it, can hurt quite a lot. I would much sooner that what was proposed to be done had been doubled and cheap money preserved for the benefit of councils, among other people, and generally for the benefit of those who have to borrow as against those who are able to lend.

I turn to the incidence on the particular taxpayer. The figures given in column 740 of today's OFFICIAL REPORT are most remarkable. Roughly speaking, half the people who will have relief from the reduction in the standard rate of Income Tax, or over 8 million, will have a total relief of£19 million out of the£110 million. That means they will receive, on the average, about 10d. a week—that is half of them, and the poorest half.

3.45 p.m.

Next we come to the higher grades, who number 8,350,000. They will receive 2s. a week on the average. Then we find that those who are earning£700 to£1,000 a year, not exactly plutocrats, will receive 3s. a week. As we proceed to the higher grades, the relief given becomes quite disproportionate. Those in the£1,000 to£2,000 group will receive 7s. a week. The average figure of 30s. a week in the case of those who are in the£2,000 and over income group has comparatively little significance. The number in the group is comparatively small—325,000—against the millions in the lower groups of whom I have been speaking and, of course, in that group particularly the higher remission goes to those who have the larger income. This is bound to be and always will be the effect of a straight remission of 6d. or 1s., or whatever it is, off the Income Tax.

Mr. Gerald Nabarro (Kidderminster)

Hear, hear.

Mr. Mitchison

I know that that is greeted with loud approval from the benches opposite. It seems that hon. Members opposite prefer that those who are already enjoying the larger incomes and, therefore, paying the bigger taxes should receive the higher proportion of what is available by way of remission. In general, we on this side of the Committee totally dissent from that view. We fully recognise that Income Tax is, of course, a tax subject to reliefs in the lower groups and to that extent the gross inequity that it would otherwise cause is remedied.

In successive Governments we have always insisted on and emphasised those reliefs. When my party were in office we made it our first care to relieve at the bottom of the scale, and we did not so frame Budgets that these disproportionate amounts passed to this disproportionate extent partly to limited companies and partly to those who are paying the highest amounts in tax. The distribution of relief in this Budget is one which is grossly unfair in favour of the Surtax payer and grossly unfair against those who are right at the bottom of the Income Tax scale.

To do this at this time seems to be inviting trouble. We already have an economy in which there are some signs of inflation. Notwithstanding any pledges given about them at the last General Election, prices, broadly speaking, have continued to rise. To put it at the very lowest, there is still a considerable danger of that rise increasing, and we have just had a statement from the Government Front Bench, which is by no means the first of the statements made from there recently, about wage claims and threats of industrial action in consequence.

To choose this moment deliberately to grant relief in this form seems to me to be inviting trouble from that narrow point of view. I can go one stage further. Speaking for myself—and I think that many of my hon. and right hon. Friends will agree with me—I cannot regard as satisfactory any remission of tax which accepts the present distribution of wealth as fair and right. I have personally benefited from an unequal distribution of wealth and I have spent many years of my life, and propose to go on doing so, trying to remedy that unfairness as far as I can.

I believe that to confine any relief which he can give to a straight reduction of Income Tax is, to the extent to which the Chancellor has done it, politically and economically dangerous, and morally wrong at the present time. I say without hesitation that if this sum of money were available for distribution by me I would far rather have used it to remove altogether from the Income Tax liability some of the taxpayers at the bottom of the scale—by way of further reliefs, partly by reduced rates, partly by children's allowances, and partly by making much more adequate provision for the unemployment which has reared its ugly head again in Lancashire. To give the companies and corporate bodies the£42 million which the Chancellor proposes to do, and to give these large amounts to the highest range of taxpayers—the Surtax payers—seems to me, at this time, a disastrous and immoral mistake.

I know that a straight reduction has a classic simplicity, but I am sure that the right hon. Gentleman is already aware that both what is right and what is wrong may have a classic simplicity. In this case the simplicity of this Measure is calculated to hide the bad moral effects of what is being done. Therefore, while it is perfectly obvious that we are not proposing to divide upon this Clause, I would far rather have seen, if necessary, no remission in the standard rate, but the same amount of money going to those who are now at the bottom of the scale.

If there is any question about who needs it most, surely it is within the knowledge of right hon. and hon. Members opposite that when one speaks of the burden of taxation one must have regard not merely to the amount of taxes paid by an individual or company, but to the capacity of that person or company to carry it. At present, I believe that the burden weighs most heavily upon those at the bottom of the scale, at a time of rising prices without a sufficient corresponding rise in wages and earnings. Naturally, we are not going to vote against this reduction.

Viscount Hinchingbrooke (Dorset, South)

Why not?

Mr. Mitchison

Why should we?

Mr. Raymond Gower (Barry)

If this matter is so immoral and dishonourable, as the hon. and learned Member suggests, why should his party not divide against the Clause?

Mr. Mitchison

The hon. Gentleman has completely misunderstood what I have been saying. He must know that the Opposition has no power to remit the same amount by other means and to other people, in a better way. We must obviously accept the remission; there can be no question about that, But we are entitled to say, and we do say, that if we had had this amount of money to remit we would not have remitted£42 million of it to limited companies, and we would not have remitted such a high proportion of it to the higher range of taxpayers.

On the contrary, we would have used every effort to take more people out of the Income Tax scale and make such reductions in rate as we could at the bottom of the scale, and not in the present form, which means that the greater part of those reductions go to persons at the top of the scale, who thus get a wholly disproportionate benefit.

Mr. Frederick Gough (Horsham)

The hon. and learned Member accuses my hon. Friend of ignorance. Perhaps I am also ignorant, but it would be fair to the Committee for him to remind us that in his previous Budgets my right hon. Friend has released thousands of people from paying any tax whatever.

Mr. Mitchison

So did the Labour Government, and upon a larger scale. The very simple answer to that reminder is that what we have to consider now is what is right to be done now. The fact that the Chancellor may or may not have done some right in the past is no reason why he should discontinue to do so now, and turn from what is right to what is wrong.

It is for that reason that I object, not to the fact of the remission or to the amount of remission—for that has already been discussed—but to the fact that the money is being remitted in such a way that those who receive the greatest benefit from it are those who need it least; the limited companies and the Surtax payers. The ordinary man and woman who has returned us to Parliament, and will shortly have to do the same, or something like it, again receive the least benefit from a straight reduction in the tax rate.

Mr. Harold Steward (Stockport, South)

In the short time that I have been a Member of the House I have witnessed upon no fewer than six occasions the kindness extended to hon. Members making their maiden speeches. I am certain that in the more restricted atmosphere of a speech upon a Clause in the Committee stage of a Bill I shall be in even greater need of such kindness and tolerance from the Chair.

After the speech of the hon. and learned Member for Kettering (Mr. Mitchison) I was left in some doubt whether hon. Members opposite had made up their minds whether it was more desirable not to give any reliefs, and so guard against inflation, or to give reliefs which themselves will tend to guard against inflation. I believe that in this simple, direct Bill, judged in the context of the last three Budget statements, we have something which, while guarding against inflation, will give the greatest measure of relief in the most widespread manner.

It is simple, direct, equitable and, from my point of view, very welcome. It gives practical expression to what I believe to be the whole spirit of the Bill, as defined in two passages from the speech of my right hon. Friend when he was explaining his Budget proposals. He said: If we are to achieve the full increase in production of which the economy is capable, we must continue to provide encouragement to the whole productive effort of the country. We must seek fresh incentives to the forces of growth by the stimulation of output and productivity. Later in his speech, he said: I am satisfied that the world at large will applaud our continuing climb back to the uplands of prosperity, and I rely on our people to respond to the trust which I have placed in their sure and steady steps."—[OFFICIAL REPORT, 19th April, 1955; Vol. 540, c. 56–61.] That epitomises the policy of my right hon. Friend. It has already been said that this Budget demonstrates the difference between the general outlook of the two political parties. The message of this Budget is "Trust the people"—not one section, but all sections. I am quite content to believe that that is, indeed, the root of our Conservative faith, and history has demonstrated time and again that when trust is placed in the people it is never abused.

