Commons Sitting of 2 July 1957

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRAYERS
  PRIVATE BUSINESS
    HASTINGS TRAMWAYS BILL [Lords] (By Order)
    Second Reading deferred till Thursday.
ORAL ANSWERS TO QUESTIONS
  NATIONAL FINANCE

    Civil Servants (Pensions)
    Mr. Sharplesasked the Chancellor of the Exchequer whether, in view of the Government's decision to accept the recommendation of the Advisory Committee on the pay of Higher Civil Servants, it is now proposed to increase the pensions of those higher civil servants who retired after 31st December, 1947, and who have received no benefit under the Pension Increase Acts.
    The Chancellor of the Exchequer (Mr. Peter Thorneycroft): No, Sir.
    Mr. Sharples: May I ask my right hon. Friend to reconsider this question, bearing in mind the fall in the standard of living which some of these people have suffered since the date I mentioned, and, secondly, because the main reason advanced for excluding them has now largely disappeared?
    Mr. Thorneycroft: I appreciate the arguments which my hon. Friend has in mind, but it was necessary to make a judgment as to the extent to which we could ask taxpayers to assist the relatively well-off classes of these pensioners. However, I will bear the point in mind.

    European Common Market (Ghana and Nigeria)
    Mr. Sydney Irvingasked the Chancellor of the Exchequer what proposals were made during his recent talks in
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    London with M. Faure for a definition of the attitude of the United Kingdom Government towards the problem of associating Ghana and Nigeria with the European Common Market.
    Mr. P. Thorneycroft: These talks covered a wide range of topics and were exploratory in character. It would not be right for me to add to what has already been said by my right hon. Friend the Economic Secretary in answer to the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) on 23rd May. Our special responsibility for Nigeria and other Colonies does not, of course, extend to Ghana, a fully independent member of the Commonwealth.
    Mr. Irving: Whilst thanking the right hon. Gentleman for that Answer, may I ask him to bear in mind the very serious difficulties that would arise for both these countries competing against the overseas territories of other countries who are members of the European Common Market if they were allowed to bring in their goods Customs Duty free?
    Mr. Thorneycroft: I have these matters very well in mind, and I think it is right that I should hold these discussions in various quarters in order to clarify them.

    Anglo-German Financial Agreement
    Mr. H. Wilsonasked the Chancellor of the Exchequer if he will state how much of the advance debt repayment and other moneys agreed to be made available by the West German Government to the United Kingdom under the Anglo-German Financial Agreement of February, 1957, has been paid and entered into the reserves; and if he will make a statement as to the dates at which payments are to be expected.
    Mr. P. Thorneycroft: The Financial Agreements recommended by the Anglo-German Economic Committee to their respective Governments last March were signed on 7th June. The Agreements are subject to ratification by the Federal Parliament.
    The contribution of £50 million towards the defence effort of the United Kingdom is for use inside Germany. The £75 million to be used for debt repayment will be a deposit in the name of the Bank deutscher Länder, but the

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    account will not be opened until German Parliamentary procedures are completed. An additional £10 million was deposited in the Arms Purchase Account during April.
    Mr. Wilson: Do I understand from that Answer that when the deposit of £75 million is entered into in this country it will then be transferred across the exchanges and will, to that extent, influence the gold and dollar reserves? Secondly, are we also to take the Answer to be a denial of statements in certain City columns last week to the effect that some of this money was being virtually transferred through the ordinary mechanism of the exchange market at a time when exchange rates were peculiarly favourable to Germany?
    Mr. Thorneycroft: When the £75 million is transferred, it will move across the exchanges. That is the answer to the first part of the right hon. Gentleman's supplementary. The answer to the second part is that if any money has been put in it cannot have been put in under this Agreement, which has not been ratified, but there may have been transfers on a private basis between the banks.

    Government Securities
    Mr. H. Wilsonasked the Chancellor of the Exchequer if he will make a statement about the present position resulting from Government policies in the gilt-edged market.
    Mr. Pageasked the Chancellor of the Exchequer what action he proposes to take to arrest the decline in British Government securities in view of the adverse effect of the continued fall on the sterling area.
    Mr. P. Thorneycroft: I have nothing to add to the reply given to my hon. Friend the Member for Taunton (Mr. du Cann) on 30th May.
    Mr. Wilson: But has not the right hon. Gentleman seen a statement in, I think, the Financial Times that British Government credit now is lower than at any time for 140 or 150 years? Is the right hon. Gentleman further aware that it has been authoritatively stated elsewhere that something like three-quarters of the transactions of the gilt-edged market are
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    merely tax fiddles arising out of cum-and ex-dividend dealings? In view of this, will the Chancellor look at the whole question again and not put off a decision until the receipt of the Radcliffe Report, perhaps two years hence?
    Mr. Thorneycroft: I have read a great many comments in the Financial Times and other newspapers about the gilt-edged market, but it is only one factor in our economic position, and I do not think it would be helpful if I began to forecast movements in that market.
    Mr. Page: Would my right hon. Friend say if the attack on the liquid reserves of the banks, as suggested by the right hon. Member for Huyton (Mr. H. Wilson) and The Times today, has any relevance at all to the situation?
    Mr. Thorneycroft: That is a matter for the right hon. Gentleman.
    Mr. Jay: Is the Chancellor really indifferent to a situation in which Government credit stands lower in the City than at any time in living memory?
    Mr. Thorneycroft: I do not say that I am indifferent to any of the many factors in the economic situation, but my reply to the Question was that I do not think it really helps matters for any Chancellor to start forecasting events in the gilt-edged market.

    Entertainments Duty (Theatres)
    Mr. G. Jegerasked the Chancellor of the Exchequer for what purpose Her Majesty's Customs and Excise are still retaining bank guarantee bonds in respect of the theatrical Entertainments Duty until May, 1958.
    Mr. P. Thorneycroft: The Customs retain these for a period to enable them to satisfy themselves that no further liability is likely to arise under them.
    Mr. Jeger: Since all liabilities are settled week by week and duty has now been abolished—thanks to the Chancellor accepting the advice of the Labour Party which we have been advocating for some time—will the Chancellor tell the Customs and Excise to stop this rather pedantic holding of an out-of-date certificate of warranty given by the banks?
    Mr. Thorneycroft: I understand that some of these obligations have not been

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    discharged, but if the hon. Member has a particular case in mind, I shall do what I can to help.

    Currency Convertibility
    Mr. Osborneasked the Chancellor of the Exchequer what prior consultation was held by the International Monetary Fund with Her Majesty's Government as a member of the Fund before including in a recent official report an indication that Britain was gradually approaching the position where it could join the general move towards full currency convertibility; and if he will make a statement on the position.
    Mr. P. Thorneycroft: I assume my hon. Friend is referring to the Eighth Annual Report on Exchange Restrictions. This was approved by Her Majesty's Government and, in my view, presents a useful summary of the present position. Progress has been made and continues to be made by the United Kingdom in the liberalisation of trade and payments. On the pre-conditions for sterling convertibility, I have nothing to add to the statements made by my predecessors.
    Mr. Osborne: Can the Chancellor say whether there is any truth in the statement that we are nearer to convertibility than, say, twelve months ago?
    Mr. Thorneycroft: I think my hon. Friend reads a rather romantic connotation into this. It was put on a rather pedestrian level.
    Mr. H. Wilson: Will the Chancellor be warned by the grim fate of the Lord Privy Seal two years ago this month, when some apparently careless remarks made by him in Paris led to a very serious run against sterling? Will he make plain that he intends no change in the exchange rate of sterling, or has he any intention of moving further towards dollar convertibility?
    Mr. Thorneycroft: I think I have made it plain that I have nothing to add to the statement concerning the pre-conditions for convertibility.

    Bequests to National Trust (Estate Duty)
    Mr. Shinwellasked the Chancellor of the Exchequer what has been the loss over the last ten years in death duties
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    which would otherwise have been payable through bequests and transfers of property to the National Trust.
    Mr. P. Thorneycroft: I regret this information is not available.
    Mr. Shinwell: While no doubt substantial benefits accrue to the nation from these bequests, is the Chancellor consulted before the transfer is made, and is he made acquainted with the general transactions of the National Trust? Is he aware that it is almost impossible to have a Question affecting the National Trust accepted at the Table and that I had to have recourse to this Question in order to gain some information about the transactions of the National Trust?
    Mr. Thorneycroft: If the right hon. Gentleman is in any difficulty of that kind, I shall try to meet him, and if he has any questions, whether or not they are acceptable at the Table, I shall try to answer them.

    Banks (Hire-Purchase Finance)
    Mr. Osborneasked the Chancellor of the Exchequer if he is satisfied that all the joint stock banks have honoured in spirit as well as in word the Bank of England's request, conveyed as an instrument of Government policy, that they should not increase their lendings to hire-purchase finance companies; and if he will make a statement.
    Mr. P. Thorneycroft: The credit policy of the banks is not governed by detailed requests from the authorities. In my Budget statement of 9th April, I recorded the bankers' assurance that they will continue to maintain a restrictive attitude towards advances and will be particularly critical towards advances for the less essential purposes. I have no doubt that the bankers have taken full account of their assurance to me in deciding their attitude towards hire-purchase finance. But I am keeping a close watch on this and all other aspects of credit control.
    Mr. Osborne: May I ask my right hon. Friend to believe that this question is not so romantic? Would he please look into the position of the Commercial Bank of Scotland? Is he aware that in 1954 it purchased a hire-purchase finance corporation and is believed to have been pumping large amounts of money

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    through it? Will he look into that and see how inflationary that is in the economy?
    Mr. Thorneycroft: I shall certainly consider the particular point my hon. Friend has put to me, because I can assure him that I intend and hope that the assurances which were given to me in April last shall be fully and adequately carried out.
    Mr. H. Wilson: Does the Chancellor feel that the joint stock banks are going to be more compliant or less compliant with Government policy now that the Marquess of Salisbury has returned to his duties as a bank director?
    Mr. Thorneycroft: I am sure he will be of very great assistance to the Westminster Bank.
    Mr. Woodburn: In case there is any misunderstanding, will the Chancellor make it quite clear that the credit and reliability of Scottish banks is as sound as ever it was?
    Mr. Thorneycroft: I think it is hardly necessary for me to pay tribute to the credit of Scottish banks.
    Mr. Beresford Craddock: Is my right hon. Friend aware that the hon. Member for Spelthorne has banked with the Commercial Bank of Scotland for more than thirty years and that it is a very honourable institution?

    Public Companies (Government Holdings)
    Mr. Edelmanasked the Chancellor of the Exchequer in which public companies Her Majesty's Government holds shares; what is the extent of these holdings; and to what extent it is his intention to increase the shares thus held.
    Mr. P. Thorneycroft: I am circulating in the OFFICIAL REPORT a list of these holdings. I cannot forecast what changes in any of the holdings there may be in the future.
    Mr. Edelman: Whilst not asking the Chancellor to anticipate the programme of the next Government, may I ask if he will not agree that these constitute valuable precedents? Will he consider applying the principle, say, to the motor industry, or does he regard the prototype of the Anglo-Iranian Oil Company
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    as being too Socialistic to serve as an example?
    Mr. Thorneycroft: I should have thought it a most inept procedure to add to all our present difficulties by trying to start investing right, left and centre in a lot of unspecified bits of British industry.
    Mr. Jay: Does not the Chancellor think that the right hon. Member for Woodford (Sir W. Churchill) was the pioneer in this respect?
    Mr. Thorneycroft: There is no objection to the investments which have been made in the past, no doubt for very special reasons in particular circumstances, but I am asked whether this should be adopted as a widespread and general policy and I must say that I should have thought it would have been a most unwise procedure.
    Mr. Shinwell: If the Chancellor wishes for information about shares in industrial undertakings, will he apply to Transport House?
    Following is the List:
    Government holdings of shares in public companies*

    Small Fixed Income Groups
    Dame Irene Wardasked the Chancellor of the Exchequer what special action he is contemplating to help those living on small fixed incomes to meet increases in the cost of coal and rents.
    Mr. P. Thorneycroft: The Finance Bill contains several provisions which will benefit those living on small fixed incomes.
    Dame Irene Ward: Whilst certainly expressing my appreciation of what the Chancellor has done, may I ask if he is aware that it touches only a very small fringe? Since the introduction of the Finance Bill, we have had an increase in the price of coal and, presumably, of gas, electricity and transport—
    Mr. Nabarro: That is exactly what I said yesterday.
    Dame Irene Ward: —and all rents of controlled houses? What does my right hon. Friend now intend to do? Is he looking into the matter? I believe he has the plight of small fixed income groups very much at heart.
    Mr. Thorneycroft: I understand that my hon. Friend has Questions on a number of these points put down to my right hon. Friends, and I will not anticipate their replies.
    Mr. Hector Hughes: Does not the Chancellor realise that the people with the smallest fixed incomes who are hardest hit are old-age pensioners? What is he going to do to alleviate their sad loss?
    Mr. Thorneycroft: That raises a somewhat different question—
    Dame Irene Ward: Not at all.
    Mr. Thorneycroft: I was answering about what I had done, and, as I say, the Finance Bill does contain a number of provisions which are helpful in this respect.

    Rating Valuation Office, Llandrindod Wells
    Mr. Watkinsasked the Chancellor of the Exchequer whether he is aware of the concern in parts of the county of Radnor at the decision made to close the Rating Valuation Office in Llandrindod Wells; whether he will reconsider his decision; and what suggestions he has for members of the public to seek advice and information when there are no public transport services available to Newtown.
    Mr. P. Thorneycroft: The office has been closed in the interests of economy
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    and efficiency, and I do not think it should be reopened. The work is in any case largely carried on by correspondence and, where necessary, the valuers concerned will arrange to meet members of the public in their own localities.
    Mr. Watkins: Will the Chancellor have a look at this again, because the nearest office is 28 to 30 miles away and it is impossible for people to get to that place except by means of public transport?
    Mr. Thorneycroft: Until recently there have been only two callers a day, and it is anticipated that that may well drop to one a day, or fewer. To keep the office open two clerks and a typist are required and if there is to be a reality in Government economy we must close down this office.

    Tobacco Duty Revenue
    Mr. Osborneasked the Chancellor of the Exchequer how much of the £698 million tobacco revenue estimated for 1957–58 will come from cigarettes; and what alternative taxes he has in mind should the lung cancer scare cause cigarette smoking to be eliminated.
    Mr. Nabarroasked the Chancellor of the Exchequer (1) what sum he now estimates Tobacco Duty will yield in the current fiscal year; and having regard to the implications for the revenue of the association between lung cancer and smoking, whether he will now make a statement upon the future of the Tobacco Duty;
    (2) what additional financial burden will be put on public expenditure by the proposed campaign to publicise the association between lung cancer and atmospheric pollution and smoking, and, having regard to the fact that the more successful the campaign to reduce smoking the more severe will be the impact of reduced revenue from Tobacco Duty upon the Exchequer, what steps he proposes to take to reconcile these matters.
    Mr. Liptonasked the Chancellor of the Exchequer by what amount he estimates that the revenue from the Tobacco Duty will fall during the current financial year.
    Mr. Parkinasked the Chancellor of the Exchequer what estimate he has made of the effect on revenue of the Government findings on the relation between smoking and lung cancer.
    Mr. P. Thorneycroft: About 90 per cent. of the estimated yield of Tobacco Duty for the current year relates to cigarettes. I cannot forecast the effect on the revenue of any reduction in smoking consequent upon the Government's decision to draw attention to the Medical Research Council's report on the association between smoking and cancer of the lung. The cost to the Exchequer of publicity by health and education authorities cannot be estimated at this stage.
    Mr. Osborne: In view of the fact that the revenue from tobacco pays for the National Health Service, the family allowances and more pensions, must we not face the fact that if the Chancellor's right hon. Friend the Minister of Health succeeds in his policy some alternative source of revenue should be found?
    Mr. Thorneycroft: We may always at various time have to look for alternate sources of revenue, but we do not want to rush into additional taxation.
    Mr. Lipton: In view of the doubts which have been expressed about the Government's wholeheartedness in the matter—[HON. MEMBERS: "No."]—yes—will the Chancellor say whether he still stands by or now recants the statement he made at Barnstaple in February: "We at the Treasury do not want too many people to stop smoking"?
    Mr. Thorneycroft: That is a perfectly fair point. That remark was made before the General Medical Council reported, and it was a reference to the various sources of revenue of the kind which can be occasionally made in general comment by the Chancellor of the Exchequer.
    Mr. Nabarro: Having regard to the purity and high moral character of all policies associated with my right hon. Friend, will he give the House a firm undertaking that in his future policy he will be no party to reinforcing the no-smoking campaign of his right hon. Friend the Minister of Health by a further fiscal impost on the remaining tobacco smokers?
    Mr. Thorneycroft: I do not want to anticipate my next Budget.
    Mr. Jay: Should the Chancellor not be careful of these romantic speeches, whether at Barnstaple or elsewhere, and would not a capital gains tax be an excellent substitute for this tax and, no doubt, have the support of the hon. Member for Louth (Mr. Osborne)?
    Mr. Thorneycroft: If the right hon. Gentleman has in mind as part of his policy the raising of £700 million a year by a capital gains tax, he would make a considerable mess of the economy.

    Tankers (Construction Loans)
    Mr. Croninasked the Chancellor of the Exchequer how many times the Capital Issues Committee has rejected proposals to finance the construction of single tankers by loans from the clearing banks since he requested the Capital Issues Committee to restrict long term bank loans on 9th April, 1957.
    Mr. P. Thorneycroft: Once, Sir, involving one vessel.
    Mr. Cronin: Is the Chancellor aware that there have been widespread reports that twenty such applications have been rejected and that we are glad he is sure that this is not true?
    Mr. Thorneycroft: I am glad that the hon. Member and I have managed to clear it up.

    Farthings
    Mr. Parkerasked the Chancellor of the Exchequer the approximate number of farthings in circulation; when they were last minted; and in what numbers.
    Mr. P. Thorneycroft: It is estimated that 225 million farthings are in circulation. They were last minted in February, 1956, when minting was at a rate sufficient to meet a current demand from the banks varying between 120,000 and 200,000 per week.
    Mr. Parker: Will not the Chancellor withdraw these unnecessary coins?
    Mr. Thorneycroft: The Mint is merely the servant of the public and gives the public what it wants.

    Estate Duty Payments (Government Securities)
    Mr. Pageasked the Chancellor of the Exchequer whether he will arrange for the Inland Revenue to accept in future payment of Estate Duty in British Government securities at par or the price of issue.
    Mr. P. Thorneycroft: This facility is part of the terms of issue of 4 per cent. Victory Bonds and 4 per cent. Funding Loan 1960–90 and is, therefore, available already to investors in these securities. It is not attached to any other description of Government stock at present on issue. It was criticised by the Colwyn Committee in their Report of 1927. I believe that their criticisms hold good today. But merits apart, I cannot consider any proposal to vary the issue terms of outstanding Government securities.
    Mr. Page: Does my right hon. Friend not think that this facility, if extended to other Government securities, would have a steadying effect on gilt-edged, would give confidence in those securities and would be an encouragement to savings?
    Mr. Thorneycroft: Since my hon. Friend has asked me, I must say that I can find no solid body of advice which will tell me in that sense.

    £ Sterling (Value)
    Mr. H. Hyndasked the Chancellor of the Exchequer what was the purchasing power of the £ sterling at the latest known date, taking it as 20s. in October, 1951; and if he will give an estimate of the extent to which it is likely to be affected by increased rents, coal prices, and other costs now pending.
    Mr. Lewisasked the Chancellor of the Exchequer the purchasing value of the £ sterling on 1st July, 1957, compared with 1st October, 1951, using as the basis the £ sterling having a purchasing value of 20s. on the latter date and allowing for the depreciation of the £ sterling on the basis of the Index of Retail Prices since 1st October, 1951.
    Mr. P. Thorneycroft: On the basis of the Index of Retail Prices, 16s. 1d. in May, 1957. The Index is not yet available for June or July, and I cannot estimate the effects of changes in prices
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    during those months or likely to occur in the future.
    Mr. Hynd: Is the Chancellor bearing in mind the tests laid down by his own party at the last General Election to the effect that the Government will be judged according to the effect of their policy on prices and the value of the £?
    Mr. Thorneycroft: Not for that reason, because I rule out these electoral matters, but in the interest of the economy, I urge hon. Members on both sides not to press for expenditure, to encourage economy and not to criticise the credit squeeze.

    Suez Canal Company (Directors)
    Mr. Teelingasked the Chancellor of the Exchequer how far the recent alterations in the national status of the Suez Canal Company affect the position of the officially nominated British directors; whether he is satisfied that it is still advisable to have retired civil servants as the British Government's representatives; and whether he will consider appointing businessmen with a knewledge of the new interests the Canal Company is about to develop.
    Mr. P. Thorneycroft: Their position remains unaffected. When any vacancies have to be filled the Government will naturally bear in mind the changed circumstances and interests of the Company.

    Sir Hugh Lane Bequest
    Mr. Hector Hughesasked the Financial Secretary to the Treasury if he has considered the report of the committee set up by the British Government in the year 1924 to consider certain questions relating to the 39 pictures bequeathed under the will and codicil of the late Sir Hugh Lane; if he is aware that the committee found, as a fact, that Sir Hugh Lane, in signing the codicil of 3rd February, 1915, thought he was making a legal disposition; that the expressed intention of that legal disposition was that the 39 pictures should go to the Dublin Art Gallery; and if he will take steps to implement that intention by sending the 39 pictures back to Dublin.
    The Financial Secretary to the Treasury (Mr. J. Enoch Powell): I would refer the hon. and learned Gentleman to my predecessor's reply to the debate on an Amendment to the National Gallery and Tate Gallery Bill on 5th November, 1954.
    Mr. Hughes: Does the hon. Gentleman realise that this finding of fact dishonours the testator and dishonours the Government, because they refuse to implement his intention, and that it is an act of unscrupulous dishonesty on the part of the Government—
    Mr. Nabarro: On a point of order. This last supplementary question contained the words "dishonourable" as applicable to members of the present Administration and "dishonesty". Are not those words completely out of order, Mr. Speaker?
    Mr. Speaker: They are very undesirable, but it has always been the rule in this House that one can apply abusive words to the Government or to the party opposite to an extent which would not for one moment be permitted if directed to any particular Minister or hon. Member. It is, however, quite undesirable that such language should be used in a supplementary question.
    Mr. Hughes: I used the words "unscrupulous dishonesty" as applicable to the Government and as a statement of fact and not as terms of abuse.
    Mr. Speaker: The hon. and learned Member does not seem to be improving the situation in any way. I would remind him that, quite apart from the use of language in debate, there are particular rules regarding the language that can be used in Questions. The purpose of Questions is not to abuse the other side but to try to extract information. I would hold such language to be out of order in a Question.
    Mr. Hughes: In my submission, Mr. Speaker, I am not abusing, I am making a statement of fact, and the two words I used are, I suggest, Parliamentary language. They are statements of fact. The Government, in refusing to implement—
    Mr. Speaker: Order. The hon. and learned Member might be able to say all that in a debate, but it is out of order in a Question and he should not do it. What I said about the wide spread of the hon. and learned Member's accusation related to many Governments besides the present one, and there is nobody, therefore, to whom I can ask him to apologise, but he should not use that language in a Question.
    Mr. Hughes: In deference to what you have said, Mr. Speaker, may I continue my supplementary question and leave out the words to which you object? Is the Minister aware that in refusing to implement the expressed intention of the testator, as found by a committee of this House, the Government are thereby—
    Mr. Speaker: Order. That is all debate; it is not a question.
    Mr. Hughes: On a point of order, Mr. Speaker. I was in the middle of my supplementary question when I was interrupted by the hon. Member for Kidderminster (Mr. Nabarro) and did not complete my sentence. I am willing to leave out the words to which you object.
    Mr. Speaker: I heard the hon. and learned Member's supplementary question, and I have told him that that is all a matter of debate. It is not a matter for question.
    Mr. Hughes: May I put—
    Mr. Speaker: No. The hon. Member ought to bring it up on some suitable occasion when he has freedom of debate and not when he is restricted by the rules of Question Time.
    Mr. Hughes: May I put my supplementary question?
    Mr. Speaker: Order. I have listened to the hon. Member—
    Mr. Hughes: Why rule out a supplementary—
    Mr. Speaker: Order.
    Mr. Hughes: Mr. Speaker, I do appeal to you. May I say, with the greatest respect, that it is very hard to refuse me leave to put a supplementary question. I have not completed my supplementary question.
    Mr. Speaker: I called the hon. and learned Member to put a supplementary question, but he abused the opportunity.
    Mr. Hughes: Will you now allow me, Mr. Speaker—
    Mr. Speaker: No. Mr. James Harrison.

