FINANCE BILL

HC Deb 29 April 1955 vol 540 cc1258-99

Order for Third Reading read.

11.25 a.m.

The Economic Secretary to the Treasury (Sir Edward Boyle)

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

In earlier years the Third Reading of the Finance Bill has been sometimes regarded as a relatively short engagement after a prolonged campaign. I think one might say without disrespect that you, Mr. Speaker, are perhaps the only hon. Member in this House who can concentrate on the normal Finance Bill with something like equanimity. This year the situation is rather different. The proceedings on the Finance Bill have been the opening cannonade of a campaign which is just about to take place. I have no doubt that chunks will be hewn off the powerful speeches which were made last week, and will be worked up into shapes which, by the time the Election campaign has ended, their authors will hardly recognise.

This morning I do not propose again to go over the arguments in favour of this Finance Bill, which have been already fully developed from this side of the House. All I want to say is that my right hon. Friend the Chancellor of the Exchequer has produced this Budget and this Finance Bill because he is quite sure they will strengthen the economy and strengthen confidence in our sterling currency. It is by reference to these two tests that my right hon. Friend believes his Budget of 1955 will be judged.

Before sitting down, however, I should like to add this. This is the last time in this Parliament when we shall be having a debate on economic affairs. During this Parliament we have had some good debates on this subject, and the fact that never once during the proceedings on any Finance Bill in this Parliament has the closure been moved is a tribute both to the skill and patience of the Chancellor and to the self-discipline of hon. Members in all parts of the House.

As one who has been a back bencher for more than three quarters of the present Parliament, I think one of the reasons why we have had such good debates on economic affairs has been because of the consideration shown by the Front Benches to hon. Members on back benches. Throughout this Parliament the Chancellor of the Exchequer has treated the House with an exemplary patience and courtesy. In addition, I should like to say how very grateful I and many other back benchers have felt at the way in which our speeches have been listened to by right hon. Members on the Front Bench opposite. I think we have had very good debates, and this is the last short engagement we shall have in this Parliament.

11.28 a.m.

Mr. Douglas Jay (Battersea, North)

The Economic Secretary to the Treasury prided himself, among other things, on the fact that the closure has never been moved in our finance debates in the last few years. I do not know that the Chancellor can take great credit to himself this year, because on this occasion he has no need for the closure owing to the restricted scope of our debates. If you have a man in a strait jacket, there is not much need for the guillotine.

In what I thought a rather apologetic speech, the Economic Secretary defended a very meagre Bill which the Government, by rather dubious means, have forced through the House and which carries out what we regard as a very unfair Budget. The most common comment I have noticed on this Budget in my constituency and in the country is, "What do I get out of it? Very little indeed."

Incidentally, at the beginning of these debates the Chancellor took great comfort from the public opinion polls which, he said, had congratulated him and shown confidence in his Budget. I think he was a little unwise, or at least premature, to boast about the polls, because one of the more striking things about these debates—quite apart from the courtesy and reasonable manner in which, as I agree with the Economic Secretary, they have been conducted—is that as they have been going on public opinion has steadily turned against the proposals of the Chancellor, as we learned yesterday. I shall not make such large quotations from the "News Chronicle" as the right hon. Gentleman did a week ago. No doubt, when the facts have become even more widely known in the country, the process will go still further.

I hope that the House will forgive me for speaking just a few minutes longer than did the Economic Secretary, for after all these are quite important proposals. On Wednesday the Chancellor, trying I suppose to undo some of the damage, responded, if rather ambiguously, to our question asking whether in view of these proposals the Tory Party wanted to return to the distribution of wealth of 20 years ago. The Chancellor made this pronouncement: We naturally take the view that undue, unfair and disparate wealth is undesirable in a modem social State."—[OFFICIAL REPORT, 27th April, 1955; Vol. 540, c. 978.] It is something to have even that statement from the Tory Party. We, of course, have been saying something very like that for 50 years or more, but we have also been doing something about it. The Chancellor however, in spite of those fine words, does nothing—or rather, on the evidence of these proposals, he does exactly the opposite.

If the electorate wants to know the Chancellor's idea of a fair or due inequality of wealth, people should look at some of the figures which the Chancellor gave in answer to a Question on Tuesday. These are a new set of figures which we have hardly examined at all in these debates. In reply to a protest from my hon. Friends and myself that in this Budget, under these Income Tax proposals, the right hon. Gentleman had—again, to use his own phraseology in the Budget speech—given away £25 million and upwards to Surtax payers and only £19 million to those with incomes of £500 a year or less, the Chancellor said, "Ah, yes; but if you take the figures of all the four Budgets, I have really done quite well for those at the bottom end of the scale."

But this is what the Chancellor's Written Answers in HANSARD for Tuesday show. Over the four years the net income, after tax, of people with £500 a year and less has risen as a result of his four Budgets by about 2½ per cent.—if I have worked it out correctly; but the net income, after tax, of the £20,000-a-year man has actually risen by 25 per cent. That means about 6d. in the £ for the £500-a-year family and about a 5s. in the £ gain over the four years for the family with £20,000 a year.

We would rather like to know, from whoever is to reply to this debate, however long or short it may be, whether that is really a fair measure of the Conservative idea of social justice. Those figures sum up what the Chancellor has in fact done in his four Budgets, and to my mind they belie the fine words which he, perhaps unexpectedly, perhaps impromptu, delivered in the debate on Wednesday. Therefore, we would like to know whether the Tory Party—its Members have this one more opportunity for telling us—does or does not want to go back to the distribution of wealth and incomes prevailing before 1939, or even, perhaps, before 1914.

Will the Government start now, for instance, by doing something about the cuts in dependants' pensions and the cuts in National Assistance which are now going on and which have been drawn to the attention of the right hon. Gentleman in these debates? I mention that in passing but the Chancellor did profess sympathy about this. We would like to know whether we can be told today, at least, whether the right hon. Gentleman proposes to do anything, and, if so, what. Our debates will at least have served a useful purpose if we can clear up that point.

Some hon. Members opposite—I have no doubt that they are sincere and serious in this argument—in trying to justify these proposals, which seem to us so socially unfair, have argued that in the Tory view a man or a company's income is his own and the Chancellor should not be conceived, in spite of the present Chancellor's words, as giving away anything but as merely releasing and returning to a man what he has earned. But in our view, it all depends on the income and how it is secured.

As it seems to us, if a man is left £1 million or something less by his parents or his relations and increases it substantially by capital appreciation over the years, to say that that income is wholly his and is wholly earned by him is sheer nonsense. It seems to us that in those circumstances it is largely or wholly earned by the community and that the community has a perfect right to say how part of it, at any rate, should be spent.

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

Does the right hon. Gentleman think that there are many cases where, after paying death duties at the present high scales, £1 million is left to an individual for him to spend? Can he give me an instance?

Mr. Jay

The interesting thing is that if the Chancellor looks at the Report of his own Inland Revenue, he will find that among Surtax incomes the remarkably high proportion of one-third is unearned. I think it is perfectly clear that the proportion would be far lower, and almost negligible, for earned incomes. From a study of the Inland Revenue figures, it follows that quite a high proportion of the larger incomes are inherited rather than either earned or saved—at any rate, that is our contention.

Mr. Butler

That was the last generation.

Mr. Jay

I should be perfectly prepared to give names if that were the best way of conducting this debate.

In addition, I should like to ask what justification has been offered by the Government—we have had five or six speeches from them in these debates and speeches from the hon. Member for Louth (Mr. Osborne) and others, but I am thinking mainly of the Government—for the inequality of these proposals. The Chancellor said a few days ago that he knew they would be called unfair but that he had decided, in spite of that, to go bravely ahead whatever anybody said. That does not seem to be an argument. That was simply a pigheaded assertion that the right hon. Gentleman was going on with his own proposals anyway.

Secondly, we have been told over and over again—and this, I think, was the implication of the extremely brief remarks of the Economic Secretary today—that the object of the £42 million gift or concession, whatever it is called, to companies is to encourage re-equipment, modernisation and so on. The Chancellor repeated several times how vital was the private sector of our industry and how vital are re-equipment and investment. We all agree with that—that is not at issue. The issue is whether that additional £42 million of revenue is likely to assist those objects.