It has been suggested that the giving of further assistance to industry should have been achieved by way of investment allowances. I am glad that in this matter, as in the rest of the Bill, the Chancellor has demonstrated his trust in industry, in just the same manner that he has demonstrated it in the wage-earning and salaried classes. He has left them freedom of action and freedom of manoeuvre. I am certain that his trust will not be misplaced.

4.0 p.m.

For 37 years I have worked in industry. I have worked alongside the hourly-paid employee. For many years I have worked with the clerical and development staffs. More recently, I have played a modest part in the executive management of a large company. I would surrender to no man my admiration for what is commonly termed the British working man—I have worked with him for too long. I regard him as the most likeable, most lovable, most stubborn, most independent, most remarkable— and at times the most unreasonable man alive.

At the same time, he is probably epitomised in that slightly inebriated husband who said to his wife, "I will do anything in reason, Maria, but I will not go home." He is not moved by reason and abstract scientific thought, but by an inner course that makes him tick and which, I believe, will respond to the type of trust placed in him by the Chancellor.

To the craftsman and the professional worker this relief, and much more, is long overdue. Their differentials have been reduced, their difficulties have been increased, and in no other section has the disincentive principle and the disreward of higher responsibility been more marked. To a large extent he has always been, and still is, the goose that lays the golden egg—the middle stratum of our society—which has been exploited and plundered by every Chancellor, irrespective of party. The relief offered to them in this Budget is long overdue and very well earned. At all times I believe that anything which the Chancellor can afford would be well given to that section of the public.

It has been suggested that the relief given to industry will be used only to disburse higher dividends to shareholders. The last two years have shown—and it is demonstrated clearly in the White Paper—that the incentives given to industry are resulting in a steady build-up of new fixed capital assets. In this respect it must be appreciated that there is, of necessity, a time lag between the conception of any original capital project and the expenditure of the money necessary for its implementation. I believe that the next few years will see a vastly accelerated upward trend in expenditure on building and plant as a result of schemes which have already been initiated.

This Parliament has witnessed two changes which are very often lost sight of in relation to matters of this kind. The first is that we have changed from a buyers' to a sellers' market, with all the fierce competition that that entails. That is a vast change which private industry has taken in its stride and has continued to expand. Secondly, we have witnessed a welcome change from Government to private buying. While this is very wel- come, it must not be forgotten that nonrecurrent but quite vast expenditure in the building up of private stocks has taken place and has made further demands on our working capital. Looking at the White Paper, I believe that since those stocks are so widespread, and since prices have tended to rise, there may here be a hidden asset of which full account has not been taken. If that is so that asset will show to our benefit in the future.

Surely, Sir Charles, it is right to claim that the industrialists have done, and are doing a fine job under the most difficult conditions, and that, in the common weal, the relief extended to them by this Budget has been well earned and fully deserved. It is primarily an encouragement to further effort, and an encouragement to that ploughing back of further capital which is, in itself, the destruction of any further inflation.

If we can agree on the desirability of the cut there still remains the overall question of how far we increase production to an extent which would overcome any inflationary pressure caused by greater spending power. Let me here say that I have yet to meet the industrialist who does not require—and desire—conditions of full employment to continue. Profits are not made from people who are unemployed; they are made from full employment. A high and stable level of employment and production is one of the prerequisites for the successful conclusion of any industrial activity.

Full production is with us. There is, therefore, a limit to the extent to which we can obtain further production by means of added labour. The undesirability of working further man-hours within the same labour force is quite apparent. The limitation is quite real and very clear. The only answer which meets all the circumstances of the case is one which is so often spoken about, but, by many of our people, not too clearly understood. It is the getting of higher productivity generally; in other words, the better utilisation of our resources, higher efficiency in the use of our manpower and machine power, fuel, materials, transport, etc. without reducing quality of turnout—more consumer and capital goods from the same ingredients.

It is not enough merely to raise production. The cost per unit quantity has to be reduced. We have seen production rising ever since the war, but has there been a corresponding rise in productivity? There has certainly been some rise in productivity, but it has not been a corresponding rise. I suggest that we have been far too ready to mortgage the benefits of increased production before the event. The result has been that, by the time the increased output has found its way to the consumer, prices have again risen, and the continual spiral of wages, costs and profits has taken another upward turn in the cycle. Nevertheless, with good will and the exercise of a full sense of responsibility by all concerned there is enormous scope for a real and continuing increase in productivity.

I was very pleased to hear a tribute paid to the work of the British Productivity Council. As Chairman of the Merseyside Committee I have had some experience of the work of the Council, sponsored, as it has been, by the Government of the day; successive Governments have taken the same attitude to its work. There is a growing and rapidly developing organisation in which both sides of industry are exchanging their views and common production problems. Enormous good will is being created, and by the accumulation and dissemination of information throughout industry—always one of the most difficult tasks—there is a wider appreciation of each other's difficulties and anxieties.

The free exchange of information not only between firms engaged in the same industry but between firms in differing industries and firms of relatively different size and scope has been taking place on a wide scale. As a result, there is gradually building up a more widespread use of modern techniques. In so far as they are applicable to conditions here, the things learned by the Anglo-American Council on Productivity are filtering through the whole network of our industry, both nationalised and private.

This work is still in its infancy and the potential benefits are still largely untapped. I believe that the growth of that work is, in itself, a corrective of any signs of inflation which may have been apparent. Our resources are greater than at any time in the recent past. More savings are available and they will be increased by this present Bill. Nevertheless, I believe that there is scope for greatly increased capital resources, par- ticularly in small industries, which constitute such a large proportion of the pattern of our industrial life.

Secondly, I believe that there can be more enterprising and venturesome work in pioneering new methods. When I met a colleague who went to the United States recently, as so many of us have done, I was impressed by his statement that he believed the success of American production was derived largely from an attitude of mind over there by which they believed in mechanisation for its own sake; they recognised that when mechanisation had been accomplished the ultimate benefits were greater than those which were immediately apparent when making an assessment of the position.

I believe that if we in this country could make a more energetic approach in that way, believing in mechanisation in the first place for its own sake, and so redeploying any labour saved by its use to further gainful employment, it would vastly increase our productivity. In studying the economics of new projects we are apt to lose sight of these two factors.

Thirdly, I believe that in these new and modern conditions there is room for amendment in the system of wage negotiation. I believe that the trade union system in this country, at its best, is better than that in any other part of the world. It is spotty in many places, just as management is spotty in many places, but we are approaching a new set of conditions in which we shall be distributing a higher standard derived from greater productivity. I believe that the present set-up of national arbitration on every matter is too remote and is apt to lead to troubles on the shop floor.

I believe that national negotiation should be retained, and let me add here that I am no opponent of the large unions. I believe that the large union still has its place in the inspiration which it can give, but I believe that the district committees could, and should, be used to a much greater extent and with greater advantage on some of the secondary problems which beset industry.

Finally, I would suggest that the time is rapidly approaching—and is recognised by many leading trade unionists to be so—when the strike weapon will become obsolete and it will be found that negotiation is the better way to succeed on all fronts. I believe that no Government would wish to withdraw the strike weapon from the hands of a trade union to be used in the last resort, but I believe that more and more attention can and will be given to the peaceful settlement of strikes by negotiation. Public opinion is the judge of right or wrong in this matter. Within that context I believe that there is a growing volume of public opinion which believes that the unofficial strike should be abolished.