  LOCAL GOVERNMENT

    Rivers (Pollution)
    Mr. J. Harrisonasked the Minister of Housing and Local Government if he will arrange for a Government scientific investigation into the possibilities of devising a formula to release the congealed filth floating on waterways in the form of scum from the growing use of synthetic detergents.
    The Minister of Housing and Local Government and Minister for Welsh Affairs (Mr. Henry Brooke): Scum formation on rivers, like the foaming associated with it, is part of a much wider problem which is already being considered by the Standing Technical Committee on Synthetic Detergents.
    Mr. Harrison: If the Minister does accept the fact that this nuisance is a matter of substantial importance in dealing with the pollution of our rivers, will he treat this part of the problem as a separate issue and proceed faster with his investigations in finding a cure than would be the case if he were to deal with it in conjunction with a lot of other matters?
    Mr. Brooke: If the hon. Member will consider the matter, he will see that it is probably better to concentrate on a radical cure than to try to treat the symptoms. But, of course, all that is within the discretion of the technical committee to judge, and there is nothing to debar it from producing an interim report.
    Mr. J. Johnsonasked the Minister of Housing and Local Government what scientific evidence he possesses upon which is based the statement that the amount of pollution of the rivers of England and Wales is decreasing.
    Mr. H. Brooke: The statement was based on the information coming to my Department from a variety of sources, and, in particular, from the annual reports of river boards.
    Mr. Johnson: Is the Minister aware that his statement made last week that pollution has been declining has been laughed to scorn by every local government man I have met, particularly in the Midlands, and does he appreciate that his view is certainly not the view of the
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    Severn Catchment Board, and that a leading local authority, a public health authority, in the Midlands, has advised Warwickshire school teachers not to allow children to bathe in the River Avon? Does the Minister realise that that is the position in the country?
    Mr. Brooke: I founded my statement partly on the annual reports of the river boards which are laid before this House. It is quite true that four of the river boards, including the Severn River Board, reported a worsening condition; but sixteen river boards reported an improvement.

    Historic Houses (Information)
    Mr. Parkerasked the Minister of Housing and Local Government whether he will advise all local authorities to make public all lists of designated houses of historical or architectural interest in their areas in whatever way may be most appropriate.
    Mr. H. Brooke: The lists compiled under Section 30 of the Town and Country Planning Act, 1947, are open to public inspection at local authority offices. Copies are sent to the local Press, as well as to organisations interested in old buildings. I hope that local authorities will do what they can to publicise the lists in other ways.

    Water Undertakings (Regrouping)
    Mr. Stonehouseasked the Minister of Housing and Local Government whether he will establish a joint water board for the whole of the Wolverhampton area of supply on which all local authorities in the area can be represented.
    Mr. H. Brooke: I have given notice of a proposal to make an order under Section 9 (2) of the Water Act, 1945, providing for the compulsory transfer of the water undertaking of the Bilston Corporation to the Wolverhampton Corporation. Objections to this proposal have been received from a number of local authorities to the effect than any order that is made should provide for a joint board as suggested in the hon. Member's Question. The proposed order will be the subject of a public inquiry, and meanwhile it would be wrong for me to comment.
    Mr. C. Hughesasked the Minister of Housing and Local Government if he will state the results of the representations made by him to water undertakings in England and Wales to build up stronger administrative units in the water industry by regrouping.
    Mr. H. Brooke: Since the issue of Circular 52/56 last September, five orders for voluntary amalgamation of water undertakings in England have been made and another four orders are before me awaiting public inquiry. I have made three draft compulsory orders; none of these has yet been confirmed. Well over half the water undertakings in England are now concerned in discussions on regrouping.
    In Wales, no orders have yet been made or submitted, but virtually all the water undertakings are concerned in discussions.

    Water Supplies, Skilgate
    Mr. du Cannasked the Minister of Housing and Local Government what reply he proposes to send to the letters from the Dulverton Rural District Council dated 6th June relative to the proposal to augment the existing water supply in the parish of Skilgate; and if he will authorise the work to proceed as quickly as possible having regard to the inconvenience and hardship currently being suffered by the inhabitants of Skilgate due to the inadequacy of the present supply for normal needs.
    Mr. H. Brooke: A reply was sent to the rural district council on 27th June informing them that a local investigation of their proposal will take place as soon as arrangements can be made. I will consider the matter further as soon as I have received my inspector's report.
    Mr. du Cann: While thanking the Minister for that reply, in view of the great local concern about the rationing of water in Skilgate and anxiety to get the scheme through as quickly as possible, may I ask if he will do his best to see that the visit and report of the inspector are expedited, as well as the right hon. Gentleman's own decision thereafter?
    Mr. Brooke: Yes, certainly, Sir.

    St. James's Theatre
    Mr. K. Robinsonasked the Minister of Housing and Local Government (1) what steps he will now take to save the St. James's Theatre from destruction in view of the decision of the London County Council to grant planning permission for development of the site;
    (2) if he will institute a public inquiry into the proposal to develop the site of the St. James's Theatre for office accommodation.
    Mr. H. Brooke: Permission in principle to build offices on this site was given by the London County Council in 1954, and a permission in detail was given by them last month for a similar purpose. The revocation of either of these permissions would be likely to involve the council in the payment of a large sum in compensation, and they are not prepared to take such a step. These being the facts, I do not consider I should be justified in intervening.
    Mr. Robinson: Has not the Minister got power under Section 100 of the Town and Country Planning Act to make an order revoking the planning permission? Does his refusal to do so mean that he is totally unconcerned about the loss of one of the last two Georgian theatres in London?
    Mr. Brooke: No, I am not at all unconcerned. To use the phrase of my predecessor, this is a matter which slipped through the net; but, having given it my most careful consideration, I am bound to agree with the London County Council that it would not be right to revoke the permission that has already been given, bearing in mind that that would cast a very heavy financial burden on public funds.
    Mr. Snow: Will the Minister have yet another look at this? While one does not want in any way to reduce the powers of the London County Council—[HON. MEMBERS: "Why not?"]—surely he does not want the whole parish of St. James's to suffer the same fate as Berkeley Square? Already some wretched American film company has put up a most disgraceful building in St. James's Street, and the whole process is continuing.
    Mr. Brooke: I cannot discuss the whole policy of the London County Council

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    planning authority on this Question. The fact is that there would be no possibility of demolishing the theatre if the theatrical interests which own it did not take some action about selling it. The London County Council used its best endeavours in considering what should be done in the circumstances and took the view, which I share, that inasmuch as planning permission was given three years ago, it would not be right to call upon the taxpayers and the ratepayers to make a very heavy contribution for the revocation of that permission.
    Mr. H. Morrison: While not questioning the right of my hon. Friends to raise this matter in the House within the rules of order, may I ask whether the Minister will recognise that the London County Council is likely, as a great London authority, to keep in mind the true interests of London, artistically and otherwise? Is it not better that it should decide these matters if possible, rather than that the Minister should jump in and reverse the decision of the elected local authority? Has the L.C.C. not got to keep in mind the material consideration of the heavy compensation in which the ratepayers would be involved?
    Mr. Brooke: I think there is entire agreement between the London County Council and myself on the future policy of these planning applications concerning London theatres. In this case, I have indicated that I agree with the action which, in the circumstances, the London County Council has at this moment felt it necessary to take about the St. James's Theatre.
    Mr. Stokes: So that those of us who are not in this secret may have a better understanding, will the right hon. Gentleman tell us what sum will be involved if he were to reverse the decision? He says that the ratepayers would have to pay a lot of money. How much?
    Mr. Brooke: Neither I nor anybody else could make an absolutely exact estimate, but in my judgment it would be something upwards of £50,000.
    Mr. Stokes: I do not call that anything.
    Hon. Members: Oh.

    Water Supplies (Resources and Consumption)
    Mr. C. Hughesasked the Minister of Housing and Local Government if he will now publish the Report of the Sub-Committee of the Central Advisory Water Committee into the water resources of England and Wales.
    Mr. H. Brooke: The Sub-Committee has not yet submitted its Report.
    Mr. Mitchison: Does not the right hon. Gentleman consider that this question of water shortage is really urgent? Can he do nothing to expedite the proceedings and the Report of these Committees? They have been sitting for quite a time now and there is less water and more consumption of it.
    Mr. Brooke: I am very concerned about all these matters. I can assure the House that this Sub-Committee is very well aware of the need for haste, and I am certain that it has studied what was said in the debates of both Houses of Parliament recently about the need to have this information quickly.
    Mr. C. Hughesasked the Minister of Housing and Local Government if he will give a percentage estimate of the amount by which the demand for water for domestic consumption and industrial use will increase during the next ten years.
    Mr. H. Brooke: I would rather not give an estimate in advance of the Report of the Sub-Committee on the growing demand for water.

    Rent Act (Advice to Tenants)
    Mr. Blenkinsopasked the Minister of Housing and Local Government what arrangements he has made for expert advice to be available to tenants preparing lists of items of disrepair for the attention of landlords.
    Mr. H. Brooke: Such advice should not ordinarily be necessary. The tenant has to state only the things which, in his opinion, need to be put right. He does not need to specify the nature of the repairs to be carried out.
    Mr. Blenkinsop: Does the right hon. Gentleman realise that local authority

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    journals are expressing grave doubt about this very situation and are stating clearly that, in their view, expert advice will be needed? Is it not a matter of great doubt whether a tenant can, for example, specify dampness as an item of disrepair, because of the framing of the Act, and is it not, therefore, absolutely vital that technical advice should be available and that the right hon. Gentleman should pay for it?
    Mr. Brooke: No; I think that we shall get on all right, whatever anyone forecasts in local government journals. The Act is not yet in operation, and, therefore, no one can tell precisely how it is working. The form is a very simple one, and I should have thought that in ninety-nine cases out of a hundred there would no difficulty whatever in the tenant filling it up. If he does make a mistake, it is always possible for him to fill in a second form.
    Mr. Mitchison: But the right hon. Gentleman himself stressed the need for expert advice to tenants in dealing with landlords under this Act. Is he not going to take any steps to provide it?
    Mr. Brooke: We are now dealing with the particular matter of the disrepair form. Of course, the resources of the citizens' advice bureaux and other bodies are available to tenants concerning the Act as a whole, but in this case all that a tenant has to do is to put down on paper what is wrong with his house. If he is not aware of what is wrong, there is no expert advice which can call his attention to it.
    Mr. Lindgren: Would it not make for economy if tenants were able to put down what was right?
    Mr. Blenkinsop: Will the Minister answer the simple question, are tenants able to claim dampness as one of the defects which they can put on the list?
    Mr. Brooke: I do not think it is for me to interpret the Act in response to this Question. What is stated on the form is:
    "I hereby give you notice that in my opinion the above-mentioned premises are in disrepair by reason of the defects set out below and that those defects ought reasonably to be remedied by you, having due regard to the age, character and locality of the premises."

    Open Spaces, West Riding (Public Access)
    Mr. Blenkinsopasked the Minister of Housing and Local Government what decision he has reached regarding general public access to wild moorland in Yorkshire and Lancashire.
    Mr. H. Brooke: I have decided that a prima facie case exists for action to be taken to secure public access to certain stretches of open country in the West Riding of Yorkshire, and I have asked the county council to re-open negotiations with the landowners concerned. In Lancashire, I have decided not to confirm two access orders made by the county council, partly on grounds of danger to public water supplies.
    Mr. Blenkinsop: I appreciate that at last some decisions have been reached in this matter and some partial concessions have been made, but would the Minister not agree that questions of danger to water supplies were fully met by the official committee of the Central Water Advisory Board some time ago, and will he say why he cannot accept that advice? Secondly, on the question of the Yorkshire area, where he is inviting the county council to re-open negotiations, could he not issue an order immediately, in view of the very long delay—a matter of two years—which has taken place?
    Mr. Brooke: These are difficult and complicated matters, as the hon. Gentleman knows. I have gone into them as carefully as I can, and I am satisfied that my present judgment is right and that I have taken the action which is reasonable.

    Smoke Control Areas
    Mr. Nabarroasked the Minister of Housing and Local Government, having regard to the association between lung cancer and atmospheric pollution, what steps he now proposes to take to expedite establishment of smoke control areas within Ministerial clean air policy.
    Mr. H. Brooke: We cannot say more than that atmospheric pollution is a possible contributory cause of lung cancer. Within the first six months of operation of the Clean Air Act, 1956, about thirty local authorities have informed me of their proposals for smoke control areas, and I know that many more

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    authorities have plans for such areas. This is good progress. I shall give every possible assistance to local authorities in establishing smoke control areas, for my object is to implement the clean air policy as quickly as is practicable.
    Mr. Nabarro: May I at once dissent from my right hon. Friend's suggestion that the figures he has given represent good progress? Is it not a fact that thirty local authorities out of 1,500 represent about 2 per cent. of the whole, and can my right hon. Friend say whether what I regard as a very slow rate of progress in this matter is being brought about by the reluctance of the National Coal Board and others to provide adequate supplies of suitable solid smokeless fuels at prices which the public can afford to pay?
    Mr. Brooke: I would remind my hon. Friend that it was the Beaver Committee itself which thought that it would take fifteen years before some 7 million dwellings in the black areas were included in smoke control areas. I think that we are making a good start. The Clean Air Council, the formation of which I announced to the House the other day, is holding its first meeting next week, and I look forward to getting valuable advice from that body.

    Office Building, London
    Mrs. L. Jegerasked the Minister of Housing and Local Government whether, in view of his Department's last annual report, he will revise planning consents given for office building in central London and refuse further applications for development which will increase the number of people travelling to work in this area.
    Mr. H. Brooke: Great efforts are being made, I understand, by the London County Council, as local planning authority, to restrict new office development in central London, but it would not be reasonable to refuse consent in every case; nor would it be generally practicable to withdraw consents already given, which in any case would give rise to compensation.
    Mrs. Jeger: Is the Minister aware of reports that, if all the consents already given are taken up, the office population in Central London will be doubled, and how does he propose to cope with the
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    rush-hour problem? Is it not bad enough already?
    Mr. Brooke: We are now encroaching on the next Question. In my view, the spread of offices in London should be checked by the restrictions which were placed upon the granting of permission by my predecessor's modifications of the development plan, and I have every reason to believe that the London County Council is greatly concerned about the matter and is seeing what it can do, for its part, as planning authority.
    Mr. Ernest Davies: Can the Minister assure us that parking space is provided where permission is given for the building of these offices in Central London, either in basements or in off-street parking?
    Mr. Brooke: Yes, that is the policy of the planning authority.
    Mrs. L. Jegerasked the Minister of Housing and Local Government to state the amount in square feet of new office building in central London since the war, the amount in process of building and the amount for which consents have been given; and how the final total figure of office accommodation will compare with that available before the war.
    Mr. H. Brooke: In the area which was surveyed recently by the London County Council together with the City Corporation, about 8,300,000 sq. ft. of new office floor space was constructed between 1948 and 1955. At the end of 1955, 9,900,000 sq. ft. was in course of erection, most of which has since been completed, and permissions were outstanding for the construction of 17,400,000 sq. ft. of additional office space. I regret that it is not possible to compare the new office accommodation for which permission has been given with the accommodation available in the area before the war, because the records are incomplete.
    Mrs. Jeger: Is not the prospect of another 17 million square feet of office building in the centre of London really a formidable one and has the Minister no powers of review which would enable him to look again at this question? Surely, if the matter goes on unchecked, we shall have an impossible position in the centre of London. Is the right hon. Gentleman aware also of the large number of vacancies in office blocks already completed,

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    which seems to suggest that there has been overbuilding?
    Mr. Brooke: If there are vacancies in office blocks which have recently been built, I think that is the likeliest thing to bring additional building to an end. I assure the hon. Lady that the figures which I quoted referred to a date eighteen months ago. She is asking me, I think, to interfere further with the London County Council, which the right hon. Member for Lewisham, South (Mr. H. Morrison) does not want me to do. I am, in fact, in close and friendly touch with the London County Council about this matter.
    Mr. Peyton: Will my right hon. Friend bear in mind, when considering this question, that London is a very great commercial centre, that there is a perfectly reasonable and proper demand for modern office accommodation and that these requests to restrict accommodation come very strangely from the party opposite, who seem so often to be concerned about the conditions of office workers?
    Mr. Mitchison: In view of the almost insuperable difficulties of the housing situation in Inner London, does not the right hon. Gentleman think that he ought to reconsider his policy about office accommodation and that he ought also to reconsider his failure to add any new towns to those already in existence?
    Mr. Brooke: No. Replying to the question about offices, my predecessor, the present Minister of Defence, modified the London County Council development plan in the direction which the hon. and learned Member apparently would approve. I noted the point made by my hon. Friend the Member for Yeovil (Mr. Peyton). I should like to say to all concerned that I am watching this position extremely carefully and that I want to try to find a solution with the good will of all concerned.

    London Theatres (Demolition)
    Mr. Hunterasked the Minister of Housing and Local Government what action he proposes to take to prevent London theatres being demolished for office building, in view of their cultural value to the nation.
    Mr. H. Brooke: My only responsibilities here arise under the Town and Country Planning Acts, which relate to the right use of land or buildings. Under these Acts permission is not required for the demolition of any building unless it is covered by a building preservation order; and such an order can be made only for a building which is of special architectural or historic interest. There is no power under the Acts to preserve a theatre as such.
    However, when my predecessor approved the County of London Development Plan on 7th March, 1955, he inserted a provision that permission would not be given, except in very special circumstances, for a change of use to office purposes of places of assembly, which include theatres, even in an area where offices would normally be regarded as unobjectionable. This will ensure that any proposal to replace a theatre by offices is fully considered, and that permission is withheld where that action is justified on planning grounds.
    Mr. Hunter: Whilst thanking the right hon. Gentleman for that reply, may I ask whether he is aware that there are now eight theatres fewer in the West End of London than there were before the war? In view of the cultural value of the living theatre to the nation, will the right hon. Gentleman watch the position very closely? Will he bear in mind that many of these valuable sites are now attracting those who seek to build offices?
    Mr. Brooke: Yes, Sir. I will watch the position very carefully, and the London County Council, as the planning authority, gave a similar assurance to my predecessor.
    Mr. G. R. Strauss: When the right hon. Gentleman is considering the cost of preserving an existing theatre, will be hear in mind that it will cost the best part of £1 million to build a new one?

  NUCLEAR TESTS
  Mr. Zilliacusasked the Prime Minister (1) whether, in view of the readiness announced by the Soviet Government to accept inspection posts on its territory as part of an agreement to abolish hydrogen bomb tests, he will reconsider the Government's refusal to

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  negotiate an agreement abolishing such tests, independently and in advance of a general disarmament convention;
  (2) whether, in view of the terms of his reply to Prime Minister Bulganin, he now accepts in principle the Soviet proposal to negotiate a convention ending all hydrogen bomb tests for at least two or three years, provided agreement can be reached on a system of inspection posts equipped with adequate means of detection and established in the territories of the States concerned as well as the north Pacific area.
  Mr. Frank Allaunasked the Prime Minister if, following the completion of the explosions at Christmas Island, Her Majesty's Government will announce that it is prepared immediately to discontinue carrying out hydrogen bomb explosions so long as they are stopped by others.
  The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): I have been asked to reply.
  My right hon. and learned Friend the Secretary of State for Foreign Affairs will be introducing a joint statement in the Disarmament Sub-Committee later this afternoon, in which Her Majesty's Government and the Governments of Canada, France and the United States will announce their position with respect to the Soviet proposal of 14th June for a suspension of nuclear tests. Hon. Members will understand that the contents of this statement cannot be disclosed before it is presented in the Sub-Committee, but it will be available to hon. Members very soon.
  The Government's future policy on nuclear tests will depend on the outcome of the discussions in the Sub-Committee on this subject.
  Mr. Allaun: Since the prospects of the disarmament talks are far poorer than the general public have been led to believe—[HON. MEMBERS: "How do you know?"]—would not limited unilateral action cut the vicious circle, reduce suspicion and achieve what disarmament conferences ever since 1927 have failed to achieve?
  Mr. Butler: I think it would be wrong for the House to prejudge the likely
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  success of these discussions in the disarmament conference. I am sorry that we cannot tell the House any more. If it is possible to do so, we will do so tomorrow, but for the moment, under the rules of the Sub-Committee, we are not in a position to announce anything further.
  Mr. J. Griffiths: I gather that the right hon. Gentleman has promised to make a statement to the House tomorrow. Will he present a statement to the House as a White Paper for consideration by the House? Does he propose, as Leader of the House, to arrange for Government time to be given very shortly to provide an opportunity to consider the statement?
  Mr. Butler: I have considered this matter of a full statement with my right hon. and learned Friend the Foreign Secretary and my right hon. Friend the Prime Minister. We cannot undertake to publish a White Paper or a full statement at present. All I can do is to say that if possible the House will be given more information upon the basis of the answer which I have given this afternoon—that is, on the basis of the information being given in the form of a joint statement of the Governments concerned to the Sub-Committee. I could not go further than that at present. We must take one stage at a time.
  Mr. Griffiths: If the Foreign Secretary is to make a statement, why cannot the full statement which he makes this afternoon be published as a White Paper?
  Mr. Butler: We have to take into account not only our own position as a Government but the position of other Governments with whom we are submitting this as a joint statement. We also have to take into account the general rules and procedure of the Sub-Committee. Subject to that, we shall do our best to keep the House informed.
  Mr. Zilliacus: Would not the Government go at least as far as President Eisenhowers' initial statement the other day, in which he said publicly that he agreed in principle with a plan for abolishing tests, together with inspection posts to control that abolition and to see that it was effective? Would not the Government make a statement that they

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  accept this kind of agreement in principle, as President Eisenhower did the other day?
  Mr. Butler: No, Sir. It would not be possible for me to go further than I have gone in my statement this afternoon. I also added, as the hon. Member will recall, that our future policy on nuclear tests must depend on the outcome of the discussion which is to take place.
  Mr. Paget: Why is that so? Can the right hon. Gentleman tell us why, independently of the Disarmament Commission, we should not simply say that we will not test bombs any further unless somebody else tests them? Obviously we do not want these tests to go on indefinitely. It is to our advantage that they should stop. We are the last people to have had a test. Why, in heaven's name, do not we say that we shall not have another test if others do not?
  Mr. Butler: Because we wish to take our part in the discussions of the Sub-Committee and we hope that fruitful results will arise from them.
  Mr. Paget: Why not strengthen our position there?
  Sir J. Hutchisonasked the Prime Minister what contact is maintained between this country and the United States of America on the possible effect on health of nuclear tests.
  Mr. R. A. Butler: I have been asked to reply.
  Discussions are held from time to time between the technical staffs of the United Kingdom Atomic Energy Authority and the United States Atomic Energy Commission on many aspects of the effect of ionising radiations including health aspects and on the methods and results of fall-out measurement. Any relevant information is passed to the Medical Research Council. There is also a considerable measure of direct contact between the expert advisers of the Medical Research Council and corresponding experts in the United States of America.
  Sir J. Hutchison: Will these contacts, which are very welcome, allow of an explanation, for example, of the very curious and alarming series of illnesses
  890
  reported from Twin Springs, Nevada, in The Times and other newspapers? Will these contacts allow us to get medical advice and information about that sort of thing?
  Mr. Butler: I know that samples have already been exchanged to check the accuracy of the measurement of fall-out and that sort of thing. If we can satisfy my hon. Friend and the House by further information obtained through these channels, we will certainly do so.
  Dr. Summerskill: In view of the fact that it is nearly two years since the medical report which the right hon. Gentleman quoted was written, would he ask the doctors who wrote that original report to report afresh to him?
  Mr. Butler: I think an answer was given on this matter on behalf of my right hon. Friend the Prime Minister only a day or two ago, and all we can do is to make available the latest information coming into our possession. I will certainly draw the right hon. Lady's question to the attention of the authorities concerned.
  Mr. Healey: In view of the fact that the Americans have recently announced that they have discovered how to make a so-called clean hydrogen bomb, will the Government ask the American Government to give this information to them and to the Soviet Government in order that the whole of humanity may benefit from this discovery?
  Mr. Butler: I cannot answer on behalf of the United States Government, but I can undertake that attention will be paid to the hon. Member's question.