We have put forward arguments to suggest that that argument cannot be sustained. Indeed, we have said three things. To summarise them briefly, they are, first, that companies, as a whole anyway, have had more than enough already for all purposes, including investment, in these recent years. That has never been answered from the Government benches. Secondly, the £80 million which was conceded to companies last year was simply passed over to shareholders in increased dividends. That is in the Chancellor's Survey and he has never made any answer or comment on that point. Thirdly, we have submitted that if the real purpose of all this was to encourage re-equipment, it could have been much better done by increasing the investment or initial allowances than by this free, unqualified gift of tax revenue. That has not been answered either.

Sir E. Boyle

The right hon. Gentleman may not have agreed with what I said, but when winding up the debate on Second Reading on Monday night I did try to deal with the point as to why the concession to companies was important. It is not quite fair to say that it has not been answered.

Mr. Jay

There was no shred of argument in that. The hon. Gentleman said that it was not the wherewithal to invest, it was not the actual finance, but it was the incentive to invest based on the belief that a slightly lower proportion of profits would be taken in taxation if the investment were successful. If the Economic Secretary really believes that there will be a major influence on the present level of industrial investment due to that rather remote consideration of what the shareholders will get after 6d. less in taxation has been levied, I think that he rests on a very tenuous argument. All that the Chancellor could say on Wednesday was to utter one of those rather ancient cliches, that the general weight of direct taxation … weighs far too heavily … on enterprise."—[OFFICIAL REPORT, 27th April, 1955; Vol. 540, c. 975.] That, of course—

Mr. Cyril Osborne (Louth)

Is true.

Mr. Jay

Well, that was what the Tory Party was saying in 1906 and 1910 when the Income Tax was 10d. or 1s. in the £, and in almost exactly the same words. The Economic Secretary said today that the whole purpose was to strengthen the economy. That seems to me to be on the same level of a rather empty argument.

I noticed that the Chancellor's language was very different last night when he was explaining how it was impossible to give any concession to the hard pressed cotton industry because of the great needs of defence and the social services and all the rest of it. He was then very full of his duty to meet the needs of expenditure and so on, but when we come to the companies, his "favourite children" as they have been called, then of course very different language is used.

Mr. R. A. Butler

Does the right hon. Gentleman mean to imply that there are no companies in Lancashire at all? Does Lancashire gain no profit from the Budget whatever?

Mr. Jay

If it is on that sort of principle the Chancellor conducts his Budget, I am even more shocked than I should have been otherwise. He knows perfectly well that if he releases 6d. in the £ to every company of any kind in the United Kingdom a little bit goes to the companies producing cotton textiles, but the relief happens to be £42 million, which happens to be precisely the sum raised by the tax on textiles, and he does less in this way for the textile industry and more for a great many other people who do not need it than he would were he to concentrate a measure of relief on that industry.

Mr. Speaker

I think that I ought, perhaps, to say a word about the scope of this discussion. Though the Bill is a short one, on Second Reading I followed the precedents of 1929 and 1945, when on the Second Reading of the Finance Bills of those years wide debate, including debate on the general economic state of the country, was allowed. However, when we come to the Third Reading we are forced back on the general rule, namely, that only what is in the Bill is suitable matter for discussion. That rule was followed in 1929 and 1945 in similar conditions. Therefore, although I have no desire whatever to restrict discussion.

I feel bound to point out that what is now said must in the same way be related to what is in the Bill in its present form.

Mr. Jay

Yes, Mr. Speaker, and for that reason I was coming to the Income Tax proposals in the Bill. I fully agree with you that the Chancellor has made it impossible for us adequately to discuss the problems of the cotton industry in this House at all before it is dissolved.

For all those reasons, I was not surprised that the Chancellor justified the main Income Tax proposals in Clauses 1 and 2 by falling back on a piece of mysticism. He told us that he had just been mesmerised by Mr. Gladstone's eye in the portrait in his study. I fear that the Chancellor was getting his history a little wrong. Does he not recall—and this is directly relevant to the Income Tax proposals—that the Budgets which made Mr. Gladstone's reputation as a Chancellor and won the support of the country and the gratitude of the people—exactly 100 years ago, incidentally, in 1854 and 1855—were Budgets in which he abolished a whole range of indirect taxation on the common people and threw a far heavier proportion of the Revenue on to direct taxation? Indeed, although Mr. Gladstone always talked about reducing Income Tax, what he in fact did was to shift a substantial proportion of the taxation from indirect to direct taxation, and that is why I think he deserved well of the country and won the loyalty of ordinary people.

Mr. David Renton (Huntingdon)

Would the right hon. Gentleman kindly remind the House of the level of direct taxation in 1854 and 1855?

Mr. Jay

Mr. Gladstone made a great fuss when reducing it by £4 million, but the hon. and learned Gentleman does not require me to remind him that the national income at that time was also a great deal lower.

Mr. C. W. Gibson (Clapham)

Too low.

Mr. Jay

In any case, whether the tax was too low or too high, it is rather puzzling why the Chancellor at one and the same time is stimulating industrial investment by tax reliefs and restraining it by the Bank Rate. We have not had an answer to this important question, and we wonder why, and we should like to know. It is not good enough for him to come to that Box and, in his airy and, no doubt, agreeable way, say we must have both discipline and incentive. Those are two good words, but what does he mean by them? How is this policy really different from turning on the red light and the green light at the same time? Is it not likely to lead to chaos and confusion rather than to intelligent planning?

Indeed, it is even odder when we reflect that what the Chancellor is apparently doing, so far as we know, is simultaneously discouraging investment by the Bank Rate and encouraging spending by these reductions in tax. It is oddest of all, as it seems to me, when we recall also that he is doing this at a time when we have a substantial and growing balance of payments deficit and a low and falling gold reserve. He does not really explain why it is appropriate to do this at this moment, but takes refuge in a phrase about strengthening the economy. The Economic Secretary was so doubtful about the validity of his own argument that he did not allow himself to speak more than about a minute and a half in the debate.

The Chancellor told us in another of those airy dicta that everything he does he does deliberately. I do not know whether that includes the misprint in the draft Finance Bill. However, I shall let that pass. He must presumably have been deliberate when he drew up the Budget Resolutions which have caused the whole trouble and limited our discussion on this Bill and made it impossible to examine a whole lot of things which we should have liked to have examined. He must bear responsibility, therefore, not merely for introducing yet again what we regard, after all these debates, as primarily a rich man's Budget but also for carrying so far the restriction of our rights of discussion in order to force the Bill through unamended. It has been almost impossible for this House to introduce a little social justice into it. The fact that that was deliberate surely makes it worse.

You, Mr. Speaker, today and the Chairman of Ways and Means earlier in the week told us that there were precedents in 1929 and 1945 for this rather curious procedure, but there are no precedents for using the Purchase Tax Order procedure to push through a large part of the Budget simultaneously with the Finance Bill. That is absolutely unprecedented. It cannot have been a precedent in 1929 or 1945, because it was only in the Finance Act of 1948—I think I am right in saying—that the Purchase Tax Order procedure was instituted.

I wonder whether, when the Chancellor goes to his constituency tonight, he will really feel comforted by the precedents of those two years. In view of the latest manifestation we have had of public opinion, I wonder whether 1929 and 1945 will set the pattern not merely for the procedure on this Bill but also for the result of the General Election.

11.50 a.m.

Mr. David Renton (Huntingdon)

This is the first time in this Parliament that I have endeavoured to catch your eye, Mr. Speaker, on any Finance Bill. I do so now, not in order to spoil a good record, but so that I may belatedly show my appreciation of the Chancellor's efforts in restoring the finances of our country. I also do so as one of the many family men who for a long time have felt that the burden of taxation was doing much to harm family life and to frustrate the legitimate chance which every family man should have to build up something for his children, both to help them with their education and to get them started in life.

Therefore, the first thing which pleases me about the Budget is the help that it gives to millions of family men, whether they are wage or salary or fee earners. The second—and perhaps arising from the first point—is the help that the Finance Bill will give towards the advancement of education. Even with the aid of savings through endowment policies, it has been difficult for many professional men of moderate means to provide for the education of their children without drawing heavily on savings, and that cannot be in the national interest in the long run, if the process goes too far. But the provisions contained in the Finance Bill will certainly enable a professional man to get along much better in connection with the education of his children, and these provisions may be coupled with those which were announced by the Minister of Education the other day, abolishing the means test where State scholarships have been earned.