I believe that there we are not getting a reflection of the true will, even of the small number of people who are often concerned in these unofficial strikes, and that a means will have to be found within the next few years by which the total will, not part of it, of any union concerned will have to be fully demonstrated before any strike takes place.

With these things combined I believe that it is possible vastly to increase productivity. I believe that the hope expressed by the Chancellor in his Budget statement will be demonstrated as correct, and that when he presents another Budget statement in twelve months' time—as I am sure he will—we can hope for further reduction along the same lines.

4.15 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

Doubtless all hon. Members of the Committee will wish to join me in congratulating the hon. Gentleman the Member for Stockport, South (Mr. H. Steward) on having surmounted the ordeal of a maiden speech. It is always an ordeal, but it may perhaps have been more so in the case of the hon. Gentleman because the imminence of coming events may have left him with less choice of the occasion on which he should speak than we normally have. I warn him, however, that he is on dangerous ground in making a maiden speech during the Committee stage of the Finance Bill. I was foolish enough to do that myself, and since then I have not been able to disentangle myself from the subject.

It is usual on these occasions to say that we will listen with interest on many future occasions to what the hon. Gentleman has to say, but in view of the highly marginal nature of his seat, it is difficult for me to say that this afternoon. Therefore, I will compromise by saying that if he can find another occasion within the next ten days on which to address the House, we shall be glad to hear him.

The hon. Gentleman, who spoke with great force, clarity and confidence, took the subject somewhat wide, as is the privilege of maiden speakers, but I have no doubt that you, Sir Charles, will be glad to hear that I propose to take it more narrowly. What we are dealing with primarily in this debate on the Question "That the Clause stand part of the Bill" is the standard rate of Income Tax.

The first thing I want to say to the Chancellor and the Committee about the standard rate of Income Tax is that it ought to be abolished. I see the hon. Gentleman the Member for Kidderminster (Mr. Nabarro) looking pleased and surprised. By that I do not necessarily mean any sweeping reductions of direct taxation, but that the term "standard rate" has become a most misleading misnomer.

The "Economist" made some interesting remarks on this subject last week. The term "standard rate" gives the impression that it is the rate of Income Tax which is paid most widely by almost everybody. In fact, very few things could be further from the truth. The standard rate is primarily a rate which applies to company taxation. The standard rate of Income Tax, as such, is paid by nobody who has a wholly earned income, because up to£2,000 a year the taxpayer gets earned income relief, so never pays the 8s. 6d. or 9s. in the£. Above£2,000, when he loses his earned income relief, Surtax is put on top of that. Therefore, somebody who lives on earned income never pays on any slice of his income at the standard rate.

What the standard rate of Income Tax applies to is, first, taxation of companies and, secondly, taxation on unearned income over the range of£600 to£2,000. It is unfortunate that a form of tax which applies so narrowly should have applied to it this term which appears to give it a general significance. Of course one cannot lay this at the door of the Chancellor, because it has long existed in our taxation system. I suggest that there are three distinct components. There is the normal rate of tax upon com- panies, there is the rate of tax upon earned income, and there is the rate of tax upon unearned income. It would be greatly for the clarity of the Committee, and even more of the country, if we could get away from that term and separate these three components, dealing with them separately if necessary.

Now I want to refer to the effects of the cut in the standard rate upon companies. As the Chancellor has told us, and as is clearly the case, and as many people, including the hon. Member for Stockport, South, have mentioned, a substantial part of the remission of taxation involving a cut in the standard rate falls upon companies. I would not say that companies do not play an important part in our national economy, but we need to consider carefully whether a cut in the rate of company taxation, such as is envisaged in this Clause, is likely, in present circumstances, to produce desirable developments from the point of view of the national economy.

We have had a number of statements from the Chancellor and other members of the Government indicating that it is beyond all doubt that at present the cut in the rate of taxation upon companies is bound to be in the national interest. But I ask them to approach this question not simply from the point of view of vehement separation, but from the point of view of trying to argue and consider it a little more closely.

I would suggest to the Chancellor that on past experience during his tenure of office there is very little evidence for saying that a cut in the standard rate of taxation in so far as it affects companies produces the sort of benefit which he wants. What are we primarily concerned about regarding companies at the present time? We are all very much concerned—it is common ground between both sides of the Committee—about the rate of investment.

Suppose we look back over the past three Budgets. We see that in the 1953 Budget, when the Chancellor made a cut, the improvement in the rate of investment was very small. Indeed, if one were to try, admittedly on a rather slender basis of evidence, to establish what happened as a result of the cut in the standard rate so far as company development was concerned, one would say on the evidence that there was practically no effect at all on the rate of investment—an increase, according to the Economic Survey, of about 1 per cent. for the manufacturing industry, and a very much more substantial effect on the distribution of dividends of about 20 per cent.

If we look at the 1954 Budget, when there was no cut in standard rate but when there was the institution of the specific incentive to invest—the investment allowances which we on this side of the Committee were very glad to support—then, so far as can be seen, we began to get some improvement in the rate of investment.

This year we go back to the older weapon of the cut in the standard rate, but no investment allowance. Presumably, the Chancellor hopes to see different results from those which he saw in the past. But I put it to the Chancellor, on the basis of this evidence—which I do not say is conclusive, because it is over far too short a period—that some specific incentive like the investment allowance is far more effective than a cut in the standard rate which is more inclined, on the basis of past evidence, to result in an increase in dividend distribution.

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

Does the hon. Gentleman mean that there has not yet been time to register the effect of reducing the standard rate on investment?

Mr. Jenkins

I was dealing solely with the last occasion. I was trying to compare the effect of a year in which we had an investment allowance but no reduction in the standard rate with a year in which we have a reduction in the standard rate but no investment allowance. Discussion at this stage of the Finance Bill—a discussion of the standard rate which we have in some form or another every year—necessarily turns on the attitude of the two sides of the Committee towards redistributive taxation generally. We on this side, although we do not believe in taxation for taxation's sake, believe that with the present redistribution of income at source which there is in this country a high degree of redistributive direct taxation is necessary if there is to be any degree of social justice.

I always find it very difficult to work out at all clearly what is the attitude on the other side of the Committee on this point. One frequently hears back benchers on the other side—the right hon. Gentleman the Member for Blackburn, West (Mr. Assheton), and Viscount Chandos, when he was in this House, used to do so—talk as though the aim of the Conservative Party, provided that it could be done consistent with meeting our national bills, which, we hope, will be a constantly reducing total, was to get back nearly, at any rate, to pre-war rates of direct taxation.

I am never sure of the right hon. Gentleman's own attitude. Sometimes he talks—and has talked perhaps more this year than at any other time—as though to say that this reduction in the standard rate, which has been argued time and time again, means a very much higher proportion of reduction for people with big incomes than for people with small incomes, and no reduction at all for those with the smallest incomes.

It has never been clear whether his aim is to go on further and further, as and when it becomes possible, to try to get back to something like the 1938–39 level. I was still more confused on this point, although it was not a confusing speech, after listening to the very agreeable, fluent and able speech of the hon. Baronet the Economic Secretary to the Treasury when winding up the Second Reading debate on the Bill. He took a sentence from the speech that my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) made in the Budget debate, in which my right hon. Friend put a point rather similar to this and talked about a reactionary Budget going back to pre-war days.