  ANGLO-SOVIET TRADE
  Mr. Parkinasked the Prime Minister what special guidance has been given to the appropriate Departments regarding the policy to be adopted in consequence of those parts of his recent letter to Mr. Bulganin referring to increases in trade; and, in particular, whether British firms are now to be advised to seek as customers individual Soviet users rather than State enterprises.
  Mr. R. A. Butler: I have been asked to reply.

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  We must first have Mr. Bulganin's reply. If he should agree, as my right hon. Friend suggested, to allow our businessmen direct access to Soviet enterprises interested in their products, appropriate advice would, of course, be given to British firms.
  Mr. Parkin: Do I understand from that reply that the bantering style of the Prime Minister's letter was not intended to cover up any serious desire to slow down trade relations and that the Prime Minister seriously suggests the opening of new channels and new methods of doing trade with the Soviet Union?
  Mr. Butler: I do not understand the hon. Member's reference to a "bantering style." I thought that the Prime Minister's answer had been universally regarded as a frank and straight answer to a very long communication from the Soviet Prime Minister. We are very keen to enlarge the opportunities for trade, and this means direct access to Soviet enterprises, as I know from my own conversations with Mr. Bulganin when I met him in company with the late Prime Minister. We are very keen to achieve this, even though such orders would have to pass through State trading channels. If we can achieve it, it will be in the interests of all concerned.

  NEW MEMBER SWORN
  Colonel Richard Hamilton Glyn, O.B.E., T.D. (T.A.), for North Dorset.

  NAVY, ARMY AND AIR EXPENDITURE, 1955–56
  Committee to consider the surpluses and deficits upon Navy, Army and Air grants for the year ended 31st March, 1956, and the application of surpluses to meet expenditure not provided for in the grants for that year, upon Tuesday next.
  Appropriation Accounts for the Navy, Army and Air Departments [presented 24th January, 1957], referred to the Committee.—[Mr. Heath.]

ORDERS OF THE DAY

  FINANCE BILL
  Considered in Committee. [Progress, 1st July.]
  [Sir GORDON TOUCHE in the Chair.]

  FINANCE BILL

    New Clause.—(APPROVAL OF SUPER ANNUATION AND RETIREMENT BENE FITS' FUNDS AND SCHEMES.)
    It shall not be a ground for non-approval by the Commissioners of Inland Revenue of any superannuation fund or retirement benefits scheme for the purposes of Part XVII of the Income Tax Act, 1952, that such fund or scheme contains provision with regard to the change by a person of employment for his transfer to or from the ambit of another approved fund or scheme in such manner that his previous employment or employments are taken into account for all the purposes of the fund or scheme applying to his new employment.—[Mr. Wade.]
    Brought up, and read the First time.
    3.35 p.m.
    Mr. Donald Wade: I beg to move, That the Clause be read a Second time.
    This new Clause deals with one aspect of a very important problem, namely, the provision of adequate income for those who have retired. I do not think that anyone who is concerned about social welfare can be satisfied with the present state of affairs.
    First, many old people are finding it very difficult to make ends meet. They are, in the main, those who are relying on retirement pensions and have not the benefit of voluntary superannuation schemes.
    Secondly, it is fair to say that there are wide divergencies of income between these various people who have retired. I imagine that there are even greater divergences between retired persons than there are between those who are working.
    Thirdly, it appears to me that the chances of benefiting in one's old age from some form of superannuation scheme is greater for those who do not move from one occupation to another or from one firm to another.
    I do not consider the most satisfactory solution to be the creation of one vast State superannuation scheme to replace all voluntary schemes. I should prefer to see the maintenance of an adequate

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    minimum for all, coupled with the encouragement of voluntary superannuation schemes extending wider and wider until all forms of employees are included, but I do not propose to discuss the comparative merits of a State scheme and a voluntary superannuation scheme because probably I should be out of order.
    If we are to encourage voluntary superannuation schemes, more thought must be given to transferability of pension rights, the transfer of accrued rights when an employee moves from one firm to another or one type of employment to another. It is most important that these excellent voluntary superannuation schemes should not interfere with mobility of labour. I understand that in Canada it is an essential condition of Revenue approval that there should be provision for transferability, and I believe that there is much that we have to learn from other countries.
    I am aware that some employers prefer a scheme which is non-contributory on the part of the employee and which provides no rights when an employee leaves. I can appreciate the point of view of those firms who are interested only in superannuation schemes which provide for no rights when those employed by the firm go elsewhere. However, there are many enlightened employers who are interested in schemes which will permit of the transfer of rights when their employees move, and the life insurance offices are anxious to be helpful in the development of those schemes.
    As I understand, some firms have found difficulties in satisfying the Revenue when certain provisions are inserted in their schemes. This may be partly due to the extreme complexity of the law. One of the main difficulties arises front the fact that different schemes are approved under different Acts or under different sections of the Income Tax Act of 1952. When employees move from a firm with a scheme approved under one Section of one Act to a firm with a scheme approved under a different Section or a different Act, it is difficult to arrange the transfer of accrued rights.
    This point was touched on in the Report of the Committee on the Taxation Treatment on Provisions for Retirement. Paragraph 184 reads as follows:
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    "Under our recommendations in this Chapter, all future schemes which obtained the Board's approval, whether funds or schemes, would be put on the same footing as regards the exemption of the build-up, the taxation at the benefit, subject to the right to receive one-quarter … in non-taxable form, and the taxation of withdrawals. There would then be no possibility of any loss of revenue if an employee's actuarial reserve (or the surrender value of a scheme policy relating to him) were transferred from one scheme to another."
    I recognise that sounds a little complex, but this is the gist of the paragraph:
    "We therefore recommend that the existence of a rule permitting such a transfer should not be any obstacle to approval."
    It is only fair to read the concluding sentence of that paragraph:
    "We would emphasise that this recommendation can facilitate changes of employment only to the extent that employers will themselves permit, by allowing the rules of their schemes to provide for transfers."
    I recognise that, but I believe there is force in the point made in that Millard Tucker Report, namely, that there should be no obstacles imposed by the Revenue on the approval of schemes, and the different schemes should be treated in the same way for taxation purposes.
    There is another way in which I think that the Revenue could be helpful. That is as regards the interval between employment in one firm and employment in another. I am aware that where an employee has contributed, he may on leaving a firm draw out the appropriate amount, which then suffers tax. He then may start on a new scheme, but that does not really provide very much inducement to employees to enter into such schemes. That point is covered by paragraph 178 of the Millard Tucker Report, the appropriate sentences of which are as follows:
    "An employee who has obtained a refund of his contributions on leaving his employment may enter a new employment and may wish to pay in the whole amount of the refund to an approved scheme connected with his new employment. We recommend that, in such a case, any tax charged on the refund should be repaid if the interval between the employment does no exceed twelve months."
    Then the Committee proposes that certain conditions should apply.
    3.45 p.m.
    That is the second example of a case where the Revenue could be helpful. There is a third example. I believe that there are many others, but I am only taking three that occur to me. It relates

    895
    to leaving one's rights in what is called cold storage. That is not quite in line with transferability, but it affects the decision of firms as to whether or not to introduce a superannuation scheme.
    There are difficulties where an employee leaves his firm and wishes to allow his rights to remain in cold storage until he retires. I have had an interesting letter from a chartered accountant on this very point, who writes as follows:
    "If this preservation is at the uncontrolled discretion of the employer, there appears to be no tax disadvantage when that discretion is exercised in an employee's favour. But if a scheme provides that employees shall have a right to such preservation a serious tax penalty is imposed not only upon employees who leave but upon all members of the scheme, including directors who may probably have no intention of leaving. This is the automatic withdrawal of the valued provision whereby one-quarter of the capital value of pension rights at retirement age may be taken in lump sum, cash down on retirement, and entirely free of tax. It is most unlikely that a company will sacrifice this benefit for the sake of a minority who leaves its service. On behalf of one large employer who has a genuine concern to allow transferability, I have pursued this matter in great detail and have had to confront him with the situation outlined above."
    The point I am trying to make is that the very least the Treasury should do is to remove any obstacles there may be in the way of the creation of voluntary superannuation schemes containing provisions whereby employees may have a right to carry accrued rights with them on change of employment. I recognise the fact that it is very complex, but I am satisfied that the Revenue could be more helpful. I urge the Chancellor either to accept this Clause, or to give an assurance that he will take steps to remove all existing obstacles.
    Sir Keith Joseph: I am glad that the proposal of this new Clause has given the Committee a chance to air this important matter, but I think that in what the hon. Member for Huddersfield, West (Mr. Wade) described as a very complex matter we should consider some of the implications of making transferability obligatory.
    Everyone has an interest in securing the maximum of transferability because it induces the maximum of mobility. Everyone, that is, except those young people who begin industrial life, because I understand from certain personnel officer friends that the last thing a young boy
    896
    or girl tends to ask about, after luncheon vouchers and other things, is pension provisions; so we must take an interest on their behalf.
    I have always got the impression that the Inland Revenue is very much in favour of transferability and, in fact, introduces all kinds of regulations and concessions to facilitate it. The fact is that, if superannuation is to be a reality, we must begin to accept pensions as being a form of deferred pay.
    That raises the first question, and that is whether the right to deferred pay should start with the first day of employment or whether there should be a minimum period of service, as in Canada, before there is any accrued or vested right to be transferred.
    If we treat superannuation as deferred pay, surely it would be better to refer to this matter not as the transferability but the preservation of pension rights, subject to the consideration of the matter of minimum service. There are various ways of preserving these rights, and I would draw attention to the article in Superannuation, of March this year, in which there was a rather scathing reference to the cold storage method. It is a fairly short quotation.
    The article says:
    "There are obvious advantages in having the whole of the retirement benefits paid from one Fund when the employee finally retires. It is administratively rather complicated to have large numbers of small paid up pensions in a fund, and where several years elapse between termination of service and the commencement of the pension, a great deal of trouble may be experienced in tracing the employee concerned when the pension finally becomes due."
    On the question of transfer values, to which the hon. Gentleman referred, it could be awkward in the case of funds which are only nominal funds, because they are not, in fact, funded. So there may well be no fund from which the transfer of the sum equivalent to the capitalised accrued value could be made.
    Surely the key to this matter of obligation, which does not yet have to be considered seriously in respect of tranferability, is that there are now quite enough voluntary funds incorporating the discretion on the part of employers to transfer and preserve accrued rights to exercise an influence on new funds.
    After all, even in 1951 the Economist reckoned that one-third of all the people

    897
    covered by voluntary superannuation schemes were, in fact, the object of discretionary powers for the preservation of accrued rights, and that means that any individual or company which does not offer superannuation at all to those in its employment must, therefore, have to offer a higher salary, a car or some other attraction. If a company offers a pension fund, but does not offer any preservation of pension rights, it may well be that some countervailing advantage has to be offered. Anyway, the pressure of good employment practice has already spread very widely, and this is very properly something for which the trade unions could legitimately and we hope valuably press—the spread of transferability rights.
    If there was ever to be legislation—and I hope that it may not be necessary—account will have to be taken of the solvency of these schemes. It is true that actuaries in setting up these voluntary schemes do have to take into account the fact that certain individuals are inevitably going to leave at an assumed average rate and that they will forfeit any contributions that have been made on their behalf.
    Any windfalls falling into the hands of the fund in this way are discounted by the actuaries, and any obligation to preserve pensions rights would remove these windfalls which have already been taken into account in making the scheme solvent; while in some cases that might lead to upsetting the solvency of the scheme, I think it is only fair to say that such windfalls which are discounted by the actuary in setting up the scheme, do tend to reduce the contribution which the employer had made and would have given the employer an advantage.
    All I am trying to put forward now is that, as the hon. Gentleman said, this is a very complex matter. It is a very complex problem in taxation equity to be solved without upsetting the solvency of the scheme, but also without overlooking the advantage to the employer who has taken account of the windfall.
    Most employers who have set up such schemes have, quite properly, done so with mixed motives; to attract and keep good staff, and, secondly, because they feel it their duty as good employers. Even if all this were levelled out by an
    898
    obligation to preserve they would still retain the advantages of being good employers—because it would have been their attitude to employment which caused them to set up the scheme originally. Nevertheless, such levelling out would be a shame, though it may be the destiny of pioneering.
    I should like to make one small suggestion; if an employer has not only set up a scheme, but been able to achieve extra benefit by competent investing of the funds, I suggest that any obligation that may be imposed upon him to preserve pensions rights should only be subject to the payment of average pension rights, so that there would still be retained an attraction which a good employer could exercise to keep his staff: if they leave him they would take only the average pension and not the extra benefit which had accrued from his very good investment.
    I have tried only to bring out the fact of the great complexity of this subject. The universal preservation of accrued pension rights will come about from the pressure of existing schemes and also from the practice of good employers, but perhaps, also, from the pressure of employees and trade unions—and I hope that the trend towards preservation will continue ever more rapidly with the blessing of the Treasury.
    Mr, J. T. Price: I followed with considerable interest the arguments which the hon. Member for Huddersfield, West (Mr. Wade) presented to the Committee, in which he tried to explain a very difficult and technical subject in what I thought was a very lucid way.
    Personally, I am very much in sympathy with the intention which lies behind the new Clause, but I do not think that the hon. Gentleman has estimated quite to the full extent the other technical difficulties that surround this question of the working out of a practical scheme of transferability of all these rights between the thousands of funds which exist.
    I think I am right in saying that the original charter which gave the concession to privately managed superannuation schemes goes back to the Finance Act of 1921. I believe it was Section 32. The original concessions in taxation that

    899
    were allowed on the funds that grew up from that date, largely under the impetus of the concessions granted by Parliament, have developed in many ways which were never anticipated.
    For example, it was the general practice in 1921, and in the years which immediately followed the great development of these schemes, for schemes to be privately managed by trustees set up by companies and employees who were the parties to these schemes, but later developments placed a new emphasis on the underwriting of pension rights by insurance companies, which is a perfectly legitimate commercial practice and one widely adopted for various reasons.
    As I see it, while the Treasury has the right to make regulations under the original Act of 1921, to which I am referring, the power to make regulations is a very wide power, under which approval shall be granted by the Treasury, including the terms under which tax should be repaid when an employee leaves the service of a scheme of which he is a member.
    It is all right to say, as the hon. Member for Huddersfield, West suggested, that is desirable that there should be equality of treatment for taxation purposes between the different types of schemes. It is much easier to postulate that desirable thing than it is to find a practical way of doing it. For example, nobody who has studied this problem would try to avoid the difficulty presented by the payment of lump sums in addition to the annuities which are the basis of many schemes. Earlier in our debates on the Finance Bill this year, reference was made to an Amendment which sought to extend the principle of lump sum tax-free bonuses in addition to the annuities which are the main purpose of superannuation schemes. The Treasury, as I think, rightly, has to discriminate in all sorts of ways between the different types of schemes which have different types of benefit.
    In my view, for what it is worth, I cannot see any automatic remedy under which we can get equality of treatment for taxation purposes between schemes which are managed by privately appointed trustees, managed by the members of the fund themselves as equal partners in the undertaking of these funds, and schemes which are under-
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    written by insurance companies and pay all kinds of supporting and ancillary benefits, in addition to those which are the main purpose of the funds—the payment of pensions.
    4.0 p.m.
    It is desirable, on wide social grounds, that we should find a practical method of making pensionable rights more easily transferable than they are at present. I should have thought that far from it being the Treasury and its power to make regulations, the main stumbling block was rather the wide variation in the different benefits in the shape of accrued rights when these transactions have to be settled between the respective actuaries of the funds who are responsible for their management.
    For example, I have often heard professional actuaries discuss these questions and one of the obstacles that is seen from a professional point of view is the situation of a man who may begin his working life in the fortunate possession of pension rights granted to him under his contract of service, who stays on with a firm for a number of years and then passes on to another firm which has some kind of transferable rights because it is a similar type of organisation—for instance, within a trade association. The flour milling industry is a good example of this and there is wide transferability between the respective firms.
    Having gravitated through various employments over a substantial part of his working life, the man eventually takes another appointment which puts him outside pensionable employment. There may have been a build-up of transfers of capital sums representing the actuarial reserve over the various periods in particular jobs and at the end his last firm with pensionable employment has the accrued value of all his previous rights and will be left in possession of the total accrued capital value of all his pension rights when he goes to his non-pensionable employment, and the reserve which has been created is not called upon.
    Actuaries, like all other human beings, are sensitive about matters of this kind, which may represent the application of moneys which were originally intended for pensions for a certain individual through a fund which no longer has any liability towards the man. These appear to be some of the practical difficulties.

    901
    At the same time, I should like to take the opportunity of querying the way in which the powers are administered by the Treasury under its existing right to make regulations. I do not want to weary the Committee by quoting many detailed examples, but I sometimes think that the power under which, for example, the Treasury is entitled to recover Income Tax concessions at one-quarter of the standard rate—the fraction was originally one-third, but is now one-quarter—when a person leaves pensionable employment and has a cash refund made to him, is hedged around by all kinds of other conditions also. The Treasury sometimes makes wide and amorphous regulations which on many occasions are difficult to appreciate fully by those who are called upon to administer funds.
    Having said that in, perhaps, a modified critical way, I support the plea made by the hon. Member for Huddersfield, West in asking the Committee to consider whether it would not be in the wide general interests of this movement to provide pension rights which have a greater flexibility as between one employment and another, not only in the interests of the persons enjoying those rights but in the general economic interests of the country.
    Although there are no absolutely reliable figures, I understand from the best estimates that about 8 million of our working population of 24 million people are enjoying pension rights of one kind or another. Certainly, the existence of pension rights should not represent a bar to any man who is capable of transferring his abilities elsewhere, perhaps to employment where he would be more usefully occupied. The existence of accrued pension rights ought not to hinder the flexibility of that man's labour and his ability to transfer to wherever it is most useful. Anything that the House of Commons can do to facilitate that process would be entirely justified, and from that point of view I support the new Clause.
    The Financial Secretary to the Treasury (Mr. J. Enoch Powell): The new Clause is drawn—and, I am sure, was intended to be drawn—in the widest possible terms to embrace all circumstances of transfer from one pensionable
    902
    employment to another. The hon. Member for Huddersfield, West (Mr. Wade), who introduced it, distinguished, however, three separate cases of transfer.
    The last one to which the hon. Member referred was what he described as the cold storage method, whereby the employee leaves behind his rights in the employment which he leaves and gets the benefit of them only when he eventually reaches retirement age. I am, however, advised that the Inland Revenue does not place any bar on provisions whereby, when an employee changes his job, his part of the pension fund—instead of being transferred to the new employer—is put into cold storage. Then, on ultimate retirement at the prescribed age, the employee becomes entitled to a pension from his old employer as well as to any pension earned by his subsequent service with the new employer. So far as I am aware, therefore, the cold storage case, so defined, is not barred by the regulations under which this Part of the Income Tax Act is at present administered.
    Mr. Wade: In obtaining approval for a scheme, is any difference caused by the fact that discretion is given to the firm or a right is given to the employee? I understand that a distinction is made in obtaining approval from the Inland Revenue.
    Mr. Powell: I was going to offer, in any case, to look at particular variants and special cases of the main classes which might be thrown up in this debate. That would be the most useful method of dealing with the matter. Generally speaking, however, the method by which Part XVII of the Bill is administered does not prevent the cold storage treatment of pension rights.
    The hon. Member then mentioned the case where an employee who changes his job brings with him his share in the pension fund of the employment which he has left. There again, I am advised that the Inland Revenue does not object to provisions whereby the part of a pension fund relating to an employee who changes his job may be transferred to the new superannuation fund—with this important qualification: so long as it does not result in money that was originally intended to provide pensions, and was treated accordingly for tax purposes,

    903
    being applied under the scheme to which the employee transferred to provide lump sums or other benefits which would attract a different tax treatment. Subject, however, to that obviously necessary qualification, there is no bar from an Inland Revenue point of view to the employee on change of job taking with him his share in the pension fund of the employment from which he is moving.
    But the main part of the hon. Member's case related to the transfers where an employee brings nothing whatever with him from his former employment and where there arises the question of whether his new employer should be allowed to give him pension benefits related not to his length of service with that new employer, but to a longer period—that is to say, to the whole or part of his employment with one or more previous employers.
    That, of course, would be covered by the new Clause which the Committee is considering. The effect of that would be that the new employer would be making payments on behalf of the employee which would rank for the specially favourable tax treatment and which might be out of all relation to his current remuneration and length of service with the new employer. It might, in fact, be a means of tax free remuneration being paid by the employer to the new employee.
    While, therefore, the Inland Revenue does not insist strictly that the pension rights in the new employment should be restricted to the actual length of that employment, it naturally requires that there should not be a serious disproportion between the amount of actual service and the amount of additional service which is counted in the calculation of the pension. That seems reasonable and inevitable, given the favourable tax treatment which these payments attract.
    I therefore agree with the hon. Member for Westhoughton (Mr. J. T. Price) that there is no automatic remedy for the difficulties of transfer to be found by making an automatic concession of the sort which is proposed in the Clause. I agree with him, too, that the main barrier to transferability and free movement between one pensionable employment and another is not of a revenue character. I must advise the Committee that it would be contrary
    904
    to the policy which underlies the favourable tax treatment of these superannuation arrangements if a Clause in terms as wide as that before the Committee were to be added to the Bill.
    Having said that, however, I will not assert that there may not be cases which could legitimately be covered and which it may be desirable to consider, and I will certainly look into any type of case where there appears to be a revenue difficulty which is brought to my attention by any hon. Member.
    Mr. Douglas Jay: I support at least the general purpose of the new Clause. The hon. Member for Huddersfield, West (Mr. Wade), by way of preface, said that he was not in favour of any vast State scheme to replace private schemes. I do not know whether he was referring to the Labour Party's policies in this respect, but I assure him, also by way of preface, that it is not part of the Labour Party's national superannuation scheme to replace private schemes in the sense of driving them out of existence.
    It is certainly our intention and our expectation that if there were such a State scheme a very large number of private schemes should continue to give increased, alternative or improved benefits in certain cases. Our purpose is to ensure that the advantages of these schemes are available to those who, at present, have little or no chance of enjoying them.
    Indeed, it is our intention to go further than that and to accept many of the private schemes as alternatives to the State scheme when it comes into existence. I am sure that the hon. Member will be gratified to know that one of the conditions provisionally suggested for such approval is that there should be transferability in the sort of sense he has been proposing. The hon. Member for Leeds, North-East (Sir K. Joseph) appeared to argue as if the hon. Member for Huddersfield, West wanted to make provision for transferability obligatory on employers. I did not think that that was his intention. I thought that what he was seeking to do was to remove an obstacle at present placed in their way by the Inland Revenue.
    Mr. Wade: The purpose of the Clause is to remove obstacles. That is all I am

    905
    seeking at the moment. I am not discussing whether there should be an obligation on all employers, if they are introducing schemes, to have this condition of transferability.
    4.15 p.m.
    Mr. Jay: I understood that the purpose at the moment was that obstacles placed in the way by the Inland Revenue should be removed, or at least modified.
    Subject to what the Financial Secretary said about the present law, it is contrary to general public policy that by their tax reliefs the Government should be making it positively more difficult for employers to grant transferability and for employees to carry their accrued rights with them, to use the phrase of the hon. Member for Huddersfield, West. In all sorts of ways that is undesirable. First, it is a hardship for an employee, who has contributed and who has acquired accrued rights, to find that it is impracticable for him to carry those rights with him to some alternative employment.
    Secondly, there is no doubt that it is an obstacle to changes of employment which in other respects might be desirable for the economy generally. Thirdly, to mention one other disadvantage, it may act as a deterrent to the employment of older workers if an employee cannot carry rights with him. The engagement of an older worker may, therefore, present special pension difficulties for the employer. I am sure that none of us wishes to add to the difficulties of older workers finding employment at present.
    Both the Financial Secretary and my hon. Friend the Member for Westhoughton (Mr. J. T. Price) made it clear that there are extreme complexities and obscurities in this matter. The Financial Secretary argued that the Inland Revenue is not placing obstacles in the way of transferability to any substantial extent in the way the hon. Member for Huddersfield, West seemed to think. I hope that that is so, but the fact remains that the Millard Tucker Committee, a highly expert Committee which went into these matters at great length and in great detail, recommended that something fairly substantial should be done on the lines proposed in the new Clause.
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    In paragraph 184 of its Report, the Committee said:
    "We therefore recommend that the existence of a rule permitting such a transfer should not be any obstacle to approval."
    The Committee was referring to an Inland Revenue rule and for it to have made that recommendation shows that there must be some difficulty to be overcome. It cannot be wholly true to say that the whole matter is satisfactory and that the Inland Revenue does not place difficulties in the way of an employer.
    I understood the Financial Secretary to undertake to examine the Clause and, where evidence is placed before him, to see what he can do to act in accordance with the spirit of the whole Committee this afternoon. I hope that he will do that and that we may, as far as possible, use the tax instrument to encourage rather than discourage transferability in these pension schemes.
    Mr. Wade: I am obliged to the Financial Secretary for promising to look into these matters. I hope that he will keep in mind the fact that there may be difficulties which do not necessarily come to the notice of the Inland Revenue, because firms may be advised by their experts that proposals which they have in mind would not be approved. As the hon. Member has been good enough to give that undertaking, I beg to ask leave to withdraw the Motion.
    Motion and Clause, by leave, withdrawn.