I thought that the right hon. Member for Battersea, North (Mr. Jay) was rather pathetic in his performance this morning. He obviously had to do his stuff as best he could with very little support from his own side. In the face of arguments which have already been so frequently and powerfully put against him from this side of the House, he had to put his party's case at the very end. I do not propose to attempt to reply yet again to all those arguments; but, if I am not transcending the rules of order, I should like to refer to that part of the right hon. Gentleman's speech in which he attempted to deal with Mr. Gladstone.

I should have thought that the right hon. Gentleman's speech was final and conclusive proof, if ever such proof were needed, that, at any rate in financial matters, the Liberal tradition had not passed into the philosophy of the Socialist Party. As a result of the changes in the incidence of indirect taxation in this Finance Bill, more money will be left to fructify in the pockets of the people. I believe that 17 million taxpayers will benefit, and the right hon. Member for Battersea, North should not cavil at the fact that a few rich men will also benefit along with those millions of others.

Mr. Jay

Does the hon. and learned Member regard the then Mr. Lloyd George and Mr. Asquith as being part of the Liberal tradition?

Mr. Renton

I think that that is slightly irrelevant to my argument.

I was referring to the Gladstonian philosophy that the Chancellor should as far as possible leave money to fructify in the pockets of the people, a process which has not been allowed very much play in recent years, but which the present Chancellor is helping gradually to restore.

We have to bear in mind also that many of these rich men are themselves large savers. A very high proportion of them will be savers of the extra amount which they will be able to keep as a result of the Budget, and by being savers they will help the national economy to obtain an ever surer foundation.

The speech of the right hon. Member for Battersea, North is further proof of the Socialist Party's obvious desire to level down. That is in direct contrast with the desire of my hon. Friends, whether we are of Conservative or Liberal origin in our thinking. It is an application of egalitarianism, which in my opinion does not appeal to the people. We had a discussion at the beginning of proceedings this morning, and the question of egalitarianism looms large in that problem.

The right hon. Gentleman and his party are doing no service to the country and making no appeal whatever to the British people if they object to measures which are financially for the benefit of the country, merely because such measures run against this principle of egalitarianism to which they adhere so strongly. I believe that the verdict of the people on the Finance Bill is that it is not only the right Finance Bill in present circumstances for the country's economy, but that it is one which is suited to the character of the people.

11.56 a.m.

Lieut-Colonel Marcus Lipton (Brixton)

It struck me as rather odd, knowing the interest of the hon. and learned Member for Huntingdon (Mr. Renton) in motoring, for example, that it did not immediately occur to him that one measure which would have brought benefit throughout every section of the community would have been a reduction of the duty on petrol.

Mr. Renton

I did not refer to the possibility of such a remission because I understood from your Ruling earlier, Mr. Speaker, that it would have been out of order.

Mr. Speaker

I think that the hon. and gallant Member for Brixton (Lieut-Colonel Lipton) was not in his place when I addressed a few words to the House on the scope of discussion on Third Reading. It is, as in the case of all Bills, limited to the content of the Bill.

Lieut-Colonel Lipton

That is of course the case, and I will now come to a point which I raised on the earlier stages of the Bill but to which I did not receive a satisfactory reply.

I tried to find out from the Chancellor what the concessions on Income Tax amounted to. In the course of my inquiries I tried to find out from him how much additional revenue would accrue to the Exchequer as a result of cutting the first reduced-rate band from £100 to £60. The Chancellor answered that question by saying that there were many other things to be set against it. He referred to quite a number of other things which, in other circumstances, might have been relevant but which were quite irrelevant to the question which I have put to him.

Quite apart from the other considerations and adjustments and the increase in the earned income relief, I should like to know how much extra will accrue to the Exchequer as a result of this alteration in the first reduced-rate band. People outside the House would like to know, particularly those Income Tax payers who still come just within the Income Tax scales, that is, the lower wage earners who, despite the concessions in the Budget, have to pay Income Tax, though it may be only just within the first of the reduced-rate bands. That information would be of great interest. I hope that the Government will not ask the House to part with the Finance Bill without giving us that little modicum of information. Surely they must know to what extent the Exchequer is going to gain, because a large amount will accrue against which, of course, they may set off whatever else they like. I should like to know what that figure is.

The Government are making play of the fact that as a result of the Income Tax concessions a large number of people will not pay any more tax. We have got a measure of that concession as a result of the information vouchsafed to the House. It will mean a few coppers a week in the pockets of these people. That will satisfy the Gladstonian purity of the hon. and learned Member for Huntingdon. This 9d. or 10d. will fructify in the pockets of the people, and I have no doubt that it will perhaps help to restore the adverse balance of payments and may lead to an increase in capital investment. Those are the two objects the Government had in mind when they gave these Income Tax concessions.

The extent to which the low Income Tax payer or people excused altogether in this Finance Bill from paying Income Tax are going to put their surplus money into capital investment remains to be seen, but I do not think it is going to make a ha'p'orth of difference and it is not going to serve the main purpose which the Government say they had in mind when they introduced the Finance Bill. No other justification has been put forward for the concessions that have been made except that they will lead to an increase in productivity and to more capital investment, which, in turn, will divert various products of our manufacturing industry into the export trade and so prevent the creation of an inflationary situation in this country.

There is one other question that I have put on previous occasions but to which I have not yet had an answer. What guarantee have the Government obtained from industry, or what calculation has been made showing to what extent this increased purchasing power that the Government have placed in the hands of the people—because these Income Tax concessions have placed increased purchasing power in the hands of the people, which is one of the Government's arguments in favour of it—is to be used for the purpose for which the Government say it ought to be used? What evidence is there to show that, for example, limited liability companies are not going to use these tax concessions for the purpose of increasing dividends and not for cutting the price of trade products in the export market?

Have the Government obtained any guarantee from the Federation of British Industry or any other employers' organisations indicating what they are going to do with these sums which have been distributed to them by way of largesse by a Conservative Government on their way out in the hope that by its distribution they will be able to come back to power? That is also a very hypothetical calculation, just as hypothetical as the hope of the Government that there is going to be a diversion of manufactured goods to the export trade, more capital investment, and that the economic future of the country is going to be guaranteed as a result.

That to my mind is the fundamental weakness of the present Finance Bill. The Government are gambling with the economic future of this country. They are unable to give us any guarantee whatsoever that the largesse which they are now distributing is going to be used for the purposes they suggest in the public interest. Only recently we were told that an inflationary situation existed and the Bank Rate had to be increased. Now they are going to add these millions of pounds to an already inflationary situation.

In those circumstances, I think one is entitled to say that the Government are gambling with the future of this country in the hope of securing a majority at the forthcoming Election. Our lack of confidence in the Government's financial calculations is strengthened by the fact that their budgetting was so close and so exact last year that they found themselves with a surplus of some £400 million which they did not expect to have. If they were so far out in their calculations 12 months ago, nothing has happened since which persuades me that their calculations on future prospects are any more accurate now.

The people of this country will fortunately have an early opportunity of assessing at its true value and on its merits this last gambler's throw by the present Administration. A gambler's throw will not stand them in good stead, because some time on or after 26th May we shall hear what I am told is sometimes heard outside the Casino at Monte Carlo where the gambler's last throw has proved unsuccessful—one or two shots in the stillness of the night and that will be the end of the present Tory Government.

12.7 p.m.

Mr. Cyril Osborne (Louth)

Mr. Speaker, you ruled that on this Third Reading we must discuss only what is in the Bill. The two things that are really in the Bill are the imposition of the standard rate of Income Tax at 8s. 6d. in the £ and Surtax at 10s. in the £. On these two things I should like to make one or two observations.

The right hon. Gentleman the Member for Battersea, North (Mr. Jay) said that the Budget concessions were unfair, that he had discussed them with his constituents and they thought them unfair. I discussed the Budget with my constituents and they thought it was a good Budget. It depends on what sort of constituents we are going to see. We often get the advice we want on any subject, and I think the right hon. Gentleman sought the advice of persons who gave him the advice he wanted.

The most important aspect of this Budget and the philosophy of hon. Gentlemen opposite, as expressed by the hon. Gentleman the Member for Stechford (Mr. Roy Jenkins), is illustrated by what happened earlier today in this House. A statement was made by my right hon. and learned Friend the Minister of Labour on the railway dispute. What is behind that is the protest of the skilled men at losing the differentials for their skill. I say that taxation is doing exactly the same thing throughout the whole of society. To the professional classes and the business men, upon whose ability and skill this nation depends for its future, taxation is doing exactly what the skilled men in the railway industry say is so unfair to them. It is denying them the rewards of their skill and the reward for the risks and responsibilities which they take.