The hon. Baronet replied to it with great force, saying that one could really not assume that this was so and that a number of people had been exempted from tax altogether and that the most wealthy section of the population was still paying, on a very large slice of its income, tax at 18s. 6d. in the£and, indeed, that people with£8,000 a year and upwards paid approximately three-quarters of their income to the Chancellor. He made the point with a great deal of pride, as if to say, "Here we have solid facts to put before the country." I should like to know from the Chancellor or from the hon. Baronet, what is the attitude of the Government on this matter. Is it, as he announced, or appeared to announce by the tone of his voice, with pride, redistributive, or is it, in his view, an unfortunate legacy from the past which he wants to get away from as quickly as he can?

It is very important when considering this point and what may be the future if, as we hope, will not be the case, the Chancellor has the opportunity of introducing more Budgets, to know in what direction he wishes to move—whether he thinks there is value in redistributive taxation or whether it is merely something imposed by the exigencies of the present situation which he would like to get away from as soon as and as far as he possibly can.

Mr. Cyril Osborne (Louth)

The hon. Member for Stechford (Mr. Roy Jenkins) really asked this question: will a cut in the rate of tax on companies be in the best interests of the nation? I think that is a question which I should try to answer. I should like to answer it from the business man's point of view. I probably cannot put my case as fluently as the hon. Member for Stechford put his case, but I should like to set out the case as the business men see it and as they see the operation of the 6d. reduction in the standard rate of tax.

I am putting the point of view not of the great corporations but of the smaller business men—units employing, say, fewer than 1,000 people—who are the majority of the employers in this country. They still have the ownership and direction of their business in their own hands, and personal contact between the owners and the directors of the businesses and the workers is direct.

I would remind hon. Members that businesses of that nature can have new capital only for expansion either from the resources of the families engaged in them or from what is left over through profits after they have paid taxation. On the point that is often made that a reduction in taxation will increase dividends, that does not apply to that sector of our economy, because there are no dividends, and on the point that may be raised that it would induce the owners to increase their own drawings, my experience would tend to make me believe that that would not be so since they themselves are pay- ing so much in personal taxation. To those people the 6d. reduction is of vital importance, and on their behalf I welcome it and thank the Chancellor for it.

4.30 p.m.

The right hon. Member for Leeds, South (Mr. Gaitskell) put the point this way on 20th April: There is not the slightest doubt that companies are once again the favourite children of the Chancellor. On his own admission, they receive£40 million—I am told that the actual figure is£45 million—out of the£100 million which these changes in the standard rate and other rates will cost, if we exclude the allowances."—[OFFICIAL REPORT, 20th April, 1955; Vol. 540, c. 198.] I should like, as far as I am able, to try to answer the point, because that really is the issue between us. Will it be a bad thing or a good thing for the nation that the£40 million which the right hon. Gentleman calculates will go to private companies should be given to them? In passing, I would say that the Chancellor is not giving largesse to the companies to the extent of£40 million; he is merely taking from them£40 million less than he was taking previously. The private trader has earned that money in straightforward and open competition.

The right hon. Member for Leeds, South asked whether that was the right or the wrong thing for the Chancellor to do. Both sides of the Committee ought to be clear on this matter. We are all agreed that a mixed economy such as we have today must continue. Only the Communists want full-blooded nationalisation of everything. If that be so, and I understand that at present the mixed economy consists of 80 per cent. private enterprise and 20 per cent. nationalised enterprise, it must be in the interests of the whole nation, including the workers as well as the smaller taxpayers, that the 80 per cent. private economy should be kept in the highest state of efficiency.

Incidentally, I would remind the right hon. Member for Leeds, South and other hon. Members opposite that it is the private sector which has the most difficult task in the whole economy. It is the pricate sector which has to face competition in both the home market and the export market. The nationalised sector, consisting of coal, gas, electricity and transport, on the whole represents sheltered industries.

At present, those of us who are engaged in trades where we have to try to sell abroad are very conscious that competition, from Germany in particular, is increasing considerably. The Germans had many of their factories destroyed during the war, but they have rebuilt them and have some very fine modern factory layouts, and those factories are filled with the most up-to-date machinery. We shall increasingly feel the competition from the products of those modern factories. This is true not only of Germany, but also of Japan and Italy.

On the other hand, far too many of the factories in this country are between 30 and 50 years old. A few weeks ago I sold a factory which was 100 years old. I was very glad to get rid of it. I got a very good price for it. One of the greatest needs of industry today is modern factories. During the war industry had to bear 100 per cent. E.P.T. plus Income Tax at 10s. in the£, and there was not a great deal left to meet the charges for modernisation and re-equipment.

Therefore, as a business man, I welcome the 6d. reduction, and I can assure the Chancellor that by business friends—I am speaking mostly for men in medium-sized businesses—will use the reduction to good advantage for the benefit of the nation. Provided that the bigger companies do not distribute the benefit in increased dividends, which I am sure they will not do, this cut can obviously be of benefit to the whole nation.

I will give an example from an industry with which I am associated to show how the 6d. reduction will help. We are faced with three main expenses. First, there is the very difficult problem of paying for new machinery. The Midlands hosiery trade could buy a circular knitting machine pre-war for about£250. Today, such a machine costs about£1,100; it is true that it is rather different but, on the whole, it does the same sort of job. It is true that we can write off the original cost of£250, but we have to find new capital for the remaining£800.

If we are to compete in America, we must continue to have the finest new machines, so we want the Chancellor to leave us with as much of our profits as he can to enable us to reorganise and re-equip our factories. To that extent the 6d. reduction is fully justified, I support it with very great pleasure, and I am very grateful to the Chancellor for it.

Our second burden is that it is costing us about four times as much to carry our raw materials. Before the war our Merino wool yarn 64's cost about 3s. 6d. per lb. Today, they cost 14s. or 14s. 6d. per lb. Therefore, to carry the same volume of work in progress and in stock we need four times the amount of capital. I am again speaking of the small and medium-sized family businesses. Where will the extra money come from to enable them to do the same work, if we are not to be allowed to have a little more of the profits which our trade has legitimately earned? Again, I am grateful to the Chancellor for the 6d. reduction.

The last charge is perhaps the worst. One of my factories is having a new wing added to it. The cost is almost fantastic when compared with pre-war. The cost of building a modern factory is very great. Also, it is not possible to get a firm price for the work because the contract is subject to changes in labour and raw materials costs. We estimate that the cost of the work will amount to about 70s. per square foot; it is an enormous task for a medium-sized manufacturer to build a factory of any size at such a price. Where will the men running the smallish family businesses get the capital with which to keep themselves up-to-date unless more is left to them from their profits? These three factors are present not only in the hosiery trade, with which I am concerned, but in the general trade throughout the country.

I would remind the right hon. Member for Leeds, South that the private sector of industry is 80 per cent. of our economy. It will be admitted that we pay the highest wages in the country. We provide better conditions for our workers and treat them better than do the nationalised industries. Therefore, from the workers' point of view, it is in their own interests that the private sector should be maintained at the highest state of efficiency.

I have always thought that the Chancellor of the Exchequer has two nightmares to contend with. The first is that the nation should become teetotal and non-smoking. In that case, I do not know where he would get his taxes. The second is that private industry should fail to make profits. I would remind hon. Gentlemen opposite of a fact that they should never forget. It is that the Welfare State could not be maintained unless private industry made profits for it to tax. There would be no Welfare State if the private sector of industry followed the example of some of the nationalised industries, and produced losses. There would be no old-age pensions and no welfare pensions. The successful business man, conducting his business properly and well, and making good profits year in and year out, is the most practical supporter of the Welfare State.

Mr. A. Blenkinsop (Newcastle-upon-Tyne, East)

I suppose the hon. Member would agree that the Welfare State provides a market for him and other manufacturers to use.