    New Clause.—(EXEMPTION FROM SCHEDULE A FOR OWNER-OCCUPIERS.)
    (1) Where the total income of an individual includes, or would but for this section include, any sum under Part III of the Income Tax Act, 1952, in respect of a house or tenement of which the said individual is both owner and occupier, the first hundred pounds of such sum shall, subject to the provisions of this section, be disregarded for all the purposes of the Income Tax Acts other than the furnishing of information.
    (2) No individual shall be exempted from assessment under Schedule A by virtue of this section in respect of more than one house or tenement in any year of assessment.
    (3) For the purpose of this section, a house owned by a married woman living with her husband and occupied by them shall be deemed to be owned and occupied by the husband.—[Mr. Wade.]
    Brought up, and read the First time
    Mr. Wade: I beg to move, That the Clause be read a Second time.
    The purpose of this new Clause is to encourage home ownership. It is one of a number of proposals which we want to put with a view to spreading ownership as widely as possible. Some of these proposals were covered in proposed new Clauses which have not been called and I must not refer to them, so I cannot give the whole picture.
    The object of this new Clause is a simple one. It is to allow exemption on the first £100 of assessment for owner-occupiers. I should like to draw the attention of the Committee to the effect of the three subsections. Their effect would be to limit the liability for Schedule A tax. The owner-occupier would not be liable for this tax up to the extent of £100 on his assessment. This would apply to one house only. If he owned other houses, he would not derive that benefit. He would only benefit from one house, and that is the house in which he lived.
    Furthermore, where, for example, a house is owned by the wife and husband and wife live together in that house, and maybe the husband owns other houses, again this would only apply to the house in which the husband and wife were living. As a general principle, I am in favour of separating the wife's income from the husband's income. I think that there are a great many anomalies and injustices arising from the fact that a husband's and wife's incomes are lumped together. In this case, I think that it would be fair to deal with the one house whether owned by the husband or the wife.
    I do not know—perhaps the Financial Secretary may be able to tell us—what effect this would have on the revenue. I imagine that the loss of revenue would not be very great. Furthermore, any loss of revenue would be offset by the saving in the cost of collection and the examination of complicated repairs claims. It appears to me that the work involved in examining repairs claims, which at present can be set off against Schedule A assessment, must be considerable. I never attempt to fill up my own Income Tax forms. I never attempt to make my own repairs claims. I ask an accountant to do that for me and it always seems to be somewhat complicated. Therefore, if I am not going too far
    908
    beyond the terms of this new Clause, I would suggest that the time has arrived when we might reform our taxation and, in doing so, it might well be that we could abolish Schedule A tax altogether.
    It seems that there are four categories of house owner. There is the owner of a house whose income is so small that he is not liable for tax at all and, therefore, does not pay Schedule A tax. Secondly, there is the owner-occupier with one house whose income is such that he is liable for Schedule A tax, but he may not pay it if he spends a sufficient amount on repairs. Thirdly, there is the owner owning two, three or more houses and receiving rent from the houses in which he does not live. In that case, he will pay tax in respect of the rent and it will not just be a case of Schedule A tax. Finally, there is the investment company owning a large amount of property in which case the company is assessed for profits, if it makes profits.
    It appears to me that the Revenue might not lose very much if Schedule A tax were abolished altogether. However, I am not able to give any precise calculation and the hon. Gentleman may be able to enlighten the Committee on that point. Whether or not we abolish Schedule A tax, I suggest that it would be an encouragement to owner-occupiers if they were relieved of tax to the extent of the first £100.
    Mr. Powell: The hon. Member for Huddersfield, West (Mr. Wade), in moving the new Clause, opined that the loss of revenue would not be very great and that thought seemed to console him as he went through his speech recommending it to the Committee. I am sorry to have to break it to him that the cost of this new Clause would be £25 million and, therefore, he will see at once that it is quite outside the ambit of any alteration to the Budget proposals which could well be made.
    Mr. Jay: Is that gross or net?
    Mr. Powell: It would be the net cost of doing this. It would be disingenuous if I suggested that cost is the only reason why I recommend the Committee not to add this new Clause to the Bill.
    Mr. Jay: I meant that it would be the direct loss on revenue now received, but

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    surely there might be a greater loss as a result of people investing in this kind of property more than they have done at present.
    Mr. Wade: Before the hon. Gentleman answers that question, may I point out that investment in that respect would only apply to owning a house and occupying it?
    Mr. Powell: Of course, the right hon. Member for Battersea, North (Mr. Jay) is quite right in saying that if the proportion of owner-occupation increases, the consequential net loss would also increase. This was a matter which was considered with great care by the Royal Commission on the Taxation of Profits and Income, and both the majority and the minority came decisively to the conclusion, after hearing a great deal of evidence, that the beneficial occupation of a house which is assessed under Schedule A is a proper subject of taxation and that there would be unfairness between one taxpayer and another if that aspect of taxable capacity were ignored.
    So, both for the reasons of principle, which are firmly set out in the Royal Commission's Report, and also because on financial grounds it would be quite impracticable to make a change of this magnitude, I must ask the Committee to reject the new Clause.
    Mr. Arthur Holt: I am disappointed by the Financial Secretary's quick reply to the speech made by my hon. Friend the Member for Huddersfield, West (Mr. Wade). It seems to me that this is the kind of thing which should appeal to the party opposite, and I am not at all disconcerted by the fact that it may cost £25 million. That seems to me to be all the more reason why the party which supports the idea of a property-owning democracy should wish to give some tax concession to forward that idea.
    After all, this so-called fairness between one taxpayer and another has been weighted in exactly the opposite direction. As the Financial Secretary will, I am sure, readily appreciate, everything has been weighted in the direction of the tenant who has a subsidised house, subsidised at the expense of the Government, and any person who has sought to
    910
    buy a house for himself in recent years has been unfairly treated as between one taxpayer and another.
    4.30 p.m.
    Today, very many people in Bolton are on holiday. It is Bolton holiday week. When I was going round my constituency, two or three weeks ago, and asking my constituents where they are going for their holidays, I found that a surprising number were not going away at all this year. The reason was not that they had not saved up the money; they had saved just as much as they had on previous occasions. They were not going away because, during the last twelve months, Bolton Corporation has introduced a differential rent scheme, and large numbers of tenants of corporation houses in Bolton are now paying a full economic rent for their houses, which they have not had to do previously for a long time.
    Apparently, as a result of this, many workers who had never before thought of owning houses of their own have now decided to forgo their holidays, presumably to provide deposits and then, supported by building societies, to buy their own houses.
    Hitherto, the Government have provided large sums of money to subsidise tenants, and all that we are saying here is that if it is thought to be a good thing to own one's house, now that we have stopped or, at any rate, greatly reduced subsidies to tenants it is surely quite proper to use the taxation instrument to encourage ownership.
    I would add the further point that at this time, when we are supposed to be encouraging the ownership of houses, interest rates are extremely high and that it is very difficult for people to provide the money to start their ownership. I would have thought that a concession of this type, even if not made to the full extent proposed in the Clause, would have recommended itself to the party opposite and to the Treasury. We are extremely disappointed with the Financial Secretary's answer.
    Mr. Marcus Lipton: I am not enamoured of the precise wording of the Clause, but it seems to me that the Financial Secretary has overlooked one consideration which the Government should bear in mind, namely, that some form of

    911
    encouragement should be given to would-be owner-occupiers. The Financial Secretary might consider abolishing Schedule A in respect of owner-occupiers occupying properties where the Schedule A assessment is less than, say, £80. That means that we should limit this concession to people who want to buy small houses, and so make it easier for them to do so. We should leave the actual income of the person buying the house out of consideration, because that is not the relevant issue.
    The real issue here is the encouragement of owner-occupiers of small residential accommodation. I am not going to say that a person owning a house whose Schedule A assessment is £150 or £200 necessarily deserves the concession provided by the Clause. The Financial Secretary grimaced just now, but there are houses in respect of which the Schedule A assessment is fairly substantial, the reason being that the house is a large one, occupied by a wealthy person.
    I am not suggesting that a person in that category should receive the benefit of this concession, but I should like the Financial Secretary, either now or later, to try to persuade the Government to consider the real need to encourage the owner-occupation of small houses, because it will be very much cheaper to make this kind of concession than to go in for lavish subsidies which may be necessary but which entail considerable expenditure of public funds.
    I hope that although the Financial Secretary has dismissed the Clause the fundamental point behind it will not be overlooked by a Government which claim to be advocates of a property-owning democracy.
    Mr. Cyril Bence: I did not intend intervening in this debate, but I have just heard the most amazing defence of owner-occupiers. Apparently the Clause seeks to exempt me from paying Schedule A tax in order to encourage me to be what I am, namely, an owner-occupier. I do not ordinarily seek to divulge my personal affairs, but on this occasion I think I should divulge a little, because I have heard such wonderful platitudes put forward on behalf of owner-occupiers, and I have been very impressed by the tremendous sympathy which the hon. Member for Huddersfield, West (Mr. Wade) has
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    expressed towards me and the tremendous amount of relief that he wants to give me.
    The hon. Member wants to encourage me to continue to be an owner-occupier, so he proposes to relieve me of the obligation to pay Schedule A tax, which costs me £3 a year. The interest which I have to pay to my building society, at 6 per cent., is costing me £93, and if someone wants to help me, for goodness' sake let him leave the £3 alone—I do not mind paying that—and relieve me of the £93 interest on my loan. I can assure the hon. Member that for all his excellent exposition of the advisability of abolishing Schedule A tax, it affects me only to the extent of £3 a year, so I am not very impressed.
    I had to make those few remarks as one who enjoys the privilege of owning my house. To me, it is a privilege, because in the modern industrial society a house is the only place where there is no employer, board of directors, or sanitary inspector to tell a person what he must do. A person who owns his house can make sure that no sanitary inspector is required. To that extent owner-occupation is a wonderful thing. We from Wales are brought up to try to buy our own houses. We are told that there are two monkeys on the roof—one the money lender and the other the landlord—and that we should keep both these monkeys away if we possibly can. With our low incomes, however, and with our families, the only way we can buy houses is by having one monkey on the roof—the monkey from the building society.
    Let us abolish Schedule A tax by all means—but I want something to be done to reduce interest charges. We owner-occupiers are much more concerned with reducing interest charges than with abolishing Schedule A tax.
    Mr. Douglas Houghton: This is the second sortie of the Liberal Party in their field exercises for today. It is probably pure coincidence that the Liberal Party has been moved to so great an activity on the day that the new hon. and gallant Member for Dorset, North (Colonel Glyn) has been sworn.
    I am sure that my hon. Friends sympathise with the Liberal Party's desire to test the sincerity of the slogan, "A

    913
    property-owning democracy" of the party opposite, but we are bound to support the Financial Secretary in this matter. It surprises me that the hon. Member for Huddersfield, West (Mr. Wade) did not refer to the paragraph in the Royal Commission's Report which not only deals with some of the considerations involved, but also gives him the answer to the question that he asked, namely, that concerning cost. In fact, the cost is referred to in paragraph 827 of the Final Report of the Royal Commission.
    The hon. Member for Huddersfield, West said that the Clause was intended to encourage home ownership. I wonder whether he has considered what effect the concession would have upon the price of houses. It seems to me that it would send up the price of dwelling-houses for owner-occupation. It might also have the effect of sending up the price of newly-built houses for owner-occupation. In that event, there would be widespread capital gains to existing owner-occupiers and probably excessive profits to those who have houses to sell or to build for owner-occupation.
    The Committee will bear in mind the fact that a tax on a dwelling-house occupied by the owner is reckoned as part of his total income for tax purposes, and if he is not due to pay Income Tax by reason of the amount of his total income, or the amount of his allowances to be set against that income, he pays no tax under Schedule A.
    The real point here is whether we should tax the amenity value, the value of beneficial occupation of a house which is occupied by the owner. It was on these matters that the Royal Commission pronounced judgment. I confess that at one time I flirted with this heresy that there was no more justification for taxing the amenity value of a house than of a motor car, or of pictures, or furniture. But the Royal Commission dealt with that theory and, in paragraph 827, could not ignore the principle
    "that taxation should be adjusted to the relative capacity to pay of different taxpayers. There can be taxable income which is not received in cash. Living accommodation is a necessity of life and a taxpayer who does not own it is obliged to rent it; consequently an owner-occupier with a given income, paying no rent, has a larger taxable capacity than has a tenant with the same income out of which he must meet liability for rent."
    914
    That is a powerful argument in favour of retaining the Schedule A charge on owner-occupiers.
    There is another aspect of the matter. Where there is a charge on the house in the form of mortgage interest no tax is payable on the outgoings. We all wish to see mortgage interest rates reduced, but interest is chargeable against the taxable value of the dwelling-house where the owner-occupier has a mortgage. So for these considerations, apart from the cost of the concession and the disparity which it would create between those with the resources to buy a house to live in and those who must continue to rent a house for which they get no tax relief whatever, I think that we on these benches are bound to say that we cannot support the new Clause; and that a property owning democracy will have to be achieved by other means.
    Mr. Wade: I am not sure that the hon. Gentleman sufficiently appreciates what a nuisance this particular tax is—
    Mr. Bence: All taxes are a nuisance.
    Mr. Wade: —quite apart from the financial burden. But I am in the difficulty that I am proposing a number of new Clauses, all of which involves some tax relief. While I should like to see the Chancellor grant relief in this respect, there are other matters which I regard as even more urgent. Therefore, in the hope of better things to come, I beg to ask leave to withdraw the Motion.
    motion and Clause, by leave, withdrawn.

    New Clause.—(PROVISION FOR SPECIAL CAPITAL ALLOWANCES ON CERTAIN EX- PENDITURE INCURRED IN CONNECTION WITH SHIPBUILDING, SHIP REPAIRING AND THE PROVISION OF PORT FACILITIES.)
    Where a person carrying on the business of shipbuilding or ship repairing or a business which includes the provision of port facilities incurs capital expenditure after the fifth day of April, nineteen hundred and fifty-seven, on the provision of either additional facilities for the construction and repair of ships or in connection with the provision of additional port facilities for docking, handling, loading and unloading of ships (other than expenditure in connection with warehouses or storage facilities) and that expenditure ranks for capital allowances under sections two hundred and sixty-five and two hundred and sixty-six of the Income Tax Act, 1952, as amended, such

    915
    person shall be entitled to claim under this section an initial allowance at the rate of one-fifth of such expenditure in lieu of the allowance granted under section two hundred and sixty-five, and an annual allowance of one-twentieth of such expenditure in lieu of the allowance granted under section two hundred and sixty-six. Subject to this alteration in the rates of allowance, the whole of Part X, Chapter of the Income Tax Act, 1952, shall apply as if the allowances granted under the section were allowances given under sections two hundred and sixty-five and two hundred and sixty-six.—[Mr. H. Fraser.]
    Brought up, and read the First Time.
    4.45 p.m.
    Mr. Hugh Fraser: I beg to move, That the Clause be read a Second time.
    The object of this Clause is to reduce the burden of taxation which falls on shipyards and docks and other harbour installations. At present, it takes about forty-five years to write off such an asset and by this Clause we propose to make it possible for a company to write it off in seventeen years by means of a double initial allowance of 10 per cent. and a rate of annual depreciation of 5 per cent.
    This does not in any contravene the statement of the Chancellor that he is unable to face any further investment allowances this year, but I believe it a matter of supreme urgency for this country to consider the shipbuilding problems which face us in relation to three factors.
    First, there is the tax position of other countries. Secondly, our own strategic position which was shown up over Suez and, thirdly, the enormous growth in size of shipping and the necessity to rebuild so many of our yards.
    This Clause deals with all these matters, but I wish to pay special attention to the question of the large ship. I know that the shipping industry attaches importance to a balanced programme of shipbuilding, but we are living in the age of the large ship. If we consider available statistics regarding what is necessary to be moved in the world in the shape of raw materials, it is clear that the size of units is increasing. For example, the size of the world movement of fuel ore, and the movement of oil, between 1955 and 1965 is calculated to increase from 295 million tons to 480 million tons.
    On the question of movement of ore, we know that, in view of the enormous
    916
    increase in steel consumption, more countries have to go outside their own territory and build large ore carriers to bring back the ore to their steel and iron works. Already, the ore movements are mounting at almost the same rate as those of oil. We are faced with an increase of about 8 per cent, in this respect. It is estimated by O.E.E.C. that between now and 1960 there will be an increase in the figures for world-wide steel production from 283 million tons to 381 million tons per year. It follows inevitably that we are moving into the era of the large ore and fuel carrier.
    I have not touched on the question of the movement of solid fuel or of other ores, like aluminium and other chemical and near chemical products, from remote parts of the world. It is futile for the Treasury to adopt the attitude which has been evident in the past, and say that what is wanted in this country is more little ships selling at £300 or £400 a ton rather than the big units selling at £90 a ton. That is almost as foolish as saying to the electronics industry that what we want is masses of valves, because more manpower is employed in their production, and fewer of the beastly new transistors.
    It is not only the Treasury which is responsible for the trouble, but also some of the shipbuilders and the shipbuilding unions. There seems to be a schizophrenic attitude in these matters. First, they are like the old Bourbons saying, "What is good enough for father is good enough for me" and then they take a Micawberish attitude and say, "Something will turn up." In my opinion, unless some action is taken, something will not turn up. Already, we are being forced towards greater and greater size of unit. Of the £7 million worth of shipping on order in this country 52 per cent. is for tankers and 7 per cent. for carriers. I believe tha it was the intention of the Government, expressed in the foreign affairs debate after Suez, to assist the shipping and oil carrying industries by the appointment of an admiral to co-ordinate these parts of the Ministry of Power which have not already been co-ordinated, and by doubling the investment allowance. But this Clause remedies the large omission on the part of the Government, who have not touched the shipbuilding and docking industry direct.

    917
    The Clause is an attempt to put the British shipbuilding and docking industries on a basis of taxation equal to that of our competitors overseas. This is an intensely competitive international trade. I is no good the Government saying that by stimulating home demand for British ships they have made all well in the shipbuilding industry. The number of orders placed with British shipyards since April for large tankers of more than 40,000 tons has nearly doubled, but the Government should not delude themselves. These orders are spread over nearly seven years, during which period a temporary recession might well occur in the tanker-building programme.
    These orders are partially due to the fact that all the other tanker dockyards throughout the world, from Bremerhaven to Yokohama, are now filled. It is little credit to this country that we were not the first but the last of the shipbuilding countries to go in for the construction of these larger ships. It is not unfair to say that we are the "tail-end Charlie" of the tanker boom. Even today, with this sudden ordering of ships by the British Petroleum Company we are still producing fewer large tankers than West Germany and Japan. Our delivery dates are far behind the dates of those countries. We must make certain that we are competitive upon an international basis.
    One of the main factors in the cost of production is taxation. In international competition, costs matter, and in an overtaxed world taxation is a prime factor in basic costs. For the purposes of this argument we have to consider mainly two items of plant, the berths on which ships are created and the docks in which they can be overhauled. Today, there are only seven berths and slipways in this country which are capable of launching a 65,000-ton vessel. More are contemplated, but until greater allowance is given it will be extremely difficult to carry out the necessary organisation to bring them into line with the integrated berth-steel works situation which one sees in countries like the United States, at the Bethlehem steel works, at the Ludwig yards, in Japan, and at the three yards in West Germany, where steel works and shipyards are integrated. Unless further assistance is given in this country it will be extremely difficult to do this.
    918
    Both employers and workers in this industry must face the fact that during the coming years there will be a new technique of ship construction. Unless capital and labour adapt themselves to that fact we shall have disastrous results over a large range of shipyards in this country.
    How are our shipbuilders to be encouraged in this matter? At present, shipyards, slipways, docks, etc., are treated not as plant, as they should be, but as ordinary industrial buildings. The quickest and smartest way for the Government to get round this difficulty is for them to tell Somerset House that in future docks, dry docks, graving docks and slipways should be treated as industrial plant and depreciated at their proper and normal rate. No action would be needed by the House of Commons, but a purely administrative action by the Chancellor of the Exchequer, which he would be able to perform.
    Let us compare the rate of taxation and the rate of write-off in other countries with our own. In this country, shipyards, docks, etc., take forty-five years to write off. In the United States, where there is now a gigantic building programme for large tankers, it takes on the average twenty years to write off these larger items of equipment. In France, the Government make special arrangements with the industry or with a portion of it, and the maximum write-off period for docks and dry docks is seventeen years.
    In West Germany, special arrangements are creeping in. Many shipyards are already integrated with steel works and have advantages which ours do not possess. In Italy, the Tramboni laws recently passed mean that finance is offered to companies which are building tankers either for the home trade or overseas. In Sweden, there is a twenty-year write-off for dry docks; in Japan, thirty years; Norway, twenty years; and Holland, eighteen to twenty years.
    In Denmark, by an act passed by the Danish Parliament in May, 1957, an agreement has been come to with the large Danish shipping industrialists to make an extension of Danish steelworks free of any charge and to build two 100,000-ton graving docks, again with all