Before I go on with that, may I make one other side-point. For a business man, this is a very good Budget for a small administrative reason. It will take out of taxation about 2,400,000 workers paying taxation, and that is going to save a lot of P.A.Y.E. work. From a factory and administration point of view, I wish P.A.Y.E. could be abolished, for only those who have to work it know how much it involves. So from that tiny angle alone I welcome the proposal.

There have been two criticisms of the reduction in the standard rate from the hon. Gentleman the Member for Stechford, who can put his point of view so persuasively. His complaint is that this reduction is unfair because it is against his desire for greater equality. He says that it is not egalitarian. The hon. Gentleman wants to use the Finance Bill as an instrument for redistributing not only the wealth of the nation but the income of the nation. He wants an egalitarian society. I understand that, and to some extent I sympathise with him and agree with it to some extent.

But how far is the Finance Bill to be used to redistribute the national income to give absolute equality without reducing the efficiency of the nation? That is a problem which the hon. Gentleman and other serious-minded hon. Gentlemen opposite must face. What degree of equality does he want the Finance Bill to produce? Surely not Gilbert's famous idea of "They all shall equal be". Surely he does not want increases of the standard rate to such an extent that everybody is equal, both back benchers and Ministers alike. For instance, if he were appointed in some future Government as a Minister, he would not think it was unegalitarian to take £5,000 a year instead of £1,000 a year? Of course he would not. He would think it was a just reward for the responsibility he was taking, and I would agree with him.

I put it to the hon. Gentleman and to his hon. Friends that, in objecting to this reduction of 6d. on the ground of egalitarianism, they must make up their minds whether in pursuing the argument of egalitarianism they will not reduce the efficiency and the productivity of the nation. Furthermore, I ask them to bear this important point in mind. In the Bill we are imposing Surtax on the old limit of £2,000 a year. With the creeping paralysis of inflation, that limit becomes smaller and smaller in real values and it will mean, if we have continuous inflation and retain the same limit for Surtax and the same high rates of Income Tax, that there will be less and less rewards for the people who take the greater responsibilities.

Mr. Eric Fletcher (Islington, East)

Is the hon. Gentleman suggesting that the limit for Surtax should be increased?

Mr. Osborne

If the hon. Gentleman will listen to me, I will answer his question. In the last 20 years the value of the £ has dropped from 20s. to less than 8s., so that in terms of 1935 values Surtax on £2,000 is really starting at about £770 a year. In those days we should have thought this fantastically absurd. If the same degree of inflation continues in the next 20 years, in terms of 1935 values we shall start Surtax at about £350 a year.

Mr. Fletcher

That is not in the Bill.

Mr. Osborne

The £2,000 limit is in the Bill, and the limit of 8s. 6d. in the £ is also in the Bill.

Mr. Fletcher

I am trying to follow the argument and am listening attentively. May I ask the hon. Gentleman whether the logic of what he is saying is that, because of the fall in the value of the £, £2,000 is now worth much less than it used to be, and that therefore he is arguing that the Surtax limit ought now to be raised to £3,000 or £4,000?

Mr. Osborne

The hon. Gentleman would like me to say something which he can use at the Election. I am trying to put a serious argument and I am not playing for votes. As I see it, the future of our country to a large extent depends upon the financial policy we follow. It has nothing to do with getting a few votes next month. That is immaterial. I want to give hon. Gentlemen opposite, and my hon. Friend the Financial Secretary, an illustration of where this is operating to the detriment of our country.

Recently I was shown an advertisement which had been inserted in the English newspapers for English-trained electronic engineers to go to the United States. The attractions offered were enormous, including much less taxation than has to be paid over here. I have made inquiries and have been told that this type of man can earn here between £1,200 and £1,400 a year. In the United States he is offered between £3,000 and £3,500 a year, and if he will go west to California, he will be given another £700 a year. On his £3,500 in the United States he would pay roughly £680 taxation whereas over here he would pay more than double that amount.

Mr. Jay

If the hon. Gentleman is making a comparison of Income Tax, should he not add that the man would have to meet a capital gains tax in America and none here?

Mr. Osborne

He would not be making capital gains in earning his living. I am not talking about men who make capital gains but about men who produce the wealth of a nation. This example is pertinent to what we are discussing. Also I have a letter here from a professor of one of our great universities who says he is well aware that our brightest young men are drifting away in increasing numbers and leaving us in a desperate position.

Mr. Jenkins

Nonsense.

Mr. Osborne

It is no good the hon. Gentleman saying "nonsense," I will give him the name of the professor who said that. The high rate of taxation, coupled with the desire for greater egalitarianism over here, if carried to excess, will drive from our shores our best men. As a matter of fact it is doing that now, and who can blame men for wanting to go to the United States if they can get what the Americans are offering? Anyone in the electronics industry is well aware that there is a shortage of the most skilled men.

This 6d. off the standard rate is not much, but it is at any rate a little inducement to these men to stay at home and give their skill to this country instead of exercising it elsewhere. Further, I put it to hon. Members opposite that it gives to young men like that a better chance of doing three things which they feel they ought to do for their families. That type of skilled man, who has no wealth behind him and has to make his own way in life, feels that if he earns more money, far too much is taken from him, and that it leaves him very little margin with which to provide for his own old age, or possibly for his widow or for the education of his children, which are three most desirable and reasonable things.

Therefore, in so far as this reduction of 6d. does induce that type of man to stay in this country to help our production drive and to help us in the competition we have to face in world markets, it is a good thing and not a bad one. Furthermore, I would put this point to the hon. Member for Stechford, who at least takes what I think is a reasonable and not necessarily a narrow party line on this matter. The hon. Gentleman will remember that, in the "New Fabian Essays"—I think the one which he wrote—he said that he would rather choose inflation than unemployment, and I quite understand that.

If inflation is to continue, then sooner or later these rates will have to be revised, and it is because I think that in doing what the Chancellor has done he is doing a service, not only to those who receive the benefit of the 6d. reduction, but also to other workers whom they help to employ, that I think this is a good Finance Bill, and I am glad to support it.

12.22 p.m.

Mr. Eric Fletcher (Islington, East)

I am very glad to have the opportunity of replying at once to the questions which have been raised by the hon. Member for Louth (Mr. Osborne), and I propose to state and answer those questions.

As the hon. Gentleman pointed out, and as you, Mr. Speaker, pointed out earlier, we are very much circumscribed in this debate on Third Reading in the subjects which we can discuss. I do not want to be misunderstood. Our major criticisms of the Budget and of the Chancellor's financial proposals involve wider considerations, covering the whole field of our economy and alternative methods of raising revenue and of giving relief, which we are not able to discuss within the narrow confines of this Finance Bill.

We think that if tax remissions could have been justified by the Chancellor, which we doubt, they should have been made in other directions, but we cannot go into that today. All we can discuss is whether, within the limited field of the Income Tax reliefs, the Chancellor's proposals are the fairest and most equitable that could have been designed, and it is in that limited field that I challenge what the hon. Member for Louth has said.

We do not dispute that the reduction of 6d. in Income Tax in itself is not a bad thing. On the contrary, in itself it is a good thing, but it is only a good thing if the relief given by that reduction of Income Tax is fairly and equitably spread as between the better off, the less well off and those who are not at all well off. It is quite obvious that the Income Tax is a mechanism for controlling the gross inequalities of wealth and income that would otherwise exist. It is a flexible instrument designed, as the hon. Member said, to secure those differentials to which people are entitled. Therefore, any reduction in Income Tax is in itself an incentive, provided that it is given to the right people. The question which the House has to determine is whether the relief in this Budget is given to the right people and whether it produces the best incentive.

The Chancellor himself has said on more than one occasion, when reviewing the course of the Budgets of the last three or four years, and in contradiction to what the hon. Member said, that he recognised that the high levels of taxation which have existed during recent years have not been inconsistent with the rise in the prosperity of the country, and that that prosperity has gone on, notwithstanding the high level of taxation. One reason for that is that, under Labour Chancellors of the Exchequer, we reorganised the whole scale of Income Tax relief in order to throw a much larger burden on the higher ranges of income than existed before.