Mr. Osborne

Of course I do. I am trying to make the point that the 6d. which the Chancellor is now giving to us, and which the right hon. Member for Leeds, South thinks unwise and antisocial, is in the best interests of the country and of all sections of the country.

Mr. Dryden Brook (Halifax)

As one business man to another, I can tell the hon. Gentleman that all this is very interesting. Has the hon. Gentleman reckoned out how much this 6d. will give to the small business to finance the extra stocks, the higher prices of stocks and the development of his business? The business man with a profit of£30,000 a year, which is not an inconsiderable figure, will get£750 out of this reduction in the Income Tax with which to finance all the things that the hon. Gentleman has been talking about. We must keep the thing in perspective.

Mr. Osborne

That is quite true, but I was taught as a little boy that many a mickle makes a muckle, or, every little extra helps. We should be worse off if we had not got the 6d. If the hon. Gentleman is arguing that 6d. is not enough, I should be very glad if he would suggest to the Chancellor that he should double the amount.

The fear of the right hon. Member for Leeds, South is that this amount will be distributed in extra dividends. I would ask him to remember that in the last three or four years there has been developed in the City of London and throughout the country the system of take-over bids, a development which I deplore immensely. The development has been possible only because men in London, from the provinces, have seen good, old-fashioned businesses where dividends have not been paid out in anything like a proper proportion of the profits earned. They have bid for the control of companies that would be better left in the hands of the men who are running them; but it is fair evidence that the businesses have not been paying excessive dividends from their earnings. As a matter of fact, there was trouble in the Cunard Steamship Company meeting last week over this very point.

I can reassure the right hon. Gentleman that there is no danger that this money will be unwisely spent or unwisely distributed in dividends. On the other hand, there is a much greater chance of its being used for re-equipment and modernisation. I would thank my right hon. Friend for the proposals he is making, and assure him that the business community support him in what he is doing and in his efforts to raise the standard of living of the whole country over the next 25 years.

4.45 p.m.

Mr. Sydney Silverman (Nelson and Colne)

I am not an economist or a business man. I approach the questions raised in the Bill from what I think may be the point of view of the man in the street, whether professional or working.

There was an interesting discussion during the debate on the Budget Resolutions whether the proposals were a handout by the Government to the privileged few or were an election bait held out to the many. Government speakers were inclined to taunt my right hon. and hon. Friends with confusion of mind, saying that we could not make up our minds which of those two conflicting interpretations was really in the mind of the Government. In an attempt—a vain attempt, as it turned out—to clear up the confusion, I asked the Financial Secretary to the Treasury which he said it was. The answer was that he did not know.

The Financial Secretary to the Treasury (Mr. Henry Brooke)

My answer was that I was unable to clear up the confusion in the minds of hon. Gentlemen opposite.

Mr. Silverman

The hon. Gentleman must realise that that was a very inadequate answer.

Mr. Nabarro

It was true.

Mr. Silverman

I asked him to decide which of those two things was in the Government's own mind. Of course, he was too honest a man to reply that neither of them was. Another Government with a better intention would have been able to reply that they had neither of those things in their mind at all, but were merely doing their best, as honest trustees, to administer the country's finances to the national advantage. The hon. Gentleman did not give that answer, not because he did not think of it but because he knew that it was not true.

I suggest that the real answer is that it is possible—the Budget, and especially its Income Tax proposals, are the clearest possible instance of it—to give real benefits to a few and, at the same time, hope to deceive the many into thinking that they are getting benefit, too. That was the intention of the Chancellor—if he will allow me, without unkindness, to say it. The subsequent debates have removed a number of things out of controversy. The right hon. Gentleman admits that the great bulk of the advantage to be derived out of his Income Tax concessions will go to those who need it least.

Mr. R. T. Paget (Northampton)

Surely there is another explanation. Is it not that the right hon. Gentleman tried not to buy the electors but to buy the Conservative Party?

Mr. Silverman

If it were so, I should have thought that he could have got it cheaper. I see no reason why this Chancellor of the Exchequer, above all others, should give such an inflated price for something of so little value. I think that my explanation is a fairer one than that of my hon. and learned Friend the Member for Northampton (Mr. Paget). If his is better, as it may well be, no doubt he will get an opportunity of explaining it.

Mr. Paget

My hon. Friend always bears the mark of charity.

Mr. Silverman

That is only one of the things on which I differ from the Chancellor of the Exchequer, who never makes any such effort.

Mr. Gower

If my right hon. Friend really wanted to command the party, would it not have been cheaper for him to buy a smaller group which might have been available in the House?

Mr. Silverman

The hon. Member ought to address that question to my hon. and learned Friend the Member for Northampton (Mr. Paget), whose point he has taken up. I have rejected it and prefer to stick to my own.

I was saying that some things were no longer in controversy. It is admitted on both sides that the intention of these proposals is to give the great bulk of the advantage to those who need it least. If one may mix metaphors a little, he intends to give the lion's share to the wolves.

Mr. Nabarro

How dreadful.

Mr. Silverman

The hon. Member is quite right to be ironic. I understand the irony of his interjection. He does not think that it is dreadful and we do; and that is the whole point of the debate.

It is conceded that the devastating analysis of the Budget proposals, which was made on the first day of the Budget debate by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), was in no way wrong in its figures, or description of what the effect was. That is not the issue. It is admitted that he was right. I think that it was admitted by every speaker in the debate. The right hon. Gentleman the Chancellor admitted it.

The difference is whether we regard that as a good thing or a bad thing to do. There is no doubt about what the effect is. One has only to look at the Financial Statement and the tables on Income Tax to see that my right hon. Friend was really guilty of considerable understatement in his criticism of the effect. That is not the dispute. The dispute is whether it is good social and economic policy to do it and we say that it would be good social and economic policy to do it another way.

Sir Ian Fraser (Morecambe and Lonsdale)

Are companies, big and small, included among the wolves to which the right hon. Member for Leeds, South (Mr. Gaitskell) devoted so much of his censure?

Mr. Silverman

There was a clamouring pack behind the Chancellor and the clamouring pack got most of the booty.

If the hon. Member does not like my metaphor, he can apply any part of the zoological kingdom to this which he prefers.

Sir I. Fraser rose—;

Mr. Silverman

I do not want to debate that with the hon. Member.

I want to come to the point which seems to me to be the genuine point in controversy between the two sides, namely, if one has Income Tax reliefs to give, or if one has taken hundreds of millions of pounds out of the taxpayers' pockets that confessedly one did not need to take, how one shall remit that taxation in the following year. There has been, admittedly, for four years a rising cost of living. Nobody denies that. There is controversy as to whose fault it is. There is controversy about whether the rise in wages has overcome the rise in prices or not, whether real wages have improved or not improved, but there is no doubt whatever that rising prices have been the rule throughout these four years.

Mr. Philip Bell (Bolton, East)

For 18 months.

Mr. Silverman

I say for four years.

Mr. Leslie Hale (Oldham, West)

Let the hon. and learned Member opposite look at the figures.

Mr. Silverman

The hon. and learned Gentleman thinks that it is only 18 months. I think that it is four years, but it does not matter to my argument. There is now, and has been for some time, a rising cost of living. Surely we are agreed about that.

There are only two ways in which we can deal with that, assuming that we are unable to bring the prices down. One is to increase wages and the other—

Mr. Gower

Rationing.

Mr. Silverman

If one tries to deal with the matter by increasing wages to meet the increasing cost of living, one may very well for the moment produce the effect which one wants. One may produce a rise in real wages. However, that would be a solution at the cost of inflation. That is what inflation is—rising prices, rising wages, rising wages send prices up again and then the wages have to go up again and one has the inflationary spiral which it has been the objective of every Government since 1945 to prevent.