    919
    the necessary assistance and a flat rate, 100 per cent. depreciation allowance for one year.
    It is worth pointing out that this Danish project will entail the movement of 1 million cubic metres of earth. It will be done tax free. In this country to move earth is excavation, and only 25 per cent. of the cost of a slipway can be counted as the cost of excavation. Therefore, if we attempted to carry out integration of steel works and dockyards this aspect of the matter would have to be further considered.
    The question of docks and dry docks is equally important, because of the obvious need to dock the growing number of large ships of the world. There ought to be in this country docks capable of receiving them where these large ships can be repaired. The number of dry docks capable of taking 65,000-ton tankers in this country is lamentably small. The same taxation arguments apply to docks as to slipways.
    Hon. Members will recall that the Suez crisis forced us to study this aspect of docking. The problem is not only with the length of the ships, but with their beam. In a 65,000-ton tanker the beam is well over 100 feet. Most of our docks can do nothing at all for these large tankers. We have not a single dock to take the 100,000-ton tanker. It may be that this tanker is too large, but even for the 65,000-ton tanker there is a great shortage indeed of docking facilities. Some of my hon. Friends who are expert in this matter of docking will be dealing with the question later. The docks which can accommodate the 65,000-ton tanker are limited to either two or three.
    We are faced with a serious situation and the Government must recognise the fact. This is not merely an economic question, but a general political question. I am concerned about our ability to produce large ships both for our Commonwealth and ourselves. Shipbuilding companies have shown great enterprise in what they have already done. However, it is quite clear that if the revolution in the British shipbuilding industry is to be undertaken, there must be Government assistance by way of tax relief, instead of fine words and fine speeches which butter very few parsnips.
    920
    5.0 p.m.
    I put it to the Government that to regard a dock or a slipway as an industrial building instead of as plant is wholly out of date. We have seen now, during the last ten years, the size of ships has increased, how docks and slipways have had to be altered and how, on the new scales, it is essential that these assets should be written off in a short period. I put two propositions to the Government. First, they should adopt the simplest course, which is to give instructions to Somerset House that slipways and docks should be treated as plant. That is the best way. The other is to adopt this new Clause, which gives a chance for the writing down of assets in seventeen years.
    In 1945, it was made possible for our farmers to write down their assets in ten years. I believe that our present economic, political and strategic problems demand this proposed action, which is far milder than that which the Government took in 1945.
    Mr. Peter Rawlinson: I beg to second the Motion, so eloquently moved by my hon. Friend the Member for Stafford and Stone (Mr. H. Fraser). In doing so, I must first declare a personal interest, in that my family have, for over 200 years, been connected with shipbuilding and ship repairing on the Merseyside. The company is now exclusively engaged, not in shipbuilding but in ship repairing.
    From the day in 1740, when my ancestor—called the "father of Liverpool shipbuilding"—started to repair and build ships, it is obvious to everyone that ship repairing and shipbuilding have played an essential, a vital part in the safety and prosperity of the nation. One would have thought that to be so obvious that it would not need to be said, but, as my hon. Friend has said, it does not appear to be appreciated, when it comes to action, that our independence, our existence, turns on the prosperity of this industry.
    The First and Second World Wars were very nearly lost because of our shortage of merchant shipping, and the essential and strategic importance of the industry must be clear. Nowadays, the industry has not only strategic but vital economic importance to the nation. A former Civil Lord of the Admiralty has

    921
    said that the ship-repairing industry was worth some £70 million to the country, and it makes a very large contribution to our balance of payments. The foreign currency earnings of British ships have been estimated at £250 million.
    But, the industry is facing revolutionary changes in the very near future, as a result of this new development of the large tanker. Perhaps I may use an illustration. About a year ago there was talk of the general purpose oil tanker or ore carrier as being of some 18,000 tons dead weight. Looking ahead, it was thought that that type of oil tanker might be of 28,000, 32,000—possibly 45,000 tons. Now, in 1957, there are even greater developments and greater and larger ships. The size of the general purpose oil tanker has increased from 18,000 dead weight to between 45,000 and 48,000 tons dead weight.
    The company with which I am concerned was planning to extend its dock facilities, which used to be limited to taking 18,000-ton tankers. The first plan—and this has all happened over a period of a very few months—was to make extensions so as to be able to take vessels of 32,000 tons. That was altered to 38,000, and finally to 46,000 tons. The plans were altering all the time in order to match the modern trend of the development of the vast ship. As my hon. Friend has said, it is not only that the length has increased, but that these tankers are be-coming much more beamy. It is no use our having a vast tanker fleet unless we have the means of keeping the ships at sea by having the facilities for repairing and maintaining them. We must have those facilities—maybe not immediately—to match the ships now being built. Even a new ship needs voyage repairs and damage repairs, and those repairs can be extensive.
    It was a considerable surprise to many people when, at the end of 1956, when a ship called the "Evgenia Niarchos" was launched at Barrow, it was stated that no privately-owned dry dock could take this 757 ft. by 97 ft. ship. The tanker fleet is no use without dock facilities. My hon. Friend talked about foreign competition. Everywhere on the seaboard facing this island there are growing up these vast facilities, and great docks are being prepared ready to take these new
    922
    ships. They are being prepared at Copenhagen, at Stavanger, at Schiedam in Holland.
    In New York a very large dock will be ready for service in 1959, and at Malta there is a reported scheme for two docks, one 676 ft. and the other 740 ft. long. Those two docks are under the control, not of a British company but of a Danish and Norwegian group of companies. There is to be a new floating dock at Marseilles, and it is reported that in Greece an agreement has been reached for dry docks to take ships of up to 50,000 tons dead weight. The urgency is surely indicated by all this foreign activity. The industry was very grateful for the recent relief given by the Chancellor of the Exchequer, by which expenditure on cutting and tunneling—including dredging—qualified for capital allowances. But a dock is not just a hole in the ground, and surely some distinction can be made between a dock and the other "industrial building or structure" defined by Section 271 of the Income Tax Act, 1952. A dock, with its altar from which all the services run—the pipes, compressed air pipes, pumps, cranes, etc.—can be used for no other purpose. Therefore, if it is an industrial building or structure, it is an industrial building or structure for a specific purpose. That is why, as my hon. Friend pointed out with vigour, the industry has always sought to be allowed to treat a dry dock as a piece of plant for a specific purpose and thereby to qualify for plant allowances. If we are not to get that special allowance, the industry asks most vehemently that it should get the reliefs suggested in the new Clause.
    I listened with great respect, as I always do, to the words of my right hon. Friend the Prime Minister when he spoke in the debate on 15th May last. In talking about this matter, he referred to Her Majesty's Government's "real sense of urgency", and said that he would seek
    "… the close co-operation not only of a large number of Government Departments, but of private companies."—[OFFICIAL REPORT, 15th May, 1957; Vol. 570, c. 436.]
    He announced then the appointment of Sir Matthew Slattery as special adviser on transport. Sir Matthew will certainly appreciate the need for repairing facilities. My right hon. Friend spoke about the 5 million dead weight tons of tankers under construction in the United Kingdom

    923
    shipyards, and of the increase in a very short time in the number of larger tankers.
    If there is to be a real sense of urgency, let us hope that it will be reflected now in the attitude of the Treasury. It is on Treasury reactions, whether or not there is a sense of urgency, that the matter will be judged. I say with respect that the words uttered from the Dispatch Box are either mere sound and thunder or that they mean something. If they mean something, then we hope today to have a suitable reply from the Minister. In these circumstances, I commend the Clause to the Committee.
    Mr. Bence: I do not propose to deal with the whole question of ship repairing, docking facilities, the capital equipment necessary for the shipbuilding industry, and so on, but to confine my remarks to the shipbuilders' yard. The shipbuilding industry is in a very peculiar position compared with almost every construction industry in the country other than building construction. In most other metal-fashioning industries capacity of production can be increased by increased capital resources without changing functionally the outward semblance of those industries. In the motor car industry or in any metal-fashioning industry by the introduction of very small machines, transfer machines and automation, the output of the unit of capital employed in the confines of a given space can be increased, but I doubt whether that can happen in the shipbuilding industry.
    In my constituency we have the famous yard of John Brown's. I was shocked to hear the hon. Member for Stafford and Stone (Mr. H. Fraser) refer to our shipbuilders as the "tail-end Charlies." John Brown's launched two of the largest ships ever launched in the world—the "Queen Elizabeth" and the "Queen Mary." John Brown's can still launch a 60,000 or a 100,000 ton tanker if required. I believe I am right in saying that there are only three ports in Europe that can take a 60,000 ton tanker loaded. They are Rotterdam, Antwerp and Southampton. Nowhere else could a tanker of over 30,000 tons be unloaded. There is the big oil depôt at Carslade in Scotland. The oil is pumped from there to Grangemouth.
    It is no use talking about 60,000 ton tankers because we have nowhere to
    924
    unload them. There is not sufficient water for them to get in or out. We are not the "tail-end Charlies." John Brown's can put a 100,000 ton ship on the stocks if a British dock can take the ship.
    With regard to the dry dock, I have always supported the plea for a graving dock at Greenock on the Clyde. Only a few weeks ago, John Brown's launched a passenger ship. It had to go into dry dock before it did its trials. I think it was the "Slovenia". She was launched at John Brown's, fitted out in the basin and then went down to the dry dock in Liverpool and came back to the Clyde for her trials. Such an arrangement is an awful waste of time and adds greatly to the cost of the ship.
    John Brown's shipyard is squeezed in on the river by commercial buildings. There is no room for it to expand. The only way that John Brown's, Fairfields or Stevenson's could expand on the Clyde would be by acquiring very expensive commercial property around their yards. Many industries in the country are in a position to expand the area of their operations not necessarily by acquiring expensive commercial properties. Industries in which I personally have been employed have been able to expand their factories by, say, one or one and a half acres at low cost. But the shipyards of Great Britain are bounded by expensive commercial properties.
    5.15 p.m.
    Hamburg has been quoted. All the property in Hamburg was knocked down by the British and American Air Forces. The land was clear of the old property and new property was able to be put up at far less cost than could be done by John Brown's on Clydebank. Long ago I said that John Brown's eight or nine berths should extend across the main road, but that could be done only at terrific cost. John Brown's must do that if it wants to increase its output. In the general engineering industry output can be greatly increased by new techniques within a given space. The hon. Gentleman opposite is connected with a famous light engineering industry and he knows that what I am saying is correct. Even in the steel industry, output can be stepped up within a given area by the employment of technical processes and transfer machines, but that cannot be done in a shipyard. In the shipbuilding

    925
    industry prefabricated sections are made as far as sixty miles away from the shipyard because the shipyards have not the room in which to construct them. They have to be transported to the shipyards.
    Whenever we on this side of the Committee ask for certain things to be done for certain specific sections of the community we are told that it is discrimination, there must be a Bank Rate of 6 per cent. for everyone whether one wants to go round the world in eighty days or to build a shipyard. However, hon. Members opposite always find ways of getting favours done for particular industries. The hon. Member for Stafford and Stone has suggested that certain things should be done for the shipbuilding industry. But I would point out that if we start giving favours to the shipbuilding industry because of its difficulties it will not be long before the steel industry will ask for special discrimination and will put up a good case to that end.
    I was recently in Germany and was surprised to learn that their grievance was that because of British Government discrimination in the nationalisation of the steel industry the shipbuilders of Britain were getting subsidised steel and that steel makers were getting subsidised coal from nationalised industries. They said that that was unfair competition. If the hon. Member for Stafford and Stone is now going to ask for more concessions for British shipbuilders I am afraid that the shipbuilders of Japan and Germany will say that the British industry is being further subsidised. The British shipbuilding industry is certainly competing with Germany. It is highly competitive and in many respects it can beat the German industry.
    Mr. H. Fraser: Expand the industry then.
    Mr. Bence: We recognise that, but I think it is unfair for anyone in this House to say that the British shipbuilding is falling down. It is standing up and beating foreign competition. The hon. Gentleman opposite quoted the United States. They are at the bottom of the league in shipbuilding. We can beat the Americans in building ships, and the Germans and the Japanese, too. If one goes to those countries, they will tell one that. The only people who seem to
    926
    think we are losing the battle are people in this country.
    I was told—I will not mention the name of the fellow or of the company with which he is connected—that one of the biggest bugbears in the industry are the shareholders. They are only concerned about dividends, notwithstanding the fact that the men running the industry tell them that as much money as possible ought to be retained in order to expand the yards. This struggle has always gone on and is still going on, not only in the shipbuilding industry but in other industries as well.
    I remember that when the Labour Government were in power people in industry blamed the Government for their difficulties. Over the last few years, some shipbuilders have been blaming the steel industry because they cannot get the necessary steel plate. When we tell the steel industry this they blame the shipbuilders and say that they do not know their business, but neither blames the Government. When the Labour Government were in power they blamed the Labour Government, but now they blame each other.
    The hon. Member for Stafford and Stone spoke about integrating the steel industry with shipbuilding as is happening in Germany and under the Coal and Steel Community in Europe. We on this side of the Committee are all for that. I think the hon. Member is right; there should be greater integration. Running those industries as watertight, private enterprise, profit-making institutions, does not fit in with the modern world. There has to be greater capital planning and, unless something like this is done, it may not be possible to have greater expansion on the Tyne, the Mersey and the Clyde because of the high cost of capital and the need for elbow room. The City of Birmingham, or the City of Glasgow may be able to close a factory and rebuild it twenty miles outside the city boundaries, but that cannot be done with a shipyard. A shipyard is limited to the proximity of water, the depth of water, and room to launch a ship. Shipyards cannot be moved around in the same way as factories can be moved.
    It is imperative that the Government should do something to recognise the special difficulties of the industrial activity of building ships in the modern

    927
    world. I think there is a special case for shipbuilding yards and I hope the Government will consider trying to find some way of helping the shipbuilding industry to expand its capital.
    Mr. Paul Williams: I hope I shall be forgiven by the Committee for returning to the Clause under discussion. I also hope that, if my remarks are rather staccato and short, that will be convenient to the Committee after the plethora of detail we have had.
    I declare a two-fold interest in this matter. First, my interest is that the British Merchant Marine and British shipbuilding industry should be maintained as the supreme and prime industry whose paramount interest must be recognised. Surely it is vital that we should do whatever possible to see that our shipbuilding and ship-repairing industry can continue to provide facilities for building new ships and repairing old ones in the way which has been provided in the past. My second interest is connected with my constituency of Sunderland, South. Eighty per cent. of the male population of Sunderland has employment in the shipbuilding and allied trades. Therefore, my second interest is security of living conditions for the people in that town.
    My hon. Friend the Member for Stafford and Stone (Mr. H. Fraser), who submitted this new Clause, drew attention to the theme which was speeded up at the time of the events of last autumn. He pointed out how the theme had been developing from 1938 onwards, especially since 1945 and more especially since about 1950—the theme of a demand for larger ships and more specialised vessels. That theme was given an added impetus at the time of the events in the Middle East last year. I believe the Government fully deserve the tributes paid to them earlier in debates on the Finance Bill for the actions they took in relation to ship ownership, but, as my hon. Friend said earlier in discussion of this Clause, that is only half the problem.
    If we are to learn the lesson of last autumn, if we are to learn the lesson of the trend of shipping development over the last decade, it is not enough merely to give financial incentives or to remove financial burden from ship ownership.
    928
    We must also deal with the other half of the problem by removing some of the burden on those who provide the ships, those who provide repair facilities, and those who provide the port and handling facilities as well. It seems to me that this Clause is deliberately aimed at facing the second half of this problem. The first half of it has already been recognised and perhaps remedied by the action of the Government in the Budget. I should have thought it obvious to anyone in any quarter of the Committee that the very burden of taxation which bears upon British shipbuilders, British ship repairers and providers of port facilities in the United Kingdom was such as to make it difficult to provide new yards, new slipways capable of meeting the needs of the 65,000 ton vessel, the 80,000 ton, the 90,000 ton and the 100,000 ton vessel.
    The yards of Germany and Japan were destroyed during the war. As the hon. Member for Dunbartonshire, East (Mr. Bence) said, they started rebuilding from scratch, very often with dollar aid, deliberately designed to help create and re-create old industries. War damage gave a great advantage to those two defeated nations. In addition, since then they have secured substantial preferential treatment by their various Finance Ministers. This Committee should demand that the Government should realise that the problem of British shipping is not one they have dealt with by dealing with the question of ship ownership, but that there is the second part of the problem whereby the Treasury, by reducing tax burden, may enable owners to meet the demands of the moment and enable repairers so to redesign their docks that once again in the second half of the century, as in the first half, we may scoop the pool.
    Mr. John Peyton: I wish to thank my hon. Friend the Member for Stafford and Stone (Mr. H. Fraser) for bringing this matter by means of this new Clause to the attention of the Government. I very much hope that my right hon. Friend the Economic Secretary will treat this problem as one of real urgency. For many years now it has been neglected.
    I wish to give one example of what I think this could mean. I do not think anyone will challenge the fact that failure to act will mean increasing the cost of power and particularly of steel

    929
    Would the right hon. Gentleman give the most careful consideration to what is happening now? Over recent years there has been a large increase in our imports of iron ore. It is almost certain that that increase will continue. If a large proportion of those imports came from Canada I think it not unlikely that there would be a freight saving of about £1 a ton in iron ore. That would be a saving of vital importance to the steel industry.
    I do not want to prolong my remarks, but I wish to say to my right hon. Friend that unless the Government treat this problem with the urgency it demands and apply their mind to it now they will bear a heavy responsibility in future for an ever-increasing burden of costs in two most vital industries.
    5.30 p.m.
    The Economic Secretary to the Treasury (Mr. Nigel Birch): My hon. Friend the Member for Stafford and Stone (Mr. H. Fraser) made an extremely well-briefed and eloquent speech. A great part of this debate has, naturally, been devoted to the question of tankers. We must, however, be a little bit careful about talking only of tankers, because we also need liners and dry cargo ships, both of which have a higher conversion factor. The labour force in many yards would be unbalanced if that factor were not kept in mind.
    My hon. Friend wanted the Treasury to do two things. The first was to accept his new Clause and the other, by administrative action, to class industrial buildings as plant. I am advised that the administrative action advocated by my hon. Friend is not possible without legislation.
    The general question is, of course, one of vital importance, as my right hon. Friend the Prime Minister recognised both in his speech and by the appointment of Sir Matthew Slattery to look after, in particular, the problem of the transport of oil from the Middle East. We have given deep and careful consideration to some form of tax assistance for shipbuilding, both before the Budget and when my hon. Friend's new Clause was put down, but I am sorry to say that we have not decided in favour of it. I will give the reasons.
    When my right hon. Friend the Chancellor of the Exchequer announced in the
    930
    Budget that he was doubling the investment allowance for ship owning, he went out of his way to say that that was a unique step for a unique industry, because that industry was inevitably open to the full blast of competition, and competition from ships sailing under flags of convenience. But the effect of doubling that investment allowance is indirectly to stimulate the shipbuilding industry and it gives to it the strongest possible commercial motives for expansion. This industry not only has these strong commercial motives for expansion, but it is not, as our industries go, particularly short of capital.
    What is happening? I believe that the present developments are encouraging. The projected capital expenditure over the next five years is between two and three times greater than it has been over the past ten years. A big leap forward is going on in this industry. We have been collecting the data with some care and there is no doubt that very naturally, after the war, the industry to a certain extent remembered old unhappy far-off things and was cautious; it thought, for example, that another slump might arise. It now has the bit between its teeth and is expanding as fast as it is reasonable to expect it to do. A good number of these investment plans involve the provision of facilities for building large tankers.
    There has also been talk about the question of docking facilities of various sorts and whether they would be adequate. Clearly, there is a time lag. These larger docks are not immediately necessary. We are advised, however, that on the present firm plans and on other plans now in prospect, docking facilities should not be a limiting factor.
    I turn now to the details of the Clause. There is considerable technical difficulty in carrying out its proposal. I do not want to bear too much on this, because that would be irritating, but in a proposal of this nature it is extraordinarily difficult to know where to draw the line. In some yards, cranes, electrical apparatus and so on, might be actually built by the waterside in the shops of the shipbuilding company. In other cases, they would be manufactured by other companies a long way from the docking facilities. The question of where exactly to draw the line is not at all easy.

    931
    Therefore, while I agree with my hon. Friends that this is a problem of vital importance, we believe that it is being tackled by the industry in the right way and we do not believe that discriminatory tax relief, which in principle is undesirable, is necessary at the present time or would materially contribute to the development and expansion of the industry which we all wish to see.
    Mr. Roy Jenkins: I am glad to see the Economic Secretary back on duty. As he knows, I am a great admirer of his speeches on almost every subject except overseas trade corporations, on which he had far too much good sense to be able to make convincing speeches. I am glad that that has not led to any demotion for the right hon. Gentleman or any removal from the Dispatch Box.
    I certainly agree with most of the points that the right hon. Gentleman made to the Committee this afternoon. I thought that both the hon. Member for Stafford and Stone (Mr. H. Fraser) and the hon. Member for Epsom (Mr. Rawlinson) made powerful even if slightly contradictory appeals to the Committee. They advanced on the Clause in a kind of pincer movement, the hon. Member for Stafford and Stone beginning with a damning indictment of the shipbuilding industry and the hon. Member for Epsom following up with a glowing tribute to the industry and all its works. In both cases, however, the two hon. Members were led to the conclusion that the essential cure for the industry—or reward, if "cure" is not the right word—was a discriminatory tax concession.
    That came out particularly clearly in the remarks of the hon. Member for Epsom, who said that there was great need in the industry for a sense of urgency and then went on quite automatically to equate the need for a sense of urgency in the industry with the need for a discriminatory tax concession.
    Mr. Rawlinson: I said that the sense of urgency was because the fleets were being built and we must keep the required docks in readiness and, therefore, there should be encouragement for docks as well as for building.
    Mr. Jenkins: Quite so. I do not think that any of us on this side—and my hon. Friend the Member for Dunbartonshire,
    932
    East (Mr. Bence) helped to bring this out in his intervention—would in any way underestimate the problems of the industry or its importance and the Government and the country solving them; but we cannot accept the view—and I do not think that the hon. Member on reflection would wish us to accept it—that merely to pose the fact that the industry has problems and merely to say that it is vital to the future of the country is in itself to argue the case for a discriminatory tax concession. We must be extremely careful about where we give these discriminatory tax concessions.
    I was particularly in agreement with the Economic Secretary in his concluding sentences on that aspect. One has to argue a rather finer case than that of merely saying that this is an industry in which great changes are coming about and that we should be adapted to them, in order to show that the case for a tax concession exists.
    I have no doubt that the figures which, with great wealth of knowledge, even if recently acquired, as he assured us, the hon. Member for Stafford and Stone put before the Committee of the likely increased demand for docking facilities over the next few years constitute in themselves an enormous incentive to the industry to go ahead without tax concessions and to carry out these vitally necessary extensions and improvements.
    It is a double-edged weapon to bring forward these figures as being in themselves proof of the fact that the industry needs special treatment, because it has not done badly. It has a 40 per cent. investment allowance for shipping, which undoubtedly seeps through and helps the shipbuilding and ship-repairing industry. To a quite considerable extent, the industry is clearly in a prosperous state. It clearly has a prosperous future lying ahead of it, in so far as one can say that of any industry. In all these circumstances, while we do not in any way underestimate the importance to our economy of this industry, we agree with the Economic Secretary in thinking that no case for a discriminatory concession has been made out.
    Mr. H. Fraser: I am distressed by the speech of the hon. Member for Stechford (Mr. Roy Jenkins), who seems to be utterly unsympathetic to the problem of international rates of taxation, which he,

    933
    as an economist, must realise, are vital in final cost. I have given a number of various levels of taxation and comparisons to show the taxation improvements needed for the simple reason of keeping our ship yards in competition with those in Japan, America and Germany and other competing countries abroad.
    I am equally distressed by my right hon. Friend's statement that the proposed concession would be a question of discrimination. As my hon. Friends have tried to show with great expertise, and I with my few random remarks, it is quite clear that slipways and docks should be regarded by the Treasury as merely plant, in the same way as in recent years we have had concessions on boiler rooms being plant and other concessions which have been wrung out of our showdowns with the Treasury, which is extraordinarily unco-operative in these matters.
    I propose to ask leave to withdraw this new Clause because I am afraid that if I were to take it to a Division the Opposition would vote with me. Therefore, I beg to ask leave to withdraw the Motion in the hope that the Government will look at these matters more realistically and that next year they will be able to put forward some proper means to help this industry.
    The Temporary Chairman (Sir Norman Hulbert): Is it your pleasure that the Motion be withdrawn?
    Hon. Members: No.
    Question, That the Clause he read a Second time, put and negatived.

    New Clause.—(EXEMPTION OF BUILDING SOCIETIES FROM CHARGE TO PROFITS TAX.)
    (1) Profits tax, including any distribution charge, shall not be chargeable for any period after the thirty-first day of March, nineteen hundred and fifty-seven, upon the profits arising from the business of any building society and accordingly the last chargeable accounting period of any building society shall end on the thirty-first day of March, nineteen hundred and fifty-seven.
    (2) No distribution charge shall be levied, either by way of the application of section thirty-five of the Finance Act. 1947, or otherwise, in respect of any distributions made by a building society after the thirty-first day of March, nineteen hundred and fifty-seven.
    (3) For the purpose of this section the expression "building society" means a society regulated by any of the Acts regulating building societies, or a society registered under the Industrial and Provident Societies Acts, 1893 to 1954, which carries on a business of such a nature that it could have been established under any of the Acts regulating building societies, and no other business.—[Mr. Wade.]
    Brought up, and read the First time.
    Mr. Wade: I beg to move, That the Clause be read a Second time.
    I assume that the proposed addition to the Ninth Schedule, which appears at the end of the Notice Paper, in page 59, line 47, at the end to add:

    PART V

    Building Societies (Profits Tax)

    Session and Chapter

    Short Title

    Extent of Repeal

    10 & 11 Geo. 6, c. 35.