In measuring the incentive effect of any Income Tax scale or reduction, we must not have regard only to the impact which it has on the individual. It may well be that a person earning £10,000 a year receives a great benefit from the reduction of 6d. in the standard rate of Income Tax. If that is the chief result of that reduction, the fact that very rich people will be getting, as they will under this Budget, the greatest measure of relief, does not provide an incentive to the workers, who can only derive the full and real benefit of an incentive policy if we have regard to the impact of the tax relief, not merely on individual taxpayers, but on the community as a whole. We have to see that these differentials are always kept in relation to the whole Income Tax scale and to any measure of inflation that goes on.

The hon. Member for Louth kept using a phrase which he did not define. He charged us with desiring an egalitarian society, but the hon. Member did not define it, and I am not sure that I quite know what he meant by it. I have never advocated a society in which there is a dead level of equality. We have never suggested that. We have had a statement from the Minister of Labour this morning, and we are all conscious that the whole cause of this unhappy deadlock in the railway industry, which we all sincerely and devoutly hope will be resolved in the next 24 hours, has been produced by a perfectly legitimate argument about differentials.

Mr. Osborne

The hon. Member for Islington, East (Mr. E. Fletcher) asks me about the phrase "egalitarian society," and what evidence I have to support the statement that hon. Members opposite desire it. I am not saying that the hon. Member himself used it, but on many occasions we have heard the phrase "rationing by the purse," and we have heard the theory of rationing again. The whole basis of the political philosophy of hon. and right hon. Gentlemen opposite is rationing, so that everybody gets the same.

Mr. Fletcher

I really must protest about that intervention. I gave way because I thought the hon. Member wanted to make some observations which had some relevance to what is being discussed, but he makes some observations not related to anything I said or to anything said in this debate at all, and has raised an entirely new issue about rationing by the purse. I never said anything about it, and it would take me a very long time, even if I should be in order, to go into that subject. I therefore hope that I shall not be misunderstood if I do not abuse the rules of order on the Finance Bill by trying to explain that I have never referred to rationing by the purse, nor have I ever referred to an egalitarian society.

I want to refer to the one sensible point which I think the hon. Member raised in his speech. It was related to the extent to which Income Tax legislation ought to be used and can be used to provide the differential. We are all conscious of the necessity of having a very nicely calculated measure of differentials in all spheres of economic activity, and of how the slightest element of disequilibrium in the differentials between one grade of labour and another can produce—as it may in the next few days, unless it is averted—a real national catastrophe.

That is precisely the purpose of the Income Tax arrangements, and the whole burden of our criticism of the proposals in the Bill is that they do not provide adequate differentials. In the first place, they do not provide differentials designed to give the best possible incentives over the whole range of those who are earning their living. In the second place, they fail to give the best possible differentials as between the married man with a family, the single man and the married couple with no children.

The other day we listened to some very inspiring and pious observations from the Chancellor of the Exchequer on his ideas about an ideal society. He said it did not matter if some people had much more wealth than others provided that their standards were right. The Economic Secretary agrees with that, because he said that the best possible standard was that which had regard to the well-being of the workers. I agree with that, but I am not sure that I agree with the observation by the Chancellor, which has the concurrence of the Economic Secretary. It is important that the electorate should understand that the Tory argument is that it does not matter about some people being much better off than others provided that they have the right standards.

I do not know who is to ensure that those who are given the maximum concessions in the Budget have the right standards. Is the Chancellor going to ensure that the people to whom the greatest concessions are given in the Finance Bill adopt higher standards than we have in the past observed among the wealthiest sections of the community? Even if we could be sure of that—although there is no ground whatever for the assumption on which the Chancellor's philosophy is based—we should not agree with it.

There is a limit beyond which inequalities in income and wealth are intolerable and produce a very serious social mischief and evil which has a very great deterrent effect upon the country's productive output. It is all very well to say that no one can know exactly where to draw the line, but I think it is true to say that, broadly speaking, the fundamental difference in outlook between the Labour Party and the Tory Party is that we think there ought to be much greater equality or, rather, much less inequality than there is at the moment.

Sir E. Boyle

I should like to explain why I do not agree with the hon. Gentleman. He has spoken about income and incentives. My right hon. Friend had specially in mind that the owner of landed property who derives his wealth from such property can often give a great deal of service as a result of having such an income, and that it is a great mistake to suppose that all people with large incomes use them purely for themselves. They do not; they often give a great deal of employment and service to other people as well.

Mr. Fletcher

The problem of those who have very large unearned incomes derived from the ownership of wealth in real or personal estate of one kind and another is a separate one. There are not many people with invested incomes of modest dimensions who are able to give service of that kind to the community. As the Economic Secretary has said, there is a class of persons who used to be called the landed aristocracy. Before that they were the feudal barons.

[An HON. MEMBER: "And feudal baronets."] I make no distinction between the two.

I am well aware of the historial arguments which justified the feudal condition, but that was in the days before Income Tax. I have no doubt it is true to say, as a matter of remote history, that the feudal barons—and feudal baronets—played a useful part in society in the days when there was no Income Tax and before the conditions of society were altered by the Industrial Revolution. However, I challenge the outlook of the hon. Baronet, the Economic Secretary, in trying to perpetuate, in the conditions of modern economic competitive society, outworn ideas which may have been relevant in the days of the landed aristocracy or the feudal barons and baronets.

I can understand the hon. Gentleman's nostalgic wish for some of the traditions of the past to be preserved, but my hon. Friends and I do not believe that the right way to transform our modern society to the best national advantage is by trying to perpetuate an outworn mode of society in which one or two privileged individuals enjoying landed estates or inherited wealth of some other kind were able at their own whim to decide how hundreds of their workpeople and feudal tenants should live. There may have been people in those days who had high standards, but those days have gone.

We have now reached a stage in society when we have full employment; and we have had national education for everybody since 1870. We have reached the point when we must consider how the Income Tax system should be adapted, by graduation of differentials, to produce not merely the fairest possible kind of society for us to live in but, as the Chancellor has said, the maximum incentive to everybody. Where we on the Labour benches differ from Members on the Tory benches is that we think that in present-day conditions Income Tax and Surtax still operate to leave a disproportionate amount of income in the hands of those who are well off compared with those who are not so well off.

I am glad that the hon. Member for Louth said what he did. It is important that the electorate should know what the Tory Party really desires. The hon. Member pointed out that, as a result of inflation, the £ is now worth very much less than it was a few years ago. The whole burden of his argument, although he would not concede the final point, was that the £2,000 limit for Surtax is too low. He made it quite clear that in his view Surtax ought not to start until £3,000 or £4,000 of income has been earned. That is what it means. He went on to say that if inflation continues, the limit for Surtax should be raised with it. Nobody else on the Conservative benches has yet dared to say that, but if that is really the policy of the Conservative Party—

Mr. Osborne

On a point of order. The hon. Gentleman is attributing to me things which I did not say, and I beg him to withdraw them.

Mr. Fletcher

I withdraw anything I have said which has given the hon. Member for Louth offence. I did not say that he said it; I said that the logical conclusion of what the hon. Member was arguing was that the limit for Surtax ought to be increased from £2,000 to £3,000. That was inherent in his whole argument. If I may say so, he did not have the courage to face the ultimate, logical conclusion of what he was arguing. No doubt that is what he and the Tory Party believe. If they had their way, they would exaggerate the existing disparities between those who are very well off and those who are not so well off.

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

Would the hon. Member for Islington, East (Mr. E. Fletcher) make clear whether he disagrees with the recommendation of the Royal Commission that the Surtax level for families with children should be raised?

Mr. Fletcher

I will certainly make that clear, because that is the second part of the argument.

I have criticised the Budget on the ground that it does not carry out to anything like the full extent the recommendations of the Royal Commission that much greater tax reliefs should be given to married people with children. In that category I include Surtax payers as well as others. I am very glad that the Financial Secretary has raised this point, because I have not yet had an answer from any Treasury spokesmen.

It will be recalled that in his Budget speech the Chancellor took a great deal of credit—I thought unjustly so—for having given some special assistance to the family man with children. The Royal Commission drew attention to the great disadvantage that is suffered today by the married man with two or three children compared with the single man or the married couple without children. That position has resulted directly from the inflation that has steadily continued.

The Royal Commission pointed out that the married man with children, in terms of real money, now has to meet a burden of tax proportionately three, four, five or sometimes six times as much as the single man. That situation has arisen automatically, because while there has been inflation and a rise in the cost of living, there has been no corresponding rise in the child allowance. The Royal Commission put forward certain rather complicated administrative provisions for remedying that position.