What has the Chancellor done? He has taken this£150 million or so, and, instead of using it without increasing wages to enable the lower income groups to meet the increased cost of living, he has given it to those who confessedly need it least. The important thing about Income Tax is not what one pays, but what one has left after paying. If one is talking about incentives, then incentives are best directed to increasing at the lower end, the working end, the actual purchasing power of those who admittedly have the lowest purchasing power and who are suffering most from the rising cost of living which is an admitted fact and the basic element in the situation.

Mr. P. Bell

Does the hon. Member then repudiate the reduction of Income Tax which was carried out by the last Administration when there were rising costs? Does he repudiate that, and say that it was a wicked act?

Mr. Silverman

There was more equitable distribution. Nobody denies that. The hon. and learned Member for Bolton, East (Mr. Philip Bell) can deny anything he chooses. If he chooses to say that two and two make seven and three-quarters, he is perfectly free to do so, but he will not persuade anybody. Those Income Tax concessions were distributed over a wider band of Income Tax payers than this one is. The right hon. Gentleman takes great credit for having released 2½million more people from liability to pay tax at all, but, on the average, they were paying only 9d. a week.

Mr. Ronald Bell (Buckinghamshire, South)

Surely the hon. Member realises that the only reason they are paying very little Income Tax is that my right hon. Friend, in two earlier Budgets, reduced what they were paying.

Mr. Silverman

We are dealing with the Budget before us. The hon. Gentleman is perfectly right if he says—and I know that it was implied in his intervention—that, on a fair view, one would have to fit any particular Budget into the whole pattern of financial development over a number of years, but, if the hon. Gentleman is to do that, he must not begin in 1951. He must begin in 1945 if he is going to talk about the effect of this Budget in the whole pattern of post-war economics. If the hon. Gentleman does not do that, and I am sure he is not prepared to do it, at any rate this afternoon, we have to look at the kind of proposal in Clause 1, which we are now discussing.

5.0 p.m.

The hon. Gentleman asked why do we not vote against the Clause, but, if we voted against it and succeeded, the only result would be that the Chancellor would continue to collect from the taxpayers£150 million more revenue than he needs. So we have to take out that money as exceptionally budgeted for, because we cannot continue to raise it, and accept relief in the only way in which it is offered.

We are entitled to say how we would have preferred the remission to be done, and it is about that point that I want to say something. For years during the war, the Government compelled the people to lend them money which they promised to return. Surely it would have been more equitable to have made a proposal to make some provision for the return of some part of these post-war credits? Would it not have been more equitable to do that than to give£1 million to Unilever? Never mind who else did not do it, would it not have been better to do that now? [An HON. MEMBER: "Give way."] I am not going to give way again. We do not want to spend the whole day discussing Clause 1.

Take the question of the petrol tax. Would it not have been a considerable contribution to reducing the cost of living to have remitted that extra amount, or some part of it? It is one of the biggest burdens on working-class life.

The final point I want to make is about the Purchase Tax, particularly because of its effect on Lancashire, and perhaps I may be forgiven for devoting two more minutes to the effect of this Budget on Lancashire. Every Lancashire hon. Member, without exception, on both sides of the House, for four years, has been begging the right hon. Gentleman to remit the Purchase Tax on cotton piece goods. It would be some relief to a heavily burdened industry, and no one who knows anything about it, irrespective of party or politics, doubts that fact. What has the right hon. Gentleman done? He has reduced half of it, at a cost this year of£2¼ million, and in a full year—

The Temporary Chairman (Sir Austin Hudson)

Order. The hon. Member must not go into the details of the Purchase Tax. He is entitled to say that, instead of reducing Income Tax, the Chancellor should have done other things, but he cannot go into the merits of the Purchase Tax.

Mr. Silverman

I realise what the limitations are, Sir Austin, and I hope not to exceed them. I am only illustrating my argument that it would have been more beneficial—economically and industrially beneficial—to have done that than to have done what the right hon. Gentleman has done. I am not talking about the merits of the particular proposal in any detail.

The Chancellor gave a reason for not doing more. He said that if he had relieved it altogether, he could not have refrained from taking the tax off the finished article as well; that is to say, clothing, and that that would have cost him£42 million and that he could not afford it. But he could easily have afforded the£42 million if he had not preferred to give his remission in this wholly inequitable way. There has always been a dispute as to whether the Purchase Tax is inflationary or deflationary.

Mr. R. A. Butler

If this is to be a speech on the Purchase Tax, I shall be obliged to answer the argument, instead of on Thursday. I understand that a Prayer to annul the Order is on the Order Paper for discussion tomorrow.

Mr. Silverman

I have almost finished my point, and I am quite prepared to leave it at that. I only wish to show why, in my opinion, this would have been a very much better way of using money at the Chancellor's disposal, first, because it would have benefited industry substantially, and, secondly, it would have been less inequitable.

The Purchase Tax has long since ceased to be a tax which prevents people from consuming and has become a revenue tax. In so far as we rely on the Purchase Tax for revenue, we rely upon it to increase consumption and not to reduce it. Therefore, since it is now purely a revenue tax, the Chancellor could easily have remitted that revenue and could have obtained it by better distribution of Income Tax reliefs. The result would have been beneficial all round, because by reducing the cost in that way, by cutting out a revenue tax, he would be reducing inflation and not increasing it.

I say that the more this proposal is examined the more clear does it become that the Government have deliberately used surplus resources at their disposal in an anti-social way, in ways that give benefit to the wrong people, and at the expense of those real reliefs in the economic situation, particularly in Lancashire, that were readily available to him.

Mr. R. A. Butler

We ought, I think, now to make some progress with Clause 1, because I understand that most of the detailed discussions are to take place on Clause 2. As this is a Committee stage, I hope that the Committee will excuse me if I do not make a very long speech, but simply answer the debate quite briefly.

The Committee would wish to congratulate the hon. Member for Stockport, South (Mr. H. Steward) upon an excellent maiden speech. He made a speech on productivity, and there is nothing more important than that. My hon. Friend brought a whiff of realism from Mersey-side and a considerable degree of experience in these important matters, and I think the Committee will wish, not only to hear him again in this and future Parliaments, but also that he should continue his work in his own area in increasing productivity there, and bringing to bear upon it the knowledge at his command.

We have also had a very interesting speech on the industrial aspect from my hon. Friend the Member for Louth (Mr. Osborne), upon which I will say a word or two in a moment. Whether I am able to answer the points put by the hon. Member for Nelson and Colne (Mr. S. Silverman) I am not so sure, but I hope to do so before the week is out. I sympathise with the hon. Gentleman because he represents a town which depends essentially on cotton, unlike some others in Lancashire, in which the industries are more mixed. I understand his anxiety, and if I do not allude to Lancashire today the hon. Gentleman will under- stand that there is another day, and that I shall be referring to these matters then. That will be tomorrow actually, in reply to the debate on the Prayer about the Purchase Tax Order.

I would sum up the position about Clause 1 as follows. I had a very responsible task in trying to decide, in this Budget, how to distribute the proportion of the surplus which I thought it was legitimate to release back to the taxpayers, whose money it is, and I used the expression that I wanted something "classically pure and simple." I adopted the method which my predecessors in office—at any rate, some of the greatest of them—would have regarded as the most orthodox method, namely, a reduction of the standard rate.

I have in my room at No. 11 a picture of Mr. Gladstone, whose eyes are particularly penetrating, even more than those of the right hon. Gentleman opposite. I think the right hon. Gentleman probably knows the picture. As I gazed into those eyes, which I believe have alarmed more than one of my predecessors—

Mr. Hugh Gaitskell (Leeds, South)

They used to alarm a Leader of the Conservative Party.