    The Finance Act, 1947.

    Section 42.

    will be taken with this proposed new Clause, as it is consequential. I am pleased to say that between forty and fifty hon. Members of all parties have added their names to this proposed new Clause and many others have expressed their support.
    At the outset, I should make it clear that I have no personal interest to declare, but, like other hon. Members, I am aware of the invaluable service which building societies perform. I am not asking for any special favours for them. I should like to draw the attention of the Committee, and in particular of the Financial Secretary, to that point for a few moments. Building societies perform a dual function. They encourage personal saving and, at the same time, facilitate the extension of home ownership by making loans on mortgage repayable by instalments. There are approximately 3½ million savers with money invested in building societies and there are about 2 million borrowers.
    In considering whether there is any justification for the imposition of Profits Tax on building societies, there are three general propositions which I suggest are relevant, and which I hope will be accepted as non-controversial. In the first place, it is clear that building societies cannot be brought into any general category of taxpayers. They are similar in many respects to the trustee

    935
    savings banks, but they differ in that their primary task is to lend money on first mortgage, mainly to assist owner-occupiers to purchase their houses.
    Building societies must be regarded as being in a special class of their own, and I hope the Economic Secretary will accept that. This has been recognised by Parliament for a long time. In 1937 the late Lord Simon, then Sir John Simon, made the following remarks as Chancellor of the Exchequer:
    "Building societies stand in a class by themselves. They are not in competition with retail traders. They are not engaged in ordinary trade activities. They play an important part in the solution and treatment of the housing problem. They have constantly been regarded by Parliament as entitled to consideration on those grounds. They were, indeed, from the beginning exempted from the Corporations Profits Tax, and from the first edition of the National Defence Contribution."—[OFFICIAL REPORT, 14th July, 1937; Vol. 326, c. 1298.]
    5.45 p.m.
    To attempt to include building societies in any particular category of taxpayers will merely confuse the issue, and I suggest that to contend that relief ought not to be granted to the building societies because it might open the door to others would be unfair.
    The fairest way to approach the subject is to regard a building society as a distinctive form of savings organisation. If, therefore, the Chancellor—as I hope he will—thinks fit to relieve building societies from the burden of Profits Tax, no precedent will be set which will affect any other body. That is my first proposition.
    My second proposition is this. A building society, as the late Lord Simon indicated, is not engaged in, and indeed is not allowed to engage in, trading activities. A building society is not permitted to buy and sell goods or property, except in the position as mortgagee. Furthermore, it is not an investment company. It is rather interesting to note that if, for example, there is a fall in the value of the invested reserves as a result of a fall in value of Government securities, that is not regarded as a loss which can be set off as against other income for tax purposes, as I presume would be the case if it were the business of a building society to buy and sell investments.
    Building societies are, in fact, debarred by statute, namely, by the Act of 1874
    936
    and subsequent Acts, from trade and commerce. Their functions are limited by statute and they are only allowed to invest in first mortgages and trustee securities. That is my second proposition.
    Thirdly—and this may perhaps be a little more controversial—it is not the function of a buildnig society to make profits in the generally accepted sense of the term. If we examine a building society balance sheet and accounts we do not find the word "profits" There are no profits, distributed or undistributed, and there are no equity shareholders to which such profits could be distributed if they were made. There may be, and should be, a surplus. There may be a balance carried forward or a surplus put to reserve, but there are no profits as such.
    The fact that an investor in a building society may technically hold shares has given rise to some misunderstanding. The use of the term "shares," though well understood by those who have studied the origin of building societies, is to me somewhat misleading. The holding of shares merely indicates that a saver has put his money into a particular account at a building society. Some building societies have both share accounts and deposit accounts. Others have share accounts only, but there is no difference in principle.
    The money which an investor puts into a building society is the commodity which the society requires to enable it to carry out its function of lending on mortgage, and the interest paid to the investor is the price which the society pays for this commodity. Since the building societies are anxious not to charge their borrowers any higher rate than is absolutely necessary—and I am sure, or at least I hope, that the hon. Member for Dunbartonshire, East (Mr. Bence) will agree with that—they do not pay any higher rate of interest to investors than the circumstances of the time require.
    What happens to the surplus? After meeting the cost of administrative expenses, which is comparatively small, and after allowing for tax which is considerable, any surplus is retained for reserves, and every sound building society must hold these reserves. It would be inaccurate to class them as undistributed profits. The expression "undistributed profits" implies a deferred distribution, but in the case of building societies there are, as I

    937
    have already explained, no equity shareholders to whom such distribution could be made. So we have the interest which is the reasonable price for the commodity and which, in fact, is determined very largely by competition for savings.
    That is a statement of my own view, but I can call in aid some remarks which were recently made by the Paymaster-General in addressing the Building Societies' Association. He had some very polite and generous things to say about building societies, which is only natural, since he was a guest of the Association. However, I shall not quote those, although I agree with what he said. I wish to quote the right hon. Gentleman merely on the subject of interest because a consideration of interest is vital to the case we are now making as to whether there should be Profits Tax, and, if any, how it should be calculated.
    On 17th May, when addressing the Building Societies' Association, the Paymaster-General, after stating that savings are now derived from a large number of people who save in small quantities. said:
    "What must be the rôle of the building societies in all this? Clearly, one of your first and most important functions must be to continue to attract the savings of the people, and, to do that, you will have to pay the market rate. I find that a great deal of criticism of building societies is founded on the abysmal ignorance of the financial facts of life. The fact is that money is a commodity, and, like any other commodity, it has a price. If you want it, you have to pay the going rate, and I understand the way in which building societies work is to attract savings from one set of people and pass them on in the form of loans to other people who want to build houses or to buy houses."
    There we have it clearly put that savings are the commodity and interest is the price.
    I shall come later to the question of assessment for Profits Tax, but all I want to establish at the moment is that shares in a building society bear no resemblance to shares in a trading company. They are not saleable, they are not quoted on the Stock Exchange and there is no possibility of the holders of these so-called shares making a capital profit. Furthermore, the money invested in share account can be withdrawn at any time at par on short notice. Thus, we have under consideration here a distinctive form of savings organisation. I suggest that it must be considered by itself on its merits.
    938
    I come now to the way in which this savings organisation is, in fact, taxed. Although a building society has the nature of a savings organisation, it suffers tax under three heads. In the first place, it pays over to the Revenue tax in respect of interest paid to investors. Building societies pay interest not tax free but free from liability for tax to the recipient, and the appropriate amount of tax is paid over by the building societies to the Revenue. Secondly, building societies pay their own Income Tax. This is paid on the balance arrived at by deducting outgoings from income. There is no special relief as far as Income Tax is concerned; for example there is no relief on the first £15 of interest. It is interesting to note that, in the United States, allocations to reserve are not taxed until the total reserves reach 12 per cent. of the total savings invested in the society, but there is no similar relief in this country.
    In the third place—and this is the burden of my complaint—building societies are subject to Profits Tax. It is calculated by taking the total interest received from borrowers, together with the total income from investments. From this, management expenses are deducted, but no deduction is made for the interest paid out to investors either on deposit account or on share account. If a comparison were made with a trading company, this would be equivalent to assessing Profits Tax on the amount received for goods sold after deduction of overheads, but without any deduction for the cost of the materials purchased, the money invested in a building society being equivalent to the materials purchased by a company. In a trading company, that would clearly be anomalous.
    Hon. Members may ask how this came to pass, how building societies came to be assessed for Profits Tax at all, and why the tax was calculated in this very peculiar way. To provide the answer one must go back over a period of twenty years. The imposition of the tax on building societies is, I think, partly fortuitous because if all the moneys paid into a building society had been called deposits and not shares it is possible that societies would never have been charged Profits Tax at all. As the late Lord Simon pointed out in 1937, building societies were not liable to corporation tax or to the first National Defence Contribution, but, when a revised scheme of

    939
    National Defence Contribution was announced in 1937, building societies learnt, to their consternation, that it was proposed to place upon them a charge which was quite out of proportion to the total yield of contribution. The result would have been very serious indeed had it not been modified.
    The Building Societies' Association pointed out the gravity of the situation to the then Chancellor, Sir John Simon, who received a deputation. The case which the Association put to the Chancellor then can be summed up very briefly under five heads. First, building societies exist for two purposes, namely, to encourage thrift and to lend money on mortgage for house purchase, mainly, though not exclusively, to owner-occupiers. Second, savings can be invested in a building society in the form of either shares or deposits. Third, the majority of investments take the form of shares, but the proportionate division between shares and deposits varies greatly from society to society, and many have no deposits at all. That was important, because of the difficulty in distinguishing between shares and deposits. Fourth, the largest working expense of a building society consists of the interest paid to investors for the use of their money. Fifth, shares in a building society bear no resemblance, other than in name, to shares in a company, being, in fact, investments of savings to which interest is added periodically, somewhat similar, one sees, to the case of the trustee savings banks.
    These points were fully discussed in 1937 with the Chancellor and his advisers. The Chancellor accepted the view that his scheme must be modified to meet the special circumstances of the building societies. He accepted also the principle that there should be no distinction between shares and deposits. But, instead of regarding interest on both as a working expense, he proposed that the interest on neither should be allowed, and to offset the consequences of this illogical decision he fixed a lower rate of contribution, namely, 1½ per cent. instead of 5 per cent., which he considered would result in a fair contribution by the building societies but which was regarded by the societies as a contribution rather than as a tax.
    Although the Association did not accept the justice of the Chancellor's
    940
    decision, no further representations were made to him for two reasons, which are, I think, relevant today. Firstly, the building societies did not wish to ask for complete exemption from a contribution specifically in aid of national defence at a time of imminent crisis. Secondly, they had in mind that the contribution was to be levied for five years only. I sometimes think that it would be an interesting subject for research to ascertain how many new taxes were intended only to be temporary when introduced. At the end of the five-year period, the National Defence Contribution was continued, and, in view of war-time conditions, objections were not raised at that time.
    In 1947, the N.D.C. was replaced by Profits Tax and, in spite of very strong representations made to the Chancellor, it was decided that the new tax should be imposed on building societies, and the rate was fixed at 1½ per cent. I have examined the reasons given by the right hon. Member for Bishop Auckland (Mr. Dalton), who was then the Chancellor, for introducing the Profits Tax at that time, and I do not find any convincing reasons for including building societies, still less the method of assessment. Nevertheless, the tax was introduced and was imposed on building societies.
    6.0 p.m.
    Mr. Donald Chapman: Was it not 3 per cent. in 1947? The hon. Member said 1½ per cent., but I think it was raised from 1½ per cent. to 3 per cent. in 1947.
    Mr. Wade: I think the hon. Member will find that it was fixed at 1½ per cent. Shortly afterwards it was increased to 3 per cent., and then it was increased to 6 per cent.
    In 1952, Profits Tax was reduced to 2 per cent., but the yield steadily increased. As the amount paid in Profits Tax has grown, the ratio of reserves to assets has fallen. Under the heading of assets I include properties held in mortgage and investments. It seems to me that it is of great importance that the ratio of reserves to assets should be maintained, and grave concern is felt at the fall in this ratio from 6·3 per cent. to 4·5 per cent., because 5 per cent. is regarded as the minimum below which the percentage of reserves should not fall.

    941
    It is surely a vital matter that there should be adequate reserves to provide against the possibility of a fall in the value of property or against economic conditions which might result in some borrowers being unable to maintain their payments, and this concerns all building societies.
    The effect of Profits Tax varies with different societies, but, on average, this tax is taking 30 per cent. of the surplus. In some cases, as much as 75 per cent. of the surplus is taken, and even 100 per cent. might be taken; such cases are not unknown.
    Let me again make a comparison with a trading firm. If a comparison were made with a commercial concern and the surplus were regarded as profits, the rate of tax would be anything up to 100 per cent. of the profits—and that is profits which are not intended to be distributed. The nature of the anomaly is brought out strikingly if one takes the figures of the Profits Tax yield. In 1947, 6 per cent. produced £1,349,000, and in 1956 2 per cent. produced £1,900,000. In other words, 2 per cent. in 1956 produced more than 6 per cent. in 1947. In 1957, it is expected that 2 per cent. will produce £2¼ million. I should add that the building societies suffer even more than those figures indicate, since in 1947 the Profits Tax was allowed as a deduction for Income Tax purposes and it is not allowed now. That Income Tax relief was abolished in 1952.
    The increase in Profits Tax yield cannot be accounted for by an increase in the excess of income over outgoings. The enormous increase has occurred in spite of the fall in the ratio of reserves to assets. The explanation, as I see it, lies in the fact that the tax is not based on any net balance. It is, in fact, in the nature of a turnover tax rather than a Profits Tax. It is not surprising that building societies are concerned at this growing burden, since the tax is eating into their surplus at an alarming rate. The societies have not yet thrown the burden on to borrowers, but, personally, I do not see how they can refrain from doing so much longer.
    What are we to do about this? What is the remedy? If one accepts the view that the protests of the building societies are justified, the question arises, what
    942
    should be done to remove these anomalies? As I see it, there are two possible remedies. One is to alter the method of assessment on the lines suggested by the Royal Commission on the Taxation of Profits and Income. I refer to the Final Report. The case for some reform is overwhelming. Paragraph 577, on page 171 of the Report, concludes with the words:
    "… we have tried and failed to find any principle that would account for or justify the basis of charge as it stands today."
    While pointing out the absence of any sound principle justifying the existing method of levying Profits Tax on building societies, the Report, in my humble opinion, does not take the subject to its logical conclusion and point out that building societies are not institutions for which this tax is appropriate.
    It would undoubtedly lessen the burden if this tax were imposed only on what the Royal Commission refers to as "the retained profit," but if at some future time a flat rate of Profits Tax were introduced and if this were applied to building societies, even though only on this so-called retained profit, the amount taken from the surplus required for reserves would, or at least might, be a serious imposition, and I think that the building societies would still be justified in claiming that the Chancellor was imposing a penalty on thrift.
    The alternative solution which I advocate is to relieve building societies altogether from Profits Tax. As I have already submitted, this would not be creating any undesirable precedent and it would not be putting the building societies in a privileged position; it would merely be bringing them more into line with savings banks. The object of the new Clause is to relieve the building societies altogether from Profits Tax, but it would not, of course, alter their liability to Income Tax. I hope that the Chancellor will regard this as a matter of urgency since it is essential that the ratio of reserves to total assets should be maintained at a proper level.
    I have tried to consider whether there are any reasonable arguments which could be put forward for maintaining the tax. It might be contended that the tax has been imposed for many years and must, therefore, continue, but that is clearly an inadequate reason for justifying it, and

    943
    I hope that hon. Members on the Government Front Bench will not be so conservative as to allow this consideration to affect their decision. It might be contended that the Chancellor must keep a tight rein on the collection of revenue in order to maintain his Budget surplus, but that argument scarcely seems consistent with the views expressed when we discussed Clauses 10 and 12. The Chancellor has already recognised the need for some relaxation and he has also made it clear that he wishes to encourage personal saving.
    Again, it might be contended that the removal of the tax would be inflationary in its effect, but I do not think that that contention can possibly be valid. It may or may not be relevant to some categories of taxation, but it cannot apply to Profits Tax on building societies. The abolition of Profits Tax would not lead either to increased dividends or to an inflated capital value of shares. The practical question at the moment is the maintenance of reserves and the result of removing the tax would be to enable building societies to maintain proper reserves and to safeguard them from the necessity of increasing mortgage rates in order to maintain those reserves.
    We are faced with a very curious paradox. One of the reasons which the Chancellor has put forward for his Budget surplus is the necessity for maintaining a high level of compulsory savings. Some of this, although it may be only a small proportion, is achieved by putting a tax on the voluntary savings collected by building societies. Thus, in order to maintain his total of compulsory savings, the Chancellor is taking away part of the potential capital reserves of an important savings organisation. I am not suggesting that this is deliberate on the part of the present Chancellor. He has inherited a tax which I think is an unfortunate and harmful tax, but I believe that the time has come to remove it from building societies.
    Sometimes a case for relief is put on the ground that a tax is unjust. Sometimes it is put on the ground that a tax is causing unfortunate and harmful economic consequences. Both arguments apply here. I hope that the Chancellor and his economic advisers will recognise this and will agree at the end of the
    944
    debate that the case has been proved and that the new Clause should be accepted. I am sure that if he does he will not regret it.
    Mr. Cyril W. Black: I beg to second the Motion.
    I begin by doing what I have done on a former occasion, that is, declaring an interest in this matter. I believe that it is within the knowledge of hon. Members that I am a director of a building society. I have informed the House and the Committee of that on a former occasion, but to avoid any possibility of misunderstanding I do so again now.
    I should like to express my personal appreciation, which I think all hon. Members interested in this matter will share, of the extremely clear, comprehensive and very convincing speech made by the hon. Member for Huddersfield, West (Mr. Wade). He has deployed with singular skill the arguments in support of exempting building societies from the incidence of Profits Tax. He has dealt with the matter so fully that he has relieved subsequent speakers of the need to make some points which otherwise they would have been inclined to make.
    The point has been made that building societies are not profit-making bodies in the ordinary sense of the term, that trustee savings banks are exempt from Profits Tax and that by that analogy it is reasonable to argue that building societies should be similarly exempt. It has also been pointed out that building societies have no equity shareholders, in fact no shareholders at all, using the term in its generally accepted sense.
    A great deal of interest has been raised in this new Clause and much powerful support has been forthcoming for it. The Investor's Review said recently that
    "Informed opinion agrees that the levying of Profits Tax on building society surpluses is not justifiable."
    The Daily Telegraph has said:
    "On the facts as now set out (in the building Societies Association memorandum) and in the light of the movement's urgent need to build up reserves, this tax exemption plea should surely be accepted."
    I want now to draw to the attention of the Committee a point which has not been made so far in this discussion. It is that during the period of the past four or five years, in which taxation generally has been reduced, building societies have been

    945
    subjected to an increasing burden of taxation. In 1952–53, the standard rate of Income Tax was 9s. 6d. in the £, while the composite rate of Income Tax payable by building societies was 5s. 2d., with a Profits Tax of 2 per cent. in addition.
    In 1956–57, four years later, the standard rate of Income Tax has been reduced by 1s. to 8s. 6d. in the £. Larger personal allowances have been granted, and other reliefs in taxation have been given to very large sections of commercial undertakings and individuals, but the composite rate payable by building societies has risen to 5s. 4d., while the Profits Tax has remained unchanged at 2 per cent.
    6.15 p.m.
    In a period of four years, therefore, in which there has been a substantial measure of relief to the great body of taxpayers of almost every sort and description, the burden of taxation on building societies has actually undergone an increase. Certainly, building society people cannot understand why they have been singled out for this exceptionally unfavourable treatment. I believe that the case which the hon. Member for Huddersfield, West has made for complete exemption is overwhelming. But if it be that the Chancellor feels that at this stage it is not possible to grant complete exemption, at the very least he ought to tell the Committee, here and now, that he intends without delay to alter the completely unjust and indefensible basis on which Profits Tax is at present levied on building societies.
    The point has been made that building societies have no shares in the ordinary sense of the term. The money that they have from members of the public who invest with them is money in the form of loan capital. It carries a fixed rate of interest and, although one talks loosely of building society shares, the point has been sufficiently made that they are not shares at all in the ordinary sense of the word. To make the computation on which the Profits Tax is based by omitting the interest on the loan capital is to follow a procedure not adopted on the case of limited companies and, as far as I am aware, not adopted in the case of any other kind of business undertaking.
    The present method can and does result in the most absurd anomalies. It is possible to have two building societies paying precisely the same amount in Profits
    946
    Tax but in one case the Profits Tax represents only 50 per cent. of the surplus, after payment of interest to investors, whereas in the other case the Profits Tax represents 100 per cent. of the surplus. Therefore, this is a tax which is based on such a completely indefensible principle that its incidence bears no relationship at all to the net profit or the net surplus of a society.
    The hon. Member for Huddersfield, West made the point that the Royal Commission had made it clear that in its judgment the present basis is completely indefensible and ought to be altered without delay. If the Chancellor is not prepared to go the whole way, he should at least concede the principle of allowing interest paid to investors to be brought in as a charge before arriving at a sum on which Profits Tax is based. If he were then to say that Profits Tax should be charged at 3 per cent., instead of 2 per cent., to bring it into line with the rate of Profits Tax charged to limited companies in the case of undistributed profits, there might be some merit and reason in that course. If that course were adopted, it would bring some sense, at any rate, into the method of charging Profits Tax. Incidentally, it would give a considerable measure of much-needed relief in Profits Tax to building societies in the total amount that would have to be paid.
    There is only one further point I want to make before completing my speech. The building societies, at existing rates and contrary to much popular belief, are operating on a margin which is so small that they cannot continue to operate upon it for more than a strictly limited period. I invite the Committee to look with me for a moment or two at how the building societies use the money they receive in the form of mortgage interest.
    The normal rate of mortgage interest charged by societies today is 6 per cent. If we take the unit of £6 interest which is received on £100 of mortgage, the breakdown of the figure is as follows. Three pounds ten shillings go to the investors of the society. That represents a rate of 3½ per cent., which is the lowest rate at which the societies can maintain the funds entrusted to them by investors and attract even a modest amount of new investment. In existing conditions that is an irreducible figure to the investor.

    947
    The tax, including the Profits Tax, amounts to £1 14s., and apart from the relief that we hope to get today from the Government it is a figure which obviously cannot be controlled in any way by the societies themselves. The management expenses amount to only 11s., and I do not think that anyone with a knowledge of the movement will say that the building societies are extravagant in the offices that they occupy or that they pay excessive salaries or wages. They do not do either of those things.
    The remaining 5s. out of the £6 represents the amount available to add to reserves. But to maintain their reserves —not to increase them—in terms of a percentage of their total obligations they need a surplus not of 5s. but of 8s. Therefore, on the present inadequate margin, their reserve ratios have been falling for a number of years past, and must continue to fall as long as the present inadequate margin stands. If the Government are prepared to concede the case and relieve the societies of 2s. in the £6 per £100, which is all we are talking about, the building societies will then be left with a surplus not of 5s., but of 7s., which, even then, is not quite sufficient to enable them to maintain their reserve ratios.
    I believe that this is a case which is irresistible in terms of logic, and it is a case which, if conceded, would bring in the long run considerable benefits to the Treasury and to the nation. I hope, and with expectation, that we shall get an enlightened and sympathetic reply today.
    Mr. Harold Wilson: I rise to associate my right hon. and hon. Friends with the new Clause moved by the hon. Member for Huddersfield, West (Mr. Wade). I agree entirely with what has been said by the hon. Member for Wimbledon (Mr. Black), namely, that the hon. Member who moved the Motion did it with such clarity, and gave such a wealth of detail, much of which is familiar to many hon. Members, that none of us needs to repeat the facts or the figures.
    In any case, in so far as there were any lacunae in his presentation, the figures given by the hon. Member for Wimbledon as to the make-up of the £6, have filled in the gaps. I think, however, that someone on this side of the
    948
    Committee should indicate why we think it is right that the Chancellor should accept the Motion, and that I propose to do merely by underlining one or two of the points made by the hon. Gentlemen who have spoken.
    One thing that is clear from their speeches, and from one's general knowledge of the building societies, is that what we are talking about is not a profit but a reserve. It is different, for a reason that I want to stress again in a moment, from the reserves of ordinary public companies with whose affairs we tend to deal for so great a proportion of the time we spend on the Finance Bill each year.
    A building society is not, as the hon. Member said, a trading company. There are no profits. As he said, it does not trade in land, in property in the real sense of the word, and it does not buy and sell shares. Therefore, if a tax is levied, as it is at present, that tax must fall somewhere. That tax must fall either on the householder, the one who takes out the mortgage, or on the lender, or it may fall, as was suggested by the hon. Member for Wimbledon, and as it has been falling for some time, by leaning on the reserves and forcing the companies to take a chance on the reserves, which none of us wants to see happen.
    However, as the hon. Member for Wimbledon made clear, it can fall on the reserves only for a certain period, at the end of which the incidence will have to be directed either to the householder or to the lender. I do not think that any of us wants to see this fall upon the householder. In this property-owning democracy about which we used to hear so much in the time of the former Prime Minister, we know that as a result of the Government's financial policies the householder is already paying very high interest rates indeed on mortgage payments.
    Those of us who are involved in buying houses through building societies are only too well aware of that, even though the real cost of the Government's financial policies may have been disguised from some householders by the fact that many building societies, instead of automatically increasing the rate, have spread the period of repayment further and further, indeed almost into the twenty-first century.