The Chancellor said that he thought that the recommendations of the Royal Commission were complicated in form and he therefore introduced what he said was a simpler system. That was why he reduced the band of the lowest level of Income Tax from £100 to £60. I have already stated that in my view the method adopted for attempting to meet the Royal Commission's point was good and was better than that proposed by the Royal Commission.

However, the Chancellor has not carried into effect the recommendations of the Royal Commission. The burden borne by the married man with children—whether he be an Income Tax payer or a Surtax payer as well—compared with the burden of the single man, or that of the married childless couple, is still grotesquely disproportionate, in my opinion and in that of the Royal Commission. It was for that reason we sought to have the child allowance increased beyond the figure of £100 to which the Chancellor has raised it.

We admit that the Chancellor has made some concession, but he has not made an adequate concession having regard to the changing value of money compared with a few years ago. In answer to the question which the Financial Secretary put to me, I will say that I entirely agree with the proposal of the Royal Commission. My criticism of the Chancellor and his colleagues, as the Financial Secretary knows, is that these recommendations have not been carried into effect. Why not? We are now concerned with the proper differential between a married man with a large family and a single man.

I want to urge again, as I have done before, that in the national interest and in the desire to have an Income Tax system which provides the maximum incentive to all sections of the community, particularly to the productive section, more regard should be paid to the existing burdens of a married couple who are bringing up two or three children. It is well known that these burdens increase, not only directly, but indirectly as well, as the size of the family grows. That is because there is not merely the problem of clothing, educating and maintaining the children, but because, as the size of the family grows, it is necessary for the family to have larger accommodation and so to pay more rent and more rates and incur greater expense in other directions.

We feel strongly that it is quite wrong in our economic arrangements to penalise—as the Chancellor has done by failing to observe in full the recommendations of the Royal Commission—the married man with a large family at the expense of the unmarried man. I want to bring my remarks to a conclusion. I have been provoked into continuing longer than I intended by the observations of the hon. Member for Louth, but I am very glad to have had the opportunity of answering him, if only to expose the philosophy which he announced and to which he drew attention. It was that if his arguments were given effect to, the Tory Party would seek to raise the limit at which Surtax started and thereby relieve, at the expense of the poorer sections of the community, those who are best able to contribute to the national Exchequer.

12.50 p.m.

Sir Arthur Colegate (Burton)

I had not intended to intervene in the debate, because this has been a very simple Budget and we had a very simple Finance Bill, but some of the arguments I have heard are so misrepresentative and so fallacious that I feel provoked to make one or two comments, although perhaps not at such great length as did the hon. Member for Islington, East (Mr. E. Fletcher).

In the first place, the Opposition have tried to import great prejudice into the matter by representing that the reduction of 6d. in the standard rate benefits only the rich man, so that the Budget can be called a rich man's Budget. I cannot, of course, develop the argument about the alternative taxes which they propose, but two alternatives consistently mentioned were reductions in the Entertainments Duty and in the petrol tax. I shall benefit to a small extent by the reduction of 6d. in the standard rate, but I have worked it out and I find that I should benefit more than twice as much if the petrol tax and the Entertainments Duty were abolished. If those two taxes were abolished, that would be a rich man's budget.

Mr. Jay

The hon. Gentleman surely realises that we put down a number of Amendments, some of which were even in order, suggesting remissions of Income Tax at the lower rate of the scale. We have continuously made it clear that we would refrain from raising the insurance contribution, which hits those below the Income Tax level so hard.

Sir A. Colegate

That may be so, but it does not affect what I am saying. The abolition of the taxes on petrol and entertainments proposed by the Opposition would give greater relief to the rich than does this reduction in Income Tax. Many hon. Members opposite have delightfully luxurious motor cars, they know the consumption of petrol involved and they can work the figures out for themselves.

They have also talked about rich companies. They are supposed to benefit enormously by the reduction in Income Tax. But it is not the company which benefits, it is the shareholders. The two companies which have been mentioned consistently by hon. Members opposite, I.C.I, and Unilever, may each have about 100,000 shareholders.

Mr. Osborne

Nearly a quarter-of-a-million.

Sir A. Colegate

The average holding—and this affects the tax position—is under £300, so that instead of trying to prejudice the issue by saying, "This company receives so much money and that company receives so much money." hon. Members opposite should say that in those companies the shareholder with the £300 holding—the average shareholder—will have 6d. less taken off his dividends and 6d. less taken off that part of his income which is saved for him by the company placing it to reserve. That should be made clear.

That it was a question of prejudice was shown by the fact that this reduction in the standard rate was related by hon. Members opposite only to rich companies. It was not mentioned in connection with the enormous investments of the trade unions or in connection with institution after institution which will benefit by the reduction. The argument was confined to rich companies and the impression was given not that they were a collection of small shareholders but that they were companies of specially rich men who would benefit by the 6d. reduction in the standard rate.

Another point which seems to have been overlooked altogether is that any reduction in taxation must benefit the rich man more than the less-well-off man—with one exception, which is a poll tax. Apparently the Opposition would like a poll tax. When a poll tax is reduced, one reduces it by the same amount for every person. Hon. Members opposite forget, however, not only that the rich man is bound to benefit more by reductions in taxation but that in effect this country is pledged to the fact that he should benefit more, because when taxes were raised at the beginning of the war to a very great height that pledge was given.

It should be frankly admitted that high taxation has been borne better here and more cheerfully by the people of this country than in some countries, and that would not have happened had we had a Chancellor of the Exchequer at that time who said, "I will put up the taxes for this grave national emergency, but I must warn you that I will never put them down again, even if the emergency disappears." The attitude being adopted by hon. Members opposite about this 6d. reduction in the standard rate is therefore a breach of faith to those people who have borne this very heavy burden of taxation for these long years.

To talk about this as a rich man's Budget is a misuse of terms. If it is examined carefully it will be seen that it is not a rich man's Budget but that it is an equitable step in the direction of what in effect was promised at the beginning of the war—that when the national emergency passed, taxation would be reduced in the same proportion as that in which it was increased at the beginning of the war.

12.55 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

The hon. Member for Burton (Sir A. Colegate) has put before the House some interesting but curious arguments. First of all, he said that it would be possible to have a remission of taxation which would benefit rich people far more than does the cut in the standard rate, and he illustrated that partly by saying that if the petrol tax were abolished he would be better off than he is as a result of the cut in the standard rate.

It is not particularly surprising that that should be so, because, as the Treasury Ministers will have in their minds, the abolition of the petrol tax would cost about three times as much as this cut in the standard rate. If ever there were a false comparison and a false argument based upon it, it was the comparison which the hon. Member made.

Sir A. Colegate

It is not a question of the total amount involved. The argument used by the Opposition was the effect on the individual. When the Opposition propose the reduction of the Entertainments Duty and the petrol tax, we therefore have to examine the effect on the individual to see whether that would make the Budget more of a rich man's Budget than does the reduction in the standard rate.

Mr. Jenkins

I do not want to follow the point too far, but the hon. Member is within the recollection of the House and he said that he had worked it out that if the petrol tax were abolished he would be better off than he is as a result of a cut of 6d. in the standard rate. I say that that is not surprising, as the loss of revenue involved would be very much greater than that involved in the cut in the standard rate. We therefore cannot deduce anything about the regressive nature or otherwise of cuts in the two forms of taxation. We cannot make such a comparison unless we are considering amounts of similar magnitude. I should have thought that point was almost completely obvious.

The hon. Member then said, in a scoffing tone of voice, that apparently what the Opposition would like would be to erect a poll tax in order that it could subsequently be reduced and thereby give the greatest benefit of taxation reduction to those who were worse off. But when he brought forward that argument he forgot that the National Insurance contribution, to which my right hon. Friend the Member for Battersea, North (Mr. Jay) referred, is a poll tax, and that when my right hon. Friend advanced the point of view that it would have been more desirable not to increase the insurance contribution than to cut the standard rate, that was a very sensible point of view. It is not necessary to erect a special poll tax to achieve that objective.

The hon. Member also made a number of points about the effect of taxation on companies. We recognise, of course, that a large number of companies have a large number of shareholders and that the shareholding in some companies is very widely spread indeed. But do not let us jump from that perfectly correct point to the entirely false conclusion that because in this country about one to two million people own shares, that means that the whole community owns shares in companies or that shareholders as a group are not a great deal better off than the average person.