Mr. Butler

Yes, and the picture was taken down from the wall. I have replaced the picture, and, gazing into those eyes, I came to the conclusion that this was the best thing to do this year, and that it was the simplest and the most effective way of helping the nation as a whole.

In making that decision, I was fully aware of the type of argument which would be used against a reduction of the standard rate of tax, even though it was accompanied by many other benefits which we shall be discussing under Clause 2. I knew that to give so many hundreds of thousands of pounds to large companies, or to remit so much taxation to Surtax payers or rich men would produce a most salacious and tantalising opportunity for retorts about the small amount released to the small men at the bottom end of the scale.

I was aware of the opportunity which would at once be seized, prior to the General Election, by the Opposition to attack me on this score. Because I had been through it in 1953, why did I want to go through it again in 1955 and do it just before an Election? The answer is that my opinion still is that those in my position have to take decisions which are in the best interests of the economy, and as my hon. Friend the Economic Secretary said in his excellent speech, this move actually will prove—I think that my words will be shown to be correct as time goes by—to be the best in the interests of the economy as a whole.

Let us consider why it is good in the interests of the economy. It is good, first, because it will reduce the general weight of direct taxation, which weighs far too heavily at the present time on enterprise. My hon. Friend the Member for Louth gave examples from his own business, and other hon. Members who have spoken have indicated that that is correct. There is no doubt that the general weight of taxation on industrial enterprises and on persons at the present time is too great, and that we cannot hope to get the best out of a willing animal if we pile so much on its back. That is why I have attempted to reduce expenditure, and that is why I am very glad to be in the position to reduce the general weight of direct taxation.

The second point was that raised by the hon. Member for Stechford (Mr. Roy Jenkins) on the question of investment. I said in my speech last Friday that I had a dual policy of discipline and incentive. That dual policy is proving successful, and I think it will be proved to be successful as the months go by. But if we are to have discipline, which we have in our restriction on borrowing and in our restrictions on hire purchase and in other ways, we must have incentive to match.

The hon. Member for Stechford, as usual, made a point which was quite reasonable in saying that the last reduction in Income Tax in 1953 did not immediately result in an increase in investment. He doubts, therefore, whether this method this time will be as effective as the proposal to introduce the investment allowance, in which I indulged in the previous Budget. The answer to that can be given—I speak from memory, but one knows these documents so well now—from Table 27 of the Economic Survey, dealing with the metal goods industries. If one looks at the table on investment, the answer is that when the right hon. Member for Leeds, South (Mr. Gaitskell) took off the initial allowance and introduced other measures to reduce investment in the private sector and to push the whole of the metal goods investment, for example, into defence, he was doing something which was legitimately defensible. But it meant that when I succeeded to my office there was a distinct lag in investment in ordinary manufacturing industry, which had been deliberately put into defence.

What the British economy has now done—speaking quite apart from party or from either side of the Committee, it is really very creditable—is to swallow the defence programme, which the right hon. Member for Leeds, South had so much to fear when he was in office. We have even swallowed it at a slightly larger figure, and we have also managed to increase our national product and to increase production as well. I believe that that process can be continued only if we give this further incentive through the reduction of direct taxation.

The answer to the hon. Member for Stechford is that we are now seeing the effect of the institution of the investment allowance instead of the initial allowance, and in the coming year and years we shall see the effect of the 1953 Budget, the effect of the introduction of the investment allowance, and the effect of the present Budget. Therefore, we shall not only see increased production—or, rather, maintained production; it is no good exaggerating one's words—but we shall also see the improvement in investment which we all so much want to see.

5.15 p.m.

The next point which I have to answer in the debate is whether we helped enough people in introducing the Income Tax change. I gave an answer yesterday in which I referred hon. Members to the "National Income Blue Book," which showed that there were some 25.3 million people with incomes; that is, counting husband and wife as one, which is a quite legitimate thing to do, at any rate from the Income Tax point of view. Looking to 1955–56, the calculations are that 17½million people will be paying Income Tax. Therefore, there are only about 7¾ million people who will be left out of these benefits, taking into account the 2,400,000 who have been exempted altogether. Of the 7¾ million people, 4 million will benefit from the increases in National Insurance pensions which are being introduced. This means that all except about 3¾million people are affected one way or another by the Government's Measures in the general move that we are making.

Mr. Douglas Jay (Battersea, North)

The right hon. Gentleman told us that 2,400,000 people would be exempted by the Budget from paying Income Tax. Does that take account of the rise in wages and salaries that is going on, or is it merely the number who would be exempted if there were no rise?

Mr. Butler

It is taking account of the rise. That accounts for the bigger figure.

Mr. Jay

It is the net figure?

Mr. Butler

It is the net figure, yes—so I understand. If there is any mistake in my answer, I will see that it is corrected during the afternoon.

That illustrates to hon. Members that it is not the case that we are not trying to help the country as a whole. It is surprising how many families and ordinary incomes are helped in some way or another.

It has been rightly said—the hon. Member for Nelson and Colne said it—that some of the reductions are small. I said that myself. Whether they are small or not, all I can do is to take off the tax. If one's tax is small, I cannot be expected to increase it and then to take it off. I can only take it off as it stands.

I gave another interesting figure yesterday in answer to the right hon. Member for Battersea, North (Mr. Jay). He asked how many people receiving less than£10 a week had benefited, and by what amount. I said that in this Budget, the figure was about£19 million. But if one examines what has happened over the Budgets of 1952, 1953 and 1955, it will be found that families who have under£10 a week have profited to the extent of£116 million as a result of the reductions that I have made in those three Budgets. That is a reduction of 50 per cent. in the tax of such people.

The large numbers of people who are affected, the large numbers who have been excluded and the considerable benefit over these years to families of that type, who are the smallest income groups, illustrate that no other measure would have had as wide and sweeping a scope. No other measure would have done as much for the economy or have been so appropriate for this year as the one which I have suggested.

The hon. Member for Nelson and Colne said that I was trying to buy the Conservative Party—

Mr. S. Silverman

No.

Mr. Butler

Or it was suggested by some hon. Members. I am glad that the hon. Member so quickly repudiates that idea.

Mr. Silverman

The right hon. Gentleman will remember that I acquitted him of so unbusinesslike a proposition of buying something of so little worth at such a price.

Mr. Butler

My own feeling is that the statement that the hon. Member so gallantly repudiates is on a par with that made by his right hon. Friend the Member for Huyton (Mr. H. Wilson), who suggested that our motives were governed by whether the mill owners in Lancashire contributed to the Conservative Party funds. These accusations are worth reading out only to show how worthless they are.

The position as we see it is that we are determined to make the British economy so strong that we can carry the social service and defence burdens into future generations. That is really the answer to the only last point which I want to answer, which was made by the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Stechford, who asked for our view about the distribution of the national wealth. We naturally take the view that undue, unfair and disparate wealth is undesirable in a modern social State. Not one of us on this side of the Committee, I am sure, wants to see the population of this country divided by great differences of wealth. That could not lead to a happy or a socially decent condition. We certainly feel that.

I have been accused of giving money to companies. I have not given money to companies. I have restored a small portion of the tax that I take from them. The reason why I believe that a relief of tax for companies is a good thing is that I am certain that it gives managements and men an opportunity of thriving and of a keener edge on their competition in the world market.

I further feel, and have myself certainly found in the pubs and clubs and open-air greens and other places where we are likely to be for the next six weeks meeting our constituents, that the working population—and this is remarkably so—are not keen to see either big institutions which give employment destroyed or even, in some cases, estates destroyed. I think it is as well to acknowledge that. The reason is that they are sources of employment, and if their standards are good, they are good in the British tradition.