    949
    As a result of the Government's monetary policies, which I do not propose, perhaps to the relief of the Committee, to expatiate upon at any length tonight since I had one or two words to say about them in a letter to a newspaper this morning, the householder is already paying what many people will consider to be an excessive rate of interest to the building societies, though, as the hon. Member for Wimbledon made clear, that cannot be laid at the doors of the building societies. It must be laid at the door of the Government's monetary policies.
    Mr. Ellis Smith: They supported it.
    Mr. Wilson: That may well be true. I would like to join with my hon. Friends in a long discussion on the monetary policies of the Government, but I would be ruled out of order if I did so at this stage.
    Then one might ask: if it is not to fall on the householder should it fall on the investor? It cannot fall on the investor. Investors are most important to building societies in a highly competitive market, extremely competitive at the present time, with the pull of various forms of borrowing, with the great, and so far insatiable, demand for capital not only in this country but all over the world. With this highly competitive pull it would be impossible for the building societies to pass on this tax to the lender, because he would simply go elsewhere. That being so, he has to be attracted, and, therefore, the tax must ultimately fall, to the extent that it does not fall on the reserves, on the householder.
    We have had from the hon. Member for Huddersfield, West a clear historical account of this form of tax on building societies, going back to the National Defence Contribution, to Sir John Simon and all that, and I do not intend to repeat it. What is clear is that at present, as a result of various historical developments—almost historical accidents—we have a hotch-potch system of taxation of building societies which defies any logical analysis.
    6.30 p.m.
    When the Royal Commission considered this point in its final Report, it said, in paragraph 576:
    950
    "We have been unable to extract any firm principle from these varying arrangements or from the final result. As a method of imposing tax they seemed to us to be somewhat lacking in dignity."
    I am not quite sure why it chose that particular word; we could find other words in which to describe it. The Report Roes on to explain how this began, in 1937.
    I think that the hon. Gentleman is probably right, and that if the building societies have never used the word "shares" in their original constitutions, probably they would have escaped the 1937 National Defence Contribution and would probably have escaped taxation today. If they had used the word "deposit" or the term "loan stock," or other words of that kind, this historical chapter of accidents might have been avoided. Of course, it has been the case for a long period of time, and the Governments of all parties bear their share of responsibility, and we take our share of the responsibility, for it.
    The Royal Commission goes on to say:
    "This is a marked departure from the only general principle that we can advocate, which would require that such societies should be chargeable to Profits Tax on the whole of their profits, subject only to the deduction of interest on deposits, including such payments as are equivalent to such interest."
    It then goes on with its recommendations. I am quite sure that it would be possible by going into more detail from the Report of the Royal Commission, by analysing further points made by the two hon. Members who have spoken, and by quoting some facts and figures which I gather have been circulated to most hon. Members, to prove this case right up to the hilt. I do not propose to do so, because I think it has already been done by previous speakers, but I want to mention one point to which they have alluded in order to underline it.
    Both hon. Members referred to the peculiar nature of shareholdings in building societies. I want to go rather further and suggest to the Committee that this particular form of holding shares is one which is quite distinct from the rest of capitalist industry and one which is to be commended and encouraged by this Committee. I remember that when I first read anything about building societies, twenty or rather more years ago, I saw a very authoritative article—perhaps dm

    951
    hon. Gentleman himself may remember it —in the Economic Journal, about 1935, by Sir Harold Bellman, in which he set out the whole economic organisation of the building societies.
    One thing which struck me then, and has struck me ever since, is the fact that shares in building societies are not bought or sold on the market. If one holds shares and wants to get rid of them one must sell them back to the society, and if one wants to buy shares one must go to the society for them. The whole of the vast Stock Exchange machinery which applies over so much of capitalist industry does not apply here at all.
    There is a historical reason for this. They did not develop in the first instance as in any case a capitalist development, as we understand capitalism in this country. Historically and socially, building societies are in the same main stream of thrift ventures as co-operative societies, local municipal savings banks and the rest, and were never intended to be capitalist organisations. But because there cannot be these dealings in the shares, this has, in my view, not only desirable social results but also economic consequences, which have a real bearing on the new Clause which we are discussing.
    There can be no question of undistributed profits arising which may affect or increase the value of the shareholder's property. If one reads the very complicated chapters of the Royal Commission's Report on the question of undistributed profits, company reserves and all the rest of it, one sees the enormous difficulty which we get into in asking, "Does the individual shareholder own these undistributed profits. Have they any value for him? Ought they to be taxed when they are increased, even though he himself gets no benefit from them?" That is one of the most complicated and thorny problems not only of fiscal economics, but of tax law.
    This does not apply in the case of building societies. If the building societies reserves are increasing, there is no question at all of a shareholder being a richer man in terms of spending power or in terms of his potential spending power. There is certainly no question of a take-over bid developing. No one can come along and say, "Your shares are
    952
    really worth more than your directors have suggested, and we shall now make a bid for them."
    There is, therefore—and this is extremely important—no question of capital gains so far as these shares are concerned. Most of us on this side of the Committee have come to feel over the last few years that our tax system has really been so eroded by the prevalence of capital gains, particularly in equity shares, that many of us believe it will never be possible to get a rational tax system in this country until that problem has been dealt with in one way or another. That is one of the central themes of the minority Report of the Royal Commission.
    I do not want to argue that tonight, because I should be out of order if I did so, but I would go further than the reasons which have been advanced by both the hon. Members who have spoken in commending this new Clause to the Committee. Not only is there a case in equity, not only is there a case in social justice and economics as far as building societies are concerned, but, speaking for myself, at any rate, I should like to go further in deploying this argument.
    I believe that the prevalence of capital gains has such a serious effect both on our tax system and, indeed, on our social and economic structure that we ought to be ready to give a very special encouragement in fiscal terms to a form of private enterprise—because, for the most part, it is private enterprise, apart from the very important Co-operative Building Society—special encouragement to existing and possibly new developments in industry which preclude from their operations dealings in share and uncovenanted capital gains.
    It is for that reason, as well as others put forward by the two hon. Gentlemen, that I would join with them, as I am sure all hon. Members on this side of the Committee will do, in pressing the Financial Secretary to announce that he will accept the new Clause, if not in these words, possibly in a form of words which he can produce for the Report stage. If he is not prepared to do that, I must tell him that it will be our duty to press the matter in any way that is open to us.
    Mr. Powell: The three speeches which have been made on this new Clause

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    have, I think the Committee feels, traversed the ground very thoroughly and in very considerable detail, and it might perhaps be convenient if I now interposed in the debate.
    I think I should imitate my hon. Friend the Member for Wimbledon (Mr. Black) by declaring an interest as a member of two building societies myself, but I doubt whether there are many hon. Members in any part of the Committee who, at some time or another, have not participated in the building society movement; certainly there is no one who would not pay tribute to its great importance. But its great importance as a channel of private savings should not blind us to the essential difference between the operations of the building societies and those of the organisations which form part of the National Savings movement, which, of course, lends to the nation the savings which it obtains from the public.
    The building societies, however important and admirable their operations, are engaged in the business of lending money upon mortgage. Therefore, in the nature of things, what my hon. Friend the Member for Wimbledon (Mr. Black) described as their net profits, or net surplus, form a natural subject upon which Profits Tax should fall, as it falls upon the profits of other corporations, public or private.
    Indeed, the whole weight of the arguments which have been addressed to the Committee has been directed not to what the Clause would include, to the exemption of those net profits or net surplus from Profits Tax, but to the exemption from Profits Tax of the distributions, whether by way of dividend upon deposits, or dividend upon shares. The whole of the argument to which the hon. Member for Huddersfield, West (Mr. Wade) and my hon. Friend addressed themselves, relating to the effect of taxation in its present form upon the reserves of building societies, of course relates to the fact that at present taxation falls upon the distribution as well as upon what is retained. It is from that cause that these great anomalies, to which attention has been drawn, follow.
    The arguments which the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) directed to the question of the nature of shares, as they are probably
    954
    mis-called, in building societies lead to the same conclusion.
    Mr. Wade: I endeavoured to show that building societies were institutions for which Profits Tax was not appropriate.
    Mr. Powell: Yes, but the most effective arguments which have been addressed to the Committee, those relating to the effect upon the reserves and those relating to the nature of the distributions on shares in building societies, lead to the conclusion at which the Royal Commission arrived, and not to that which is embodied in the Clause. The Royal Commission started from the very clear principle which is quoted in paragraph 562 of its Report:
    "The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations …"
    It is of the nature of equity in the imposition of taxation that these profits, this surplus, should be treated as liable to Profits Tax, like any other profits or surplus thrown up in the course of business.
    The Royal Commission came to the conclusion, as the Committee has already been reminded, that there was a general resemblance between the interest on building society shares and the dividend, so-called, of industrial and provident societies. Accordingly, the Commission recommended that only the retained profit should be taxed. This recommendation of the Royal Commission was one of a whole series which the Commission made. some very far-reaching and of great importance, relating to Profits Tax.
    Mr. Chapman: The Financial Secretary is now trying to lead the Committee on the lines of the Royal Commission's remark about taxing all profits, however made. Does he not realise that many of us do not go all the way with the Commission at that point? We then say that building societies are also a very valuable small savings institution and that, therefore, we do not regard their profits at that point as profits in the purely commercial sense. We regard them like those of small trustee banks and, therefore, more liable to be relieved of tax.
    Mr. Powell: I remind the Committee of the essential difference between their operations and those of the trustee savings banks. Trustee savings banks lend to the Government, to the National Debt Commissioners, the savings they

    955
    collect. Building societies engage in the business of lending on mortgage. It is a mortgage business, however valuable.
    Mr. Glenvil Hall: The point is what do the building societies do with the surpluses? In what do they invest them?
    Mr. Powell: The point has been made several times that the surplus forms the necessary reserves of the building societies, but so, of course, do the profits subject to Profits Tax of all businesses go to form the necessary reserves of those businesses, what-ever may be their character. The general weight of the argument on the new Clause leads to the conclusion of the Royal Commission, that Profits Tax should properly and naturally be restricted to what my hon. Friend called the net profit or the net surplus.
    As I was reminding the Committee, that recommendation is one of a whole important complex relating to Profits Tax generally on which my right hon. Friend the Chancellor of the Exchequer has not reached his conclusions as a whole and from which he believes it would be wrong to separate a single change in Profits Tax to be made in isolation and separately from any conclusions which may be reached on the whole of those recommendations.
    I therefore say to the Committee that my right hon. Friend does not reject the recommendation of the Royal Commission, to which attention has so frequently been drawn, but he regards it as right to take it in connection with the whole of the Commission's recommendations on Profits Tax to which consideration is still being given and to which effect clearly cannot be given in the ambit of this year's Finance Bill.
    6.45 p.m.
    Mr. H. Wilson: Will the Financial Secretary tell us how much longer this consideration will continue? This Royal Commission's Report has been in the hands of the Government for more than two years. During that period, any time any aspect of Profits Tax has been debated we have had this answer. We had it in the autumn Budget from the Lord Privy Seal, and it was given again last year. Consideration of the Report is becoming a device for stalling. Since the Chancellor has had plenty of time
    956
    in the three or four months he has been at the Treasury to consider what we regard as a proposal much more dangerous than anything before the Committee tonight—all the fantastic provisions about overseas trade corporations—surely the Chancellor has had time to consider this part of the Commission's Report.
    He has not hesitated to take other parts of the Report out of context and to apply them when it has suited him, or suited certain interests. I do not see that it would involve consideration of all aspects of Profits Tax to accept this proposal. Certainly, the Financial Secretary has been very skilful in riding off Amendments and new Clauses, especially the latter, by saying that the Chancellor will consider the matter in some way or other. If this urgently necessary Clause were accepted, it would be a very powerful stimulus and spur to the Chancellor to get on with the job of considering Profits Tax as a whole.
    Mr. Powell: I remind the right hon. Gentleman that over the last two years very considerable and major recommendations of the Royal Commission have been put into effect. It does not lie in the mouth of the right hon. Gentleman to complain that other proposals are not being put into effect this year when he has been engaged in previous sittings of the Committee in opposing the implementation of one of the most important sections of the Royal Commission's Report.
    Mr. Wilson: I do not want to delay the debate, but this point should be raised. The hon. Gentleman knows perfectly well that on overseas trade corporations we had 29 pages of new legislation of a kind never previously seen in this country. The House of Commons has a very real duty to discuss that legislation in great detail. My only twinge of conscience is that we let it go through far too quickly. The hon. Gentleman is misleading the Committee with his last statement about the Royal Commission. Since 1955, there have only been two or three minor anti-avoidance or anti-evasion devices, largely brought about under pressure from this side of the Committee and mostly inadequate in their application.
    Sir Herbert Butcher: I view the remarks of my hon.

    957
    Friend the Financial Secretary with profound dissatisfaction. I cannot help feeling that he is entirely missing the importance of the part which the building society movement plays in this country. Before I go further, I should conform with the practice of the Committee and disclose a personal interest as a director of a building society. My hon. Friend himself disclosed his personal interest.
    Members from all parts of the Committee have made it clear that they regard the building society movement as unique. I remember the first time that I went to the board room of the building society of which I am a director. One of my fellow directors said to me, "Remember, when you come here you do not come to make a profit, but to hold the balance level between the borrowing member and the lending member." That is the duty of all boards of building societies.
    My hon. Friend the Financial Secretary endeavoured to draw sonic distinction between the trustee savings movement and the building society movement, both of which are closely associated with individual thrift in small items, protesting that the principal purpose of he building societies was to lend money on mortgage. Of course, to some extent it is. An hon. Member with his logical mind might follow some of the money lent by the trustee savings bank a little further. Where does it find its ultimate home? It passes from the Government coffers to the local loans board, front there it passes to the local authorities, and from there it is borrowed by ordinary men and women in the country under the Act dealing with small loans. Where is the logic in endeavouring to make an arbitrary distinction between the two cases?
    As hon. Members have made abundantly clear, there are only a few sources from which the Profits Tax can come. First, it can come from the borrower. Every director of a building society knows, and regrets, that the present rates of interest are so high. I will not cross swords with the right hon. Member for Huyton (Mr. H. Wilson) on the exact implications of Government policy, but the fact remains that if the building society movement is to attract enough money to go on lending, it cannot charge less than it is charging at the present time, nor can it pay any less if it wishes
    958
    money to come in. As my hon. Friend the Member for Wimbledon (Mr. Black) so clearly pointed out, the money can therefore come only from reserves.
    Why do building societies need reserves? They need them partly to offset any possible fall in the value of property and partly to offset any diminution in their investments. The building society is unique in that whereas people who have invested their money in certain forms of Government loans have lost nearly half of it, for every £1 they put into the building societies they can withdraw £1 whenever they wish in complete safety and security.
    It is not good enough for my hon. Friend to say that he is not prepared to deal with this small and minor point of the building societies' liability to Profits Tax because the Chancellor is not in a position to deal with Profits Tax as a whole. This Report is not a new Report received only this year; it is two years old, for it was presented to Parliament in June, 1955. There are only four paragraphs dealing with building societies and their liability to Profits Tax. Every one of those four paragraphs points to the anomalies. The first paragraph, No. 574, refers to the special arrangements. Paragraph 575 gives the history. Paragraph 576 uses the words which have already been quoted to the effect that the Royal Commission was
    "unable to extract any firm principle from these varying arrangements or from the final results. As a method of imposing tax they seem to us to be somewhat lacking in dignity."
    The concluding words are,
    " but even so, we find it difficult to assign any particular validity to the various adjusted figures that have been entered on the Statute Book from time to time."
    The last paragraph, paragraph 577, points out that only the retained profit ought to be taxed, and concludes:
    " We have tried and failed to find any principle that would account for or justify the basis of charge as it stands today."
    By his refusal to make any amendment in the law my right hon. Friend desires to collect taxation on a basis for which the Royal Commission has tried and failed to find any sound principle. I do not think that that is a position consonant with the dignity of the Treasury.
    Mr. Lipton: The Financial Secretary made one remark with which I must confess that I am in agreement; he described

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    the building societies as primarily engaged as money lenders on mortgage. When I made a comment in a similar vein a little while ago and it was reported in the Sunday Pictorial, I was amazed by the volume of correspondence which I received from all over the country, from borrowers from building societies, complaining very bitterly of the treatment which they had received from the building societies concerned. I know that the principal villain of the piece is not the building society movement but the Government.
    Nevertheless, one point has not been stated in the debate on the new Clause, namely, what advantage will accrue to the building society borrower from the acceptance of the new Clause? The hon. Member for Wimbledon (Mr. Black) mentioned that if the Government were to grant the concession which the new Clause seeks to obtain it would make a difference in the differential of 2s. The differential is the difference between the interest which a building society has to pay to investors and the amount which it has to charge to borrowers. The difference is 2½ per cent. all told, including Income Tax and Profits Tax, administration and the amount put to reserve. Of this 2½ per cent., 2s. is to be the amount saved by the building society through this concession, and that 2s. will be added to the reserves. What the borrower would like to have explained to him is what difference it will make to the very high rate of interest—in some cases more than 6 per cent.—which he has to pay if one-tenth of 1 per cent. of this differential is transferred from the Income Tax and Profits Tax allocation and put to reserve.
    The fundamental cause of the difficulty is that the building society has to compete with the Government in obtaining popular savings. There can be no difference of opinion about that. The Government are issuing 4¼ per cent. tax-free National Savings certificates and are issuing Premium Bonds, and they have embarked on a policy of credit restriction. All these things are having an adverse effect on the operations of the building societies, because it is forcing them to pay a higher rate of interest in order to borrow the money which they can then advance to people who want to buy
    960
    houses. They are in the dilemma that they have to engage in short-term borrowing for long-term advances.
    It has been suggested that building societies should switch to issuing stocks and shares. In effect, that would mean that the bulk of the capital required by the building societies would have to be provided by stocks and shares and not by the savings deposited with them. The building society movement prides itself on the fact that the present system has the merits of flexibility for both investors and borrowers. The borrower would like to see a little flexibility as far as he is concerned, because the flexibility on which the building society movement prides itself has been a flexibility which constantly increases the rate of interest which borrowers have to pay.
    A large number of people are trying to buy their own houses, but they are in the difficulty that whereas in 1951 they paid 4 per cent. interest, now, after five or six years of Conservative administration, they have to pay 50 per cent. more, at least 6 per cent. That is why numerous cases have been brought to my notice, and no doubt to the notice of other hon. Members, in which people have had another twenty years added to the period during which they have to repay the mortgage or loan which they have obtained. There are a large number of other points to which I should like to refer, but time does not permit.
    7.0 p.m.
    Building society contracts enable the building societies to alter their rates of interest at any time for whatever reason and irrespective of whether the Bank Rate goes up or down. So far from having a property-owning democracy, we have a system under which fewer people have a chance of owning their own houses, because if we compare the advances that the building societies were able to make in 1956 with those that they are able to make in 1957 we find that there is a drop of £60 million or so.
    The main snag from the point of view of the average borrower is this. If he gets a loan from a building society he can never be sure what he has to pay and for how long he will have to pay it. That is the principal grievance of the average borrower against a building society. To what extent one-tenth of 1 per cent., which the new Clause seeks

    961
    to obtain, will help the borrower in the circumstances is something which will have to be explained on another occasion.
    I have the feeling that the building societies have ceased to perform the function for which they were originally created. The time has come when a Government-sponsored plan ought to be introduced under which people can buy their own houses with a maximum deposit of 5 per cent., instead of the 10 or 20 per cent. which is now required, at a guaranteed rate of interest, so that the borrower knows exactly how long he will have to pay and what he will have to pay.
    In the meantime, the Government are primarily responsible for the difficulties in which building societies find themselves. They have created a situation in which the building society movement can no longer serve the purpose for which it was originally devised. We shall be driven to having some kind of State-sponsored scheme to enable people to buy their own houses. In the meantime, the attitude adopted by the Government towards this Clause shows that they are not very interested in encouraging house ownership. For that reason, I shall be very happy to join the supporters of the Clause in the Division Lobby when the time comes to vote upon it.
    Mr. Nigel Fisher: In supporting this new Clause, I, like other hon. Members, must declare an interest, both as a director and an investor in a building society. It is not really a financial interest because, even if my hon. Friend accepted the Clause, I cannot imagine that it would have any effect at all on the remuneration of directors, and certainly it would have no effect at all upon the rate of interest paid to investors. Its only effect would be to put this money into reserve for investment in the gilt-edged market. [HON. MEMBERS: "Oh."] Certainly. We have to do that. We have to invest in trustee stocks. No building society wants to do that at the present time but it has to do so. I should have thought that that argument alone would have induced my hon. Friend to be more generous, because if ever there was a time when Government securities needed support in the market, that time is the present. I am surprised that my hon. Friend has not taken a more lenient view from that purely material point of view.
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    This tax should never have been levied on building societies. It is a quite inappropriate tax. It is a tax on total revenue from borrowers, less overheads, without taking into account the money paid out in interest to investors, which is an absolute essential if a building society is to function. The interest paid to investors is the stock in trade of a building society, which uses money as other undertakings, use goods.
    The raw material in building societies is the money that they get from investors. A building society could not advance any money to a would-be house purchaser without the investors' money, for which it has to pay. In any other undertaking, the cost of raw materials is deductable before tax. The building society is the one exception that I can think of where the cost of raw materials cannot be deducted before tax is levied. That seems a thoroughly anomalous and ridiculous position.
    I do not want to go into all the arguments because I think that the hon. Member for Huddersfield, West (Mr. Wade) made the case crystal clear in his opening speech. I would only say that I was surprised that the Prime Minister did not deal with this matter last year when the theme of his Budget on that occasion was savings. It is beyond dispute that building societies make a major contribution to savings and to thrift, and I should have thought that that would have been the most appropriate Budget, which did encourage other forms of saving, in which to encourage building societies, too. That opportunity was missed. There is no reason why it should be missed again.
    In equity there is the strongest possible case for removing this tax from the building societies altogether. That may be too optimistic a hope in the light of my hon. Friend's reply. I was very disappointed with that reply, because I thought that the argument he used was frivolous and almost an insult to the intelligence of hon. Members of this Committee. I do not think that I have ever heard from my hon. Friend, whose power in debate and whose high intellectual calibre I much respect, a weaker case in answer to a serious debate and in answer to serious speeches by the hon. Member