I understand that the great hope of the Government is that the cut in taxation to companies will not lead to a substantial increase in the distribution of dividends and will not go directly to the shareholders but will be available for the company for investments, for instance.

Sir A. Colegate

If the dividend is not increased or decreased, then the shareholder will get the benefit of the deduction of 6d. less in tax from that part of the total profit which reaches him.

Mr. Jenkins

The shareholder pays a lower rate of tax on that part of his income, as he does on any other part.

I should like to revert to the arguments which were put forward earlier by the hon. Member for Louth (Mr. Osborne) who referred to several things I had said in the past and some things which he thought I had written, although the statement to which he referred was written not by me but by my hon. Friend the Member for Gloucestershire, South (Mr. Crosland). However, I do not dissent from it. The hon. Gentleman put his argument in a very agreeable form. Nobody on this side of the House believes in absolute planned egalitarianism. Nor does anyone dispute that there is a certain difficulty in reconciling the use of direct taxation in order to promote greater equality with the maintenance of incentives. We all recognise that. But one cannot come down solely on one side and ignore the other aspect of the question.

I am sure the hon. Gentleman recognises that it is impossible to argue this matter solely in terms of giving everybody the greatest possible incentive, without any regard to the consequences on the distribution of income and the degree of social justice. If we are to have anything like the degree of social justice which we would regard as desirable, that means a high level of direct taxation, and one has to face some of the disincentive difficulties involved. But they are often grossly exaggerated. It is a fairly well established principle that whenever any group of people do not like the burdens of taxation which are placed upon their shoulders, they justify their argument against those burdens by some statement about it being bad for the economy of the country.

Mr. Osborne

Does the hon. Gentleman remember that the late Sir Stafford Cripps, on more than one occasion when he was faced with the question of increasing direct taxation, said that the limits of redistribution through direct taxation had been reached, and that our problem was to increase national productivity which was of greater importance than any further redistribution?

Mr. Jenkins

Sir Stafford Cripps said a great number of true things on a number of different occasions. It is always difficult to discuss exactly a remark of his which is quoted in that way. Sir Stafford Cripps was in any case dealing with a situation in which we had a combined Income Tax and Surtax rate of 19s. The statement that increased productivity is of greater importance than further redistribution should not be taken to mean that the maintenance of the exist- ing degree of distribution is not important. I am sure the hon. Gentleman will bear that point in mind.

The hon. Gentleman made a great point of the fact that electronic engineers and others were being drained away to the United States. I have no doubt that one can find certain examples to support a statement of that kind, applying to a limited number of people in different ranges of skill and technical expertise. I find it very difficult to believe that there is any great drain of really skilled and able people away from this country to the United States on this ground of taxation. Certainly the British emigration quota to the United States is hardly ever full. It is well below the quota, and therefore I do not believe that there is a great drift away from this country. In any case, the level of tax in the United States is extremely high.

I am always rather suspicious of people who say that the best people are being driven out of this country because they want to live in some more competitive society in some remote part of the world—not so much in the United States but in South Africa or some other Dominion. Together with New York and Paris, London is in fact the most competitive society in the world, and most people who leave do so because they want an easier and less competitive society, but they like to justify their departure on entirely different grounds.

Perhaps I should return to one or two other points which have arisen in the debate. My hon. Friend the Member for Islington, East (Mr. E. Fletcher) made some reference to feudal barons. I would acquit the Economic Secretary of being feudal in that respect, because I think that the baronetage and feudalism have failed to overlap for several hundred years. However, I thought that, in the course of his intervention in my hon. Friend's speech, he made a surprisingly feudal remark. After all, as we know, the Economic Secretary is in touch with the higher and newer forms of economic learning. When he is not attacking Mr. Nicholas Kaldor in our debates, he is expressing surprise at the Chancellor's pronunciation of Dr. Balogh's name.

In view of this intimate contact which the Economic Secretary has with the higher and more modern forms of economic learning, for which we greatly respect him, it was surprising to hear him utter this rather archaic phrase about people with great estates and large accumulations of wealth often providing services and employment to many other people. I would have thought that the view that employment came from the wealth of a few individuals was outdated. I would certainly have thought that the Economic Secretary would agree that the general tendency towards a more stable level of full employment which we have developed over the last 10 or 15 years in this and many other countries, on the contrary, had a good deal to do with a more equal distribution of wealth, and that that was a far more important buttress of full employment than the ability of one or two individuals by possessing substantial amounts of wealth to create employment.

We have had on this very short and narrow Finance Bill fairly short and narrow debates, as has inevitably been the case. We are completely unconvinced that the Chancellor has this year given the remissions which he has felt able to give in the best possible way. That is not because we believe in the maintenance of a high level of taxation for its own sake. We certainly do not. But we do believe that it is important in the circumstances of each year to consider those who are most in need and to consider how certain concessions will, as hon. Members opposite have frequently said throughout the debate, best benefit the country.

But, as has been said by the hon. and learned Member for Huntingdon (Mr. Renton), who I see has come back, and who, as he said earlier, intervened rather unusually for him in a Finance Bill debate, it is not enough when one is defending some proposal which one happens to like to assume without any argument at all that that must be for the benefit of the community. I took a brief note of what he said, and he said that it was intolerable for hon. Members on these benches to complain against measures financially to the benefit of the country because we did not like some of those benefits.

That is assertion in place of argument carried to an extent which even the Chancellor would feel doubtful of making. The hon. and learned Gentleman cannot assume automatically that measures which he likes because of their distributive effect are necessarily measures financially to the benefit of the country. These are some of the things which we have discussed—

Mr. Renton indicated dissent.

Mr. Jenkins

The hon. and learned Gentleman should not shake his head in that doubtful way.

Mr. Renton

The hon. Gentleman has assumed all sorts of mental processes which I did not try to express to the House and which did not go on in my mind.

Mr. Jenkins

I was not assuming any mental processes on the part of the hon. and learned Gentleman. I was merely recalling the words which he used earlier today in his rather interesting and controversial speech. One of the statements he made was that it was beyond question that the measures in this Budget were financially beneficial to the country, and that it was merely partisanship on our part that we queried their enormous benefit because we did not like some of the advantages which they gave.

It is by no means certain that cuts in the standard rate as such produce all these benefits so far as the national economy is concerned. If he chooses to make statements of that sort, I hope that in future he will try to support them by a little argument instead of delivering them as pronouncements, even with his authority. Therefore, coming towards the end of the debate, I say again that, without in any way wishing to maintain the weight of taxation for its own sake, we are very far from convinced that the Chancellor has done the best thing this year or that he has produced a Budget which is fair to all sections of the community.

1.10 p.m.

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

If the Budget and the Finance Bill are as bad as hon. and right hon. Gentlemen opposite have alleged, then I invite the generals of the Labour Party to lead their troops into the Division Lobby to vote against this Motion. I must say that it looks to me as if the generals are still here but the troops have departed.

What has happened is that after seven days of finance debate the Opposition has thought fit to divide only once on one narrow point. I have sat here for the last two hours, and I think that my hon. Friends will agree with me that the Budget and the Finance Bill have not this morning received any particularly damaging criticism. That is shown by the chariness of the Opposition to go near the Division Lobby on this subject.

Mr. Jay

Since the hon. Gentleman advances this rather specious argument, may I ask him whether he realises that most of the Amendments on which we wished to divide were ruled out of order because of the Chancellor's Budget Resolution?

Mr. Brooke

There were certainly several Amendments on which the Opposition could have divided, and which bore out criticisms which they have been making, but apparently they only wish to bark and not to bite.

I was sorry that the right hon. Member for Battersea, North (Mr. Jay) tried to bring back into the debate the class war which the Prime Minister and my right hon. Friend the Chancellor of the Exchequer had detected in his leader's speech last Wednesday, when he insinuated this morning that the Conservative Party wished to see this country go back to the great old inequalities of wealth. He knows that that is not true. If he and his hon. Friends repeat that kind of thing in the country during the next four weeks they will be saying what they know in their hearts to be untrue and what has been specifically contradicted by my right hon. Friend during our debates.

Everyone here must remember my right hon. Friend saying that none of us want to see the population of this country divided by great differences of wealth. If the right hon. Gentleman is to conduct the General Election campaign on the basis that what one of the most respected statesmen in this country says is untrue, then he will be doing nothing less than seeking to deceive the electorate.