It is not so much the fact of having people with more money that is wrong. What is wrong is when the people with more money have the wrong standards. If the right standards are maintained in business and in private life, in small businesses or in great, if the main standard is the social welfare of the people, if the standard is to maintain full employment and to look after the working people, to give them the best we can, and, if possible, to let them share in the wealth of the companies in some way or another, we feel that we are carrying out a philosophy which is right and good. It is on that philosophy that this Budget is based.

I am as keen as any member of this Committee to help those socially depressed or in need. We have tried to do that. It would not be in order for me to discuss that now. I am willing always to go forward in our social and education policy and in other ways to make things better for our people, but we cannot do that if the economy is not strong, and our economy will not be strong unless it is able to compete, and it will not be able to compete unless the burden is lightened. That is my main objective in making this proposal.

Mr. Gaitskell

I must apologise for the state of my voice. I have a suspicion that I have caught the infection from the Lord Privy Seal. I used to think and say that the intimate character of this place was one of its great attractions, but I am not so sure that I was right after all, if I have to catch laryngitis from the right hon. Gentleman. However, at least the Committee will be spared a long speech or many interventions from me in this debate.

I agree with the Chancellor that we should now bring the discussion on Clause 1 to a close, not because it is not an important Clause but because we want to get on to some of our Amendments to Clause 2 which express more precisely what we think ought to be done. I should, however, like briefly to touch on some of the points which the Chancellor and others have mentioned. I do not propose to say anything about personal incomes because it will be possible and quite appropriate to discuss these on Clause 2. I shall confine my remarks to the question of the distribution of the Income Tax concessions to the companies.

Before coming to that, however, I should like to press the Chancellor once again on a point which my right hon. Friend the Member for Battersea, North (Mr. Jay) raised in an interjection about the numbers of persons exempted from Income Tax as a result of this Budget, because I scarcely think that, and I shall be surprised if, the reply which the Chancellor gave was correct. It would mean that the numbers would be dropping much faster than one would expect. Perhaps he will ascertain the answer. Perhaps he is already ascertaining what exactly the position is, and will give us a reply, not necessarily immediately, but at some time during our debates.

The Chancellor has rebuked me, not today but in his winding-up speech last Friday, for what I said about companies in my speech during the Budget debate. I have looked up my speech to see what it was I said that could have offended him so much. The only thing I can find I said about companies was that they were the Chancellor's favourite children. I do not know what was offensive about that. Is it that the Chancellor dislikes those children? Or is it that the companies dislike the parent? I do not know, but I should have thought from the relations that appear to exist, which are very intimate in this case, that both the children and the parent would have been quite happy about the terminology which I used.

There is no doubt at all as far as the facts go that the companies have benefited more than any other section of the community from the series of tax concessions which the Chancellor has given.

To do him justice he does not deny that. What he says is, "That is the right thing to do. That is what I believe in."

I would add one word on the most remarkable argument which he has brought forward today, saying he was so mesmerised by Mr. Gladstone's portrait that he thought he ought to do the same thing as Mr. Gladstone did. There is nothing very surprising about that because Sir Stafford Northcote quailed beneath the fierce eyes of Mr. Gladstone, and he was the Leader of the Conservative Opposition after Disraeli. He quailed beneath the ferocity of Mr. Gladstone's glare from the Treasury Bench, and I suppose it is natural that the Chancellor, like his Conservative predecessor, should feel a little alarmed. I think it was wise to take the portrait down, but it was not so wise to follow the budgetary example, because I would remind the Chancellor that a few months after Mr. Gladstone made that reduction in Income Tax there was a major financial crisis.

For the rest, the Chancellor's argument is a very general one, that somehow or other giving this money to the companies—the Chancellor used the phrase "giving away money"—is right, is good, is going to help the country, is going to make the economy sound, and is all the other platitudinous things which we have heard. I do not think they are very convincing.

I agree with my hon. Friend the Member for Stechford (Mr. Roy Jenkins) that if the Chancellor was interested in investment, as we all are in this Committee, then undoubtedly the right thing to do was to give incentives to investment as he did last year, by investment allowances. We supported him on that occasion. Merely to allow companies to retain a larger proportion of their profits certainly carries with it not the slightest guarantee that there will be any increase in investment whatever. There is, therefore, no special inducement in that direction.

It may be argued that they will be able to retain physical possession of a larger amount of money in undistributed profits than otherwise would have been the case. If there really were any evidence to show that investment at present is held back by a shortage of funds in the hands of companies, there might be something to be said for it, but, of course, that evidence is not there. On the contrary, if one examines the Economic Survey one finds that year after year the total of undistributed profits—I am not saying that they are all liquid—exceeds the amount of investment, and the right hon. Gentleman really cannot justify any kind of argument that companies keen to invest except for taxation will now have the money to do so, whereas they did not have it before.

All this is difficult to reconcile with the Chancellor's monetary policy, which he himself admits must be designed in the last resort to check investment. All it amounts to, if anything at all, is that an established company is going to find it easier to invest than a new company which has not large undistributed profits, which is, I should have thought, the sort of company, we want to help.

I could have understood if the Chancellor had given any kind of differential in favour of the saving of undistributed as against distributed profits, but of course he has not done anything of the kind.

Mr. R. A. Butler

I did consider that very seriously, but it has to be remembered that in the case of undistributed profits the benefit accrues only after a year—it takes a year to accrue. I did not think that that would be immediate enough for the economy.

Mr. Gaitskell

I should not have thought that the fact that there was delay was a sufficient argument. That, of course, will always be an argument every year, and anyone would have to face it in any year in which he was considering a Budget.

I listened very carefully to the hon. Member for Louth (Mr. Osborne) and the serious case he put forward in favour of the companies. I found his argument about dividends a little confused, because he was at pains to point out how difficult it was for companies not to pay increased dividends because if they refrained from doing so somebody came along and bid up the shares—there was a take-over bid. I think that there is a lot in what he says, and that that will happen.

5.30 p.m.

In the course of last year, the total amount of the remission of taxation to companies amounted to£80 million, which was exactly the figure of the increase in dividends. We believe that there is a connection between the two, and that that is what will happen. In any case, there is bound in the long run to be substantial ultimate gain to shareholders in the increased value of then-shares, in the capital gain still remaining untaxed.

We take the view, therefore, that this remission of taxation to companies, on which I am concentrating at the moment in order to save time, is not justified on the scale on which it is now being carried through. It does not mean that we are not appreciative of the vital importance of the private sector, but that does not lead to the conclusion that every tax concession to companies must be better than if the money were given somewhere else. Quite frankly, we are fully convinced that the Chancellor's proposal will not have any of the benefits on the economy which the Chancellor suggests, and we are satisfied, from the point of view of the effect of the proposal, that it is totally unjustified.

Sir Robert Boothby (Aberdeenshire, East)

May I ask the right hon. Gentleman one question? He indicated just now in a disparaging sense that it would be a very bad thing if anything were done for the benefit of shareholders. How, if he holds that view, can he ever expect an increase in industrial investment in this country?

Mr. Gaitskell

Once again the hon. Gentleman is drawing a conclusion from what I said which is not justified. We appreciate that there must be some return on capital, but we believe that in the last few years the relative share which shareholders have received has been too great in relation to what other people have had, and we think that this Budget is the crowning example of that.

Of course, like everything else, it is a matter of degree, but we feel that it has gone much too far, and although we shall not vote against this Clause, because it would be open to misunderstanding, we shall, I hope, put forward our point of view on subsequent Amendments. Nevertheless, we register our strong disagreement with the line that the Chancellor has taken in this Budget.

Question put and agreed to.

Clause ordered to stand part of the Bill.