Mr. Jay

As the hon. Gentleman is being so provocative, I would point out that I made no such assertion. I quoted the Chancellor's statement in full and correctly, and not rather partially, and I asked a simple question to which perhaps we can have an answer. Does the Conservative Party, or does not it, want to go back to the distribution of wealth and incomes such as that before 1939?

Mr. Brooke

The odour of class war has evidently affected the right hon. Gentleman. The Chancellor has made his views perfectly clear on these matters. His words last Wednesday can be read by anyone who wishes to read the OFFICIAL REPORT.

I was also struck by the way in which a number of hon. Members opposite spoke of reductions in taxation as distribution of largesse. A reduction of taxation means that a public authority is taking less money out of our pockets than it might otherwise have done. There are occasions, rare occasions I grant, when one hears that a local authority has reduced the rates. I invite hon. Members to say whether, when they receive a demand for reduced rates, they say to themselves, "Good heavens, there is to be a distribution of largesse; we must go round to the town hall or the council offices to share it." What 99 out of 100 people say is, "Thank goodness. Apparently somebody with some sense has got on to the finance committee." That is precisely what the country sees and recognises in the conduct of the national finances in the last four years.

Hon. Members have been urging that there should be no tax reductions to the rich and that all the benefits should be given to those who are less well off. I do not think that they really believe that, any more than I think that when there is a reduction in rates they challenge the result which gives larger advantages to the bigger ratepayers than to the smaller ratepayers. In fact, everybody takes that for granted.

As with the rate structure, so with the Income Tax structure. It is inevitable and entirely right that when the country is in great need those who have most should pay most, and that when the country has been doing well and prospering then the heaviest burdens should be relieved along with the lighter ones.

The right hon. Member for Battersea, North quoted a number of figures designed to show by the percentage method that it was practically only the rich who were to derive any advantage.

What he was concealing from the House was that it is impossible for those who have already been entirely relieved from paying Income Tax by my right hon. Friend's previous Budgets to be further relieved by this one. In fact, in his four Budgets my right hon. Friend has relieved those with incomes between £500 and £250 a year of 50 per cent. of the tax that they would otherwise be paying. He has relieved those with incomes of under £250 a year of 80 per cent.

When the right hon. Gentleman indicates or alleges that the Budget does not do enough for those with incomes under £500, I remind him that the typical family—the husband, wife, and two children—under the last Labour Budget would have started paying Income Tax on earnings of £413 and that under this Budget they will pay nothing at all until their earnings reach £566. Broadly, my right hon. Friend framed his Budget on the lines indicated by the Royal Commission. It is true that in one particular direction, which will affect specially those with incomes about the Surtax level, he has not felt able to go as far as the Royal Commission recommended. But he has met the main point that tax should start at a higher figure without the benefit of that increased allowance going through the whole range of taxpayers, and he has also assisted the family man as against the bachelor.

The hon. Member for Islington, East (Mr. E. Fletcher) could not be present at this moment, and has apologised to me for having to leave. He referred again today, as he did on Wednesday, to the child allowance, which he still thinks is inadequate, although in 1953–54 he supported Amendments to bring it up to the precise figure to which my right hon. Friend has brought it this year. In fact the Budget proposals are more favourable than those of the Royal Commission to those with incomes of up to £1,000 and less for those with incomes over £1,000, yet hon. Members opposite have argued that this Budget does not give enough to those under £1,000 and gives too much to those with higher incomes.

The truth is that my right hon. Friend has reached wise decisions and has balanced his plans aright. This is the first time in history that the child allowance has risen to the full width of the difference between the personal allowance for a single person and for a married couple. It would, perhaps, be a little light-hearted to say that for the first time the Chancellor is treating a child as being as expensive as a wife because we all know there are other considerations which determine the relationship of this allowance, but I think it significant that never before has the father of a family been able to obtain as high a personal allowance for each of his children as the difference between the allowance for the single person and that for the married couple.

I want to refer to some of the broader considerations which were advanced by hon. Members opposite about the economic effect of the Budget. I think it was the hon. and gallant Member for Brixton (Lieut.-Colonel Lipton) who accused the Chancellor of adding millions of pounds to an inflationary situation. The Opposition has to make up its mind whether this Budget gives away too much or too little. The hon. Member for Gloucestershire, South (Mr. Crosland) made a very interesting speech at an earlier stage, but it seemed to me that the conclusion from his speech was that there ought not to have been nearly such large tax remissions as the Budget gave. On the other hand, the Chancellor has repeatedly explained his reasons for judging that it would be right to give away half, but not more than half, of the surplus.

After all, Budgets are not just matters of arithmetic; they are matters of judgment. History will approve or disapprove of them, not according to whether the figures added up correctly on the day, but according to whether the state of the nation as the months went on developed as the Chancellor of the day hoped it would, or in a contrary direction. On this occasion, when the country has had a number of years in which to judge of alternative methods of conducting its finances, I should say that history will declare without hesitation that in these last few years our finances have been conducted, and our economy has been led, with wise judgment and that it would have been rash indeed if at this moment any change were made at the head.

I will give one proof of that. Throughout these debates, the Opposition has said that there has been a contrast between the action of the Chancellor on 24th February in raising the Bank Rate and his alleged generosity in giving away £140 million in this Budget. The Opposition has said that things were going wrong and were likely to go further wrong. Even today it has been said that the gold reserves are falling. The gold and dollar reserves are not falling; the fall was checked by the raising of the Bank Rate. There is the contrast between the present state, in which we sincerely trust we have achieved stability, and the disastrous downward slide which this nation witnessed in October, 1951.

In the last few days one new piece of information has come in. That is the provisional Index of Industrial Production for March, which has been published since Budget day. The Index for March, based on 1948, is estimated at 139 to 140. That represents a further marked advance in production. It brings industrial production to a level 3 per cent. or 4 per cent. above the average level of last year, making rough allowance for seasonal variation.

Mr. Frederick Peart (Workington)

How does the hon. Gentleman explain the agricultural position?

Mr. Deputy-Speaker (Sir Rhys Hopkin Morris)

It seems to me that this argument is getting beyond the scope of the Third Reading of the Bill.

Mr. Brooke

I apologise if I have been going too far, but what I was seeking to counter was the argument that has been adduced by hon. Members opposite that this was a rash Budget which might be damaging to the national economy. I will not pursue the matter any further, but I thought it would be reasonable to bring in that one further piece of evidence, which indicated that things were not going as had been alleged, but rather as the Chancellor had hoped.

Mr. Peart

On a point of order. I was only trying to suggest that the evidence was wrong because in the field of agriculture there is a very serious situation. I was merely replying to the Minister on that point.

Mr. Deputy-Speaker

I said that the discussion had got beyond the scope of the Third Reading of the Bill, in the debate on which we are confined to what is in the Bill.

Mr. Brooke

I shall certainly not be led into the agricultural field. Indeed, the figure I was quoting was not concerned with agriculture.

I close on this note; it is not by our interchanges here, but by the development of events, that this Budget will be judged. Since my right hon. Friend has been in charge of the nation's finances there has been an immense improvement, not only in the general economic situation, but in what that really means—the well-being of our people. I submit to the House that if he remains in charge, and if this Finance Bill takes effect, that process will continue.

1.28 p.m.

Mr. Hugh Gaitskell (Leeds, South)

I rise principally to apologise to the House because of my absence earlier in the debate. As hon. Members know, I was in the North of England and could not get here earlier.

It is usual, on the Third Reading of the Finance Bill, to pay compliments. I have not heard many compliments this afternoon. That, of course, is because we have not had a proper Finance Bill debate. The reason has been the outrageous behaviour of the Government: I refer to the way in which they have drawn the Budget Resolutions. The greatest sufferers because of that procedure are the Financial Secretary to the Treasury and the Economic Secretary, who have been deprived of the one opportunity they might have had of taking part in proper Finance Bill debates. Of course, after 26th May they will be denied that opportunity altogether.

I shall not reply to all the arguments of the Financial Secretary, especially in view of the state of my voice. I have the feeling that the arguments which the Financial Secretary adduced to us will make no impression on us at this stage, and any replies which we might make would not have a great influence on the minds of hon. Members opposite. I think it better that our arguments should be transferred elsewhere. I have little doubt about the outcome when the people hear them.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. R. Allan.]