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    for Huddersfield, West and my hon. Friend the Member for Wimbledon (Mr. Black).
    Mr. H. Wilson: While I thoroughly endorse what the hon. Gentleman has said, I think that it is fair to mention that he has not been present during some of the earlier debates on the Committee stage.
    Mr. Fisher: I will not follow the right hon. Gentleman on that point because it is quite true that I have not been present all the time.
    I understand that to remit this tax would cost about £2¼ million a year. If the Chancellor thought that this was too much, I should have thought that an honest answer. I should have thought that the only honest answer that my hon. Friend could have given us on this subject, if he decided to reject this Clause, was to say that his right hon. Friend had decided that he could not afford the concession. I think that one must always have a certain amount of respect for a Chancellor who comes honestly to the Committee and says, "Within the framework of this particular Budget and in this context I am afraid that I cannot meet this request".
    If that were a serious argument of the Chancellor it would deserve respect, but I do not think that the answer which we have had today fell into a serious category at all. If the Chancellor thinks that £2¼ million is too great a sum, I would urge him to meet us half way and allow us to charge our raw material, so to speak, before tax. If we were allowed to deduct the interest which building societies have to pay out to their investors before tax is levied, I would regard that as a fair compromise, a half-way house which would personally satisfy me, and which I think might satisfy other hon. Members, at any rate as an earnest of good intentions for the future.
    I believe that concession would cost about £1¼ million per annum. I do not know whether the hon. Member for Huddersfield, West intends to press this matter to a Division, but unless we hear something rather more valid in the way of argument from my hon. Friend than we have heard so far, and unless he can give some indication that this matter will be taken seriously, if not this year
    964
    definitely next year, and unless he can meet us half way as I have suggested, then I can only say that for my part I feel—and no doubt other of my hon. Friends feel the same—that I would find it impossible to go with him into the Government Lobby.
    Mr. Glenvil Hall: I do not intend to detain the Committee for more than a few minutes, because all that can be said in favour of the Clause has been said very well by previous speakers. What has astonished me has been the reply made by the Financial Secretary. It was unworthy of him; indeed, it was unworthy of any Minister of any Government. The hon. Gentleman completely ignored the whole of the arguments brought forward in support of the Clause. He went on assuming quite glibly that we were here dealing with an ordinary corporation. As has already been said by the hon. Member for Surbiton (Mr. Fisher), he did not even say that the Chancellor could not afford the concession on this occasion, as is normal on the part of Treasury spokesmen at that Dispatch Box. For argument, he relied upon the fact that the Chancellor was considering the whole of the Profits tax legislation with a view to making alterations at some time in the future.
    That is not good enough, particularly when we are considering this tax which is unjust to building societies. They should have been relieved of it some time ago possibly while the Labour Government were in office. At any rate, the time has certainly now come when they should be given this relief, not to put money into the pockets of those drawing dividends but to strengthen the financial structure of building societies, who perform a real function in the State by assisting many thousands of small people, to whom their integrity and strength means a great deal. We have been shown beyond question—certainly, the Financial Secretary did not question it—that this tax lessens the stability of building societies. On that ground, if upon no other, the hon. Member should accede to the request that has been made this evening.
    The hon. Member made a great point of the fact that building societies differed materially from savings banks. Indeed they do, but they are similar to savings banks in one particular—and it was the very one that the Financial Secretary stressed as showing the difference; they

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    lend their surpluses to the Government. They have to invest them in trustee securities, and any organisation which, perforce, now has to invest its surplus in gilt-edged securities should have the good will and support of the Government, in view of the extent to which gilt-edged securities have suffered on the market.
    I hope that when we make a decision upon the Clause hon. Members opposite will not rely upon what the Financial Secretary has said. if I judge the Committee aright, the feeling of hon. Members on both sides tonight is so strong that the Government must take account of it, and accept this Clause.
    Mr. Sydney Silverman (Nelson and Colne): They will not.
    Mr. Glenvil Hall: Putting party affiliations aside—this is not a party issue; it is a question of doing justice—I hope, therefore, that we will all support the Clause in the Division Lobby.
    Sir Lancelot Joynson - Hicks: Building societies have achieved a great many things in the history of this country, but they have achieved one thing this afternoon which was never expected, even by them, namely, the uniting of hon. Members on all benches together against the Government. The hon. Member for Brixton (Mr. Lipton) may say that building societies have had their day, and that we need a different sort of organisation, and the right hon. Member for Huyton (Mr. H. Wilson) may praise the building society system and say that he wants to see its principles extended in other spheres; nevertheless, we are all united in the one view that we want this Clause.
    Hon. Members: Hear, hear.
    Mr. H. Wilson: On a point of order. In view of that very clear demonstration, Sir William, and in the hope that some hon. Members will get to bed at some time tonight, and that we will meet the timetable which has been indicated for this Committee stage, is it not monstrous to debate this matter hour after hour, with the unanimity which exists among hon. Members, without the presence of the Chancellor of the Exchequer, who alone can give authority to the Financial Secretary to repair the dreadful speech that he made an hour or two ago?
    The Deputy-Chairman (Major Sir William Anstruther-Gray): I cannot accept that as a point or order. The Government are represented on the Front Bench by a representative of the Treasury.
    Mr. Wilson: That is our complaint, Sir William. We are complaining about the answer we got from the Treasury representative.
    Would you be prepared to accept the Motion, "That the Chairman do report Progress and ask leave to sit again," in order to give us a chance to hold up proceedings long enough to enable the Chancellor to be brought here? I am quite sure that we require the Chancellor's authority. I do not blame the Financial Secretary; he made the best speech available upon a shockingly bad brief, against which he should have made a much better fight in Treasury Chambers this morning. We must have the Chancellor here. I would, therefore, like to know whether you will accept the Motion.
    Mr. S. Silverman: I hope that my right hon. Friend will not think it presumptuous on my part if I attempt to lend any additional arguments to the weighty one which he has already advanced to you, Sir William. This seems to me a classic example for the Committee reporting Progress. One has only had to listen to the debate as it has proceeded over the last hour or hour-and-a-half to see that the Committee is very largely of one mind, and that the argument has gone almost exclusively one way.
    It is certain that the Financial Secretary, who has been acting with great courtesy and consideration in a difficult position, is unable himself to accede to the general desire of the Committee. I see that the Chancellor has now arrived, so perhaps his hon. Friend can do so after all. Perhaps there is no longer any necessity to move any Motion The Chancellor is here and the Committee has virtually made up its mind upon a series of arguments which are really quite incontrovertible and which the hon. Member never attempted to controvert. The real question is whether or not the Committee, on this Bill, is entitled to have its way.
    7.15 p.m.
    The Deputy-Chairman: Some problems solve themselves. I am not prepared to accept the Motion to report Progress.
    Sir L. Joynson-Hicks: After that slight hiatus in my speech it is only fair, now that my right hon. Friend has joined us, that he should hear me say that I think that hon. Members from every party have already expressed themselves as being in favour of the Clause. There may be reasons for objecting to the drafting of the Clause, and there may be difficulty in introducing the whole of its provisions straight away, but even if there are any such valid reasons we nevertheless want—and we see no reason why we should not have—something in the form of the recommendation of the Royal Commission.
    The hon. Member for Huddersfield, West (Mr. Wade) has put the arguments so very well and clearly that it is not necessary to go over them all again. On the face of it, this is a misnomer. How can we have a Profits Tax upon an organisation which is debarred from making any profits? We know how this matter arose. It started through the response made by building societies during the war, when they joined in the National Defence Contribution. That was a gesture of patriotism, made to help the country. It was one which the building societies were proud to make and which their members were proud to have the societies make on their behalf.
    After the war, the National Defence Contribution was changed into a Profits Tax, and there was then no logical ground upon which that tax could be attached to building societies. It never should have been done, it was wrong to do it, and now we have an opportunity to right that wrong. If we cannot make good the past, we can at least prevent a wrong from being continued in the future.
    There is one other thing I wish to say about the remarks of my hon. Friend the Financial Secretary on the question of the reserves. It has been made abundantly clear that for the time being this tax is being borne out of the reserves of the building societies. We know that the reserves are in Government securities almost exclusively. My hon. Friend did not answer the question put to him by the right hon. Member for Colne Valley
    968
    (Mr. Glenvil Hall) about the reserves of building societies; but the answer is that although, at present, the reserves do not represent more than about 5 per cent. of the assets, in round figures, the societies probably have about 10 per cent. of their assets in gilt-edged stock and cash, and, therefore, they are supporters of the gilt-edged market.
    They are investors in Government stock as much as, or, at any rate, parallel with the trustee banks. Therefore, in charging this tax as it has to be charged against the reserves, the Government are deliberately precluding the investment of reserves in gilt-edged stock, and consequently support of the gilt-edged market. They are frustrating their own policy of compulsory saving.
    I feel exceedingly strongly that a case has been made out on the lines already mentioned for the acceptance of this Clause; or, if my right hon. Friend cannot give us the Clause in full, then at least for something which implements the recommendations of the Royal Commission.
    The Chancellor of the Exchequer (Mr. Peter Thorneycroft): It may be convenient if I say a word about this now. I apologise to my hon. Friends if I did not hear the discussion, although I think I can claim that during the debates on the Finance Bill as a whole I have been a fairly consistent attender. The Clause goes considerably wider than the recommendation of the Royal Commission and I am bound to say that in that wider form it could not in any circumstances be accepted. Nevertheless, there remains the narrower point whether the Profits Tax is charged on distribution as dealt with in the Commission's recommendation.
    I see most formidable difficulties in dealing with this in isolation from other factors affecting the Profits Tax as a whole. It is probably linked with other recommendations and with the general question of Profits Tax. Nevertheless, I am quite prepared to look at the matter and to examine it between now and the Report stage. I make no promise that I can, in fact, get over the difficulties which I envisage and which I should like to consider further. But I will certainly examine the matter and study the arguments which have been advanced. I do

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    not think that any great moral issue is involved. This is simply a point of what is right or wrong in taxation practice, as was stated in the Report of the Royal Commission.
    I can make no promise, but I will examine this in the days ahead to see whether any satisfactory solution can be found.
    Mr. H. Wilson: Not having been present to hear the debate—we understand why, because the right hon. Gentleman cannot be in the Chamber the whole of the time—the Chancellor is not in a position to say whether or not any moral issue is involved. Had he been able to hear the debate, he would have heard some powerful arguments advanced not only on economic but on social grounds, and I think in one or two respects even the word "moral" would have been appropriate. But the right hon. Gentleman can judge that when he reads the debate tomorrow.
    We welcome the fact that so quickly after he entered the Chamber the right hon. Gentleman has thrown over the Financial Secretary—[HON. MEMBERS: "No."] Yes, quite clearly. Had the Financial Secretary said what the Chancellor has just said when he spoke about an hour or an hour-and-a-half ago, it would have avoided the necessity for a lot of speeches from hon. Members on both sides of the Committee, and I should not have felt disposed to say the exact words which I used when I followed the hon. Gentleman. We welcome the fact that the Chancellor has shown this degree of responsiveness to what is clearly the expressed will of hon. Members on both sides of the Committee.
    I wish to be sure about what the right hon. Gentleman said—no doubt the deputy Chief Whip, who has arrived a little late in the day, is representing to the Chancellor the strong feeling on the other side of the Committee on the matter, on which, no doubt, he was fully briefed by his very competent Parliamentary Private Secretary before he even entered the Chamber. But I wish to be clear about this, I think I have understood it aright. The Chancellor will look at the question between now and the Report stage without committing himself. He
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    says that he can see formidable difficulties about taking it in isolation, but from what he said I think there is an indication that we may hope—I do not ask the right hon. Gentleman to commit himself—to see something on the lines of the recommendation in paragraph 577 of the Royal Commission's Report rather than a straight acceptance of the Motion moved by the hon. Member for Huddersfield. West (Mr. Wade).
    Since the Chancellor has already approached the matter with some degree of prejudice in what he says, perhaps I may remind him of what the Royal Commission actually reported, because this has a real bearing on his consideration of the matter between now and the Report stage, and because the Financial Secretary cannot see this divorced from the whole broad question of Profits Tax to which the Chancellor and his two predecessors have been giving unremitting attention for a matter of two years with, apparently, no results except bad ones. The Royal Commission did not suggest that this was tied up with the whole of the remainder of the question of Profits Tax, and if the Committee will bear with me, I should like to read this one sentence.
    The Royal Commission said:
    "We were impressed by the general resemblance of the interest on building societies' shares to the 'dividend' of industrial and provident societies. … Accordingly, we recommend that only the retained profit should be taxed: at the flat rate if our proposals are accepted, or at the undistributed rate if profits tax continues in its present form. In this we are proposing a change in the method of assessment of building societies under the present law, but we have tried and failed to find any principle that would account for or justify the basis of charge as it stands today."
    Only the Financial Secretary, apparently, is capable of finding that principle. Clearly, the Royal Commission felt this could be decided on its own because obviously there could be no final consideration of the question of Profits Tax without taking a decision one way or the other on the majority recommendations of the Royal Commission on amalgamating the two rates of Profit Tax. Obviously, any consideration must involve a decision about that, and, obviously, the Royal Commission knew that. It said that so far as building societies were concerned if there had been no decision, if Profits Tax continued in its present form, then its recommendation for building

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    societies should be put into effect at the lower of the two rates in force for Profits Tax purposes.
    7.30 p.m.
    The Chancellor obviously had not given enough thought to the problem until he found this revolt on his hands this evening. I hope that when he is thinking this matter out between now and Report he will recognise that he can decide the matter without having to go into the whole broader question of Profits Tax. We count on him to come back on Report with a proposal to give effect to the Report of the Royal Commission. We would like him to go further and to accept the proposed Clause.
    We must warn the right hon. Gentleman that we shall get a lot of support in the Committee on the matter and that if he does not come forward on Report with such a proposal we shall feel it our duty to table one and to have it debated, and to press the Government to allow enough time to see that it is debated on Report. The feeling expressed in all parts of the Committee makes it clear that there is a very strong demand for this reform, so it will not be possible, on Report, to postpone decision further.
    Sir H. Butcher: I would express to my hon. Friend the Financial Secretary and my right hon. Friend the Chancellor of the Exchequer the appreciation felt by the Committee at the promise which has been given. We also appreciate the speed with which those two good friends of ours, the Financial Secretary and my right hon. Friend, have moved in this matter to meet the wishes of the Committee. I believe that a solution satisfactory to all will be secured.
    May I conclude by saying that I hope that in matters of this kind the Treasury Ministers will not only listen to the advice of their officials, but also to the wise words of the Government Whips?
    Mr. Wade: I thank the Chancellor of the Exchequer for the assurance that a new Clause will be introduced on Report. I am pleased that he has promised to consider this very serious matter between now and then. I hope he will appreciate that this is a very urgent and serious matter from the point of view of building
    972
    societies. In view of what the right hon. Gentleman has said. I beg to ask leave to withdraw the Motion.
    Motion and Clause, by leave, withdrawn.

    New Clause.—(POWER TO REQUIRE THE KEEPING OF BOOKS AND ACCOUNTS.)
    Every person carrying on a trade or a business, if required to do so by notice in writing from the surveyor, shall keep such books and forms of account relating to his trade or business as may be prescribed by the Commissioners of Inland Revenue. A person on whom any such notice is served shall within the period specified in the notice (not being less than thirty days) deliver to the surveyor a declaration in writing, signed by him, that the requirements of the notice are being complied with. A person who neglects or refuses to deliver, within the time limited, such declaration or statement, or makes a declaration or statement which is false or untrue in any particular, shall forfeit the sum of twenty pounds.—[Mr. Houghton.]
    Brought up, and read the First time.
    Mr. Houghton: I beg to move, That the Clause be read a Second time.
    This Clause is designed to give power to inspectors of taxes to require those who are in business on their own account—I include professional men in private practice—to keep such books and accounts as may be prescribed by the Commissioners of Inland Revenue on being served with a notice to do so. If they fail or refuse to comply, there are provisions for the imposition of a penalty.
    This is a new compulsion with a new penalty. We should all hesitate to impose these additional obligations upon any class of taxpayer unless we believed them to be necessary. What makes them necessary? I can rely heavily for the answer upon the Report of the Royal Commission on the Taxation of Profits and Income. These matters are dealt with very fully indeed in Part VII, Chapter 33, of the Report, and in particular in paragraph 1051 and the following paragraphs.
    I suffer from a slight disadvantage in that I am not fortified on this occasion with the memorandum submitted by the Board of Inland Revenue to the Royal Commission. I have no doubt that the Board had something to say about this matter, and I can make a pretty good guess what it did say, but I do not happen to know. The only evidence to the Royal Commission on which I can rely is my

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    own. The Committee will permit me to say that I gave not only written evidence but oral evidence to the Royal Commission on this matter. The Commission's recommendations in paragraphs 1052 onwards follow very closely the lines of my own proposals to it.
    What did the Royal Commission recommend? In paragraph 1052, it recommended
    "… that every person who carries on a trade, profession or vocation (for brevity, we will refer to him as a 'trader') should be placed under a statutory duty to keep records of his transactions. Unless he does so how can he ever be in a position to state at the end of the year what the figure of his profit in fact has been? The records that we regard it as essential to require are of the simplest kind: a record of all the receipts that have accrued to the trade during the year and of all the payments or other outgoings that are to be set against them, and a record of the opening and closing stock and of outstanding debtors and creditors."
    It suggested in paragraph 1054 that while this duty should be imposed generally upon all traders the local inspector might be given
    "a power to dispense with observance of the duty to keep records, if application is made to him for the purpose."
    The Commission added:
    "This would give some protection to those few persons to whom keeping records might be really oppressive because of the smallness of their operations or the nature of their business."
    In the next sentence it says:
    "Alternatively, the scheme introduced could be confined to an obligation to keep records only after notice to that effect served by the inspector."
    That alternative is embodied in the proposed new Clause. I emphasise that the requirement to keep books and accounts would be in the discretion of the local inspector but that the form of books and accounts would be as prescribed by the Commissioners of Inland Revenue. It would not be in the power of the local inspector to decide what form the accounts should take. As the Report of the Royal Commission suggested, the records to be kept should be of the simplest kind, to contain the essentials of proper book-keeping and management.
    When considering the imposition of additional obligations upon the taxpayer it is only right that we should consider whether existing powers are enough. With the indulgence of the Committee I would
    974
    for a moment examine what the existing powers are. Section 20 of the Income Tax Act, 1952, requires a person to make a return of profits or gains arising to him. That is the common form of tax return which is required of those in business as well as of those having income from other sources. The taxpayer is not required under Section 20 to submit any accounts in support of any amount of profits or gains returned by him on the form.
    Section 31 contains the second of the powers possessed by the Revenue to require the production of information. This Section was enacted as recently as 1942. It gives the Commissioners of Inland Revenue—not the General Commissioners or the Special Commissioners—power to serve a notice on a person requiring the production of accounts and books if there is failure on the part of the taxpayer to make a return of profits or gains or where the Commissioners are not satisfied with the return which has been made.
    A third power resting in the hands of the General Commissioners can be exercised only on appeal by the taxpayer against an assessment made upon him. That power is contained in Section 54 of the Income Tax Act, 1952. It enables the General Commissioners of Income Tax, when appealed to by a taxpayer against an excessive assessment, to serve a precept upon the appellant for the production of accounts and all other books and documents which may give information having a bearing on the appeal.
    That usually follows the making of an estimated assessment upon a taxpayer who has either failed to make a return of profits or gains, or has made a return which appears to be manifestly inadequate, by either the inspector or the Commissioners. In many cases an estimated assessment is made, in the absence of proper return, of such an amount that the appellant is almost forced to appeal. When he does so, the Commisioners can require the production of books and accounts in connection with the matters under appeal.
    Those are the existing powers, but they neither help nor discipline the trader in the keeping of proper accounts. It must be freely acknowledged of course, that a very large number of people in business keep perfectly satisfactory books of

    975
    accounts and there is no complaint to be made against them. They are properly advised by professional accountants, their books are kept in accordance with the requirements of those accountants and the Inland Revenue can have no complaint whatever about them.
    On the other hand, others, either by neglect or lack of the necessary skill, fail to keep proper records. There is no doubt that many of these traders who keep scrappy or unreliable records—or none at all—are a trouble to themselves and to the Inland Revenue as well. A great deal of time is spent by the Inland Revenue in trying to construct accounts out of basic information supplied by taxpayers—bank pass books, rudimentary records of transactions, invoices, notebooks and anything else that they may have kept as a sort of record of their business affairs.
    A good deal of Inland Revenue manpower is spent in trying to find out what were the trading results of transactions inadequately recorded in cases where there is evidence of savings, investment, purchase, or other evidence of resources which needs explaining in connection with the taxpayer's trading activities. Back duty cases, as they are called in the Inland Revenue, are frequently tragic in their consequences to the taxpayers concerned, who suffer much mental anxiety and, in many cases, have to find not only the amount of tax estimated to be lost but substantial penalties on top.
    The aim of the new Clause is to reduce the volume of those cases. I feel sure that if many such cases were dealt with early enough, these unhappy consequences could be avoided, but nothing in existing powers can require a trader—when setting up in business for the first time, for example—to keep proper records of his business activities. It is not until he makes a return to the Inland Revenue that any information is available as to how he is conducting his financial arrangements. Existing powers offer no remedy for this rather grave evil of having to deal with thousands of traders in a year who, obviously, have not the elementary basis upon which proper Income Tax assessments can be made. Usually, nothing can be done until much time has been lost which, with proper records lacking, it is very difficult to retrieve.
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    7.45 p.m.
    What is the evidence of the need for this change? I must say that much of the evidence which would be available in support of the new Clause can come only from the Board of Inland Revenue. It is available only to those who can see the broad picture, who have these cases to deal with, who can add them up to a grand total of administrative difficulty, of inadequate returns and, perhaps, underassessment of the profits of traders. That is why I ask the Committee to give very full weight indeed to the recommendations of the Royal Commission in the matter, because it heard all the evidence—and it alone heard all the evidence. The Royal Comission recommended as it did after hearing what the Board of Inland Revenue had to say.
    There is, however, certain circumstantial evidence that something is wrong. That evidence is to be found in the annual reports of the Commissioners of Inland Revenue with reference to the number of cases of under-assessment of profits, the amount of tax recovered and of the penalties imposed.
    The 1951 Finance Act imposed upon banks and others who had the custody of money held on interest an obligation to make returns of those to whom they had paid, or credited interest exceeding £15 a year. That led to a wholesale disclosure of amounts of untaxed interest which had not been put down in Income Tax returns. From page 19 of the 99th Report of the Commissioners of Inland Revenue, the Committee will see the extent of the discovery of under-assessments resulting from the provisions of the 1951 Finance Act.
    Nearly half a million cases have been dealt with already, with a total charge raised of £13 million. Not all came from under-assessed profits or gains—a lot was, of course, on the actual amount of interest paid—but in many cases the importance of the disclosure was that it gave the Inland Revenue a clue to the capital resources of many traders which it had no occasion to suspect from returns made of profits which, on the face of them, seemed to be reasonable, but which, when more information was revealed, were clearly understated.
    In page 18 of the same Report, the bigger fish are shown. It shows 16,000

    977
    of them in 1956 alone, with total charge raised of £22½ million, and penalties imposed of £8½ million. Those are very substantial figures for one year's recovery of under-assessment of profits and of penalties imposed.
    While I am not saying for a moment that all those cases arose from the failure of traders to keep accounts—obviously not—there is no doubt that in those figures, in pages 18 and 19, are represented a considerable number of traders and others whose affairs have got into a muddle and whose assessments have been too low following upon their failure to keep proper books and accounts. This Clause, if brought into effect, would certainly minimise the extent of underassessment due to the causes that I have mentioned.
    Mr. Geoffrey Stevens: I am very interested in what the hon. Gentleman is saying, and he will, I am sure, understand that I am paying close attention to the argument he is deploying; but would the keeping of books of account of itself ensure that interest from bank deposits would be included in those books of account? What steps is he proposing to ensure that those books of account are accurately kept? Surely, that must be the acid test.
    Mr. Houghton: The hon. Gentleman, whose close interest in this matter I always acknowledge, anticipates me by no more than a moment. I was coming to the next question, namely, will the steps proposed in the Clause be effective? What will the Clause do to bring about an improvement in the present situation?
    First, the Clause will help taxpayers to keep proper accounts. It will impose a measure of statutory discipline upon them. I myself stress the help which would be given to them, and I believe that that help, accompanied by obligation, would achieve the result. I recall that, during the war, the basis of assessment on farm profits was changed from a multiple of the gross annual value for Schedule A purposes to assessment on profits under Schedule D. At that time, the Inland Revenue got out a most helpful booklet to assist farmers to keep proper accounts for assessment under Schedule D, and not only did it get out the booklet, but it devised a form of accounts which farmers could use. There
    978
    was no statutory obligation upon farmers to accept the advice given; all that was imposed was the normal obligation upon anyone in trade or business to render a truthful return of his profits and satisfy the Inland Revenue, as far as reasonable, that his accounts are accurate.
    I suggest that the obligation to keep books and accounts might be accompanied by a brochure advising traders on the best method of keeping the simple elements of accounts for Income Tax purposes. I do not say that it would work miracles, but the Committee will appreciate, I am sure, that the Royal Commission would not have made its recommendation had it not thought, after very full consideration, that this would be an improvement on the present position.
    My final question is, would the new obligations imposed upon taxpayers be objectionable from any reasonable standpoint? I know that the Royal Commission of 1920 made some observations on this proposal, which was put to them at that time, thirty-five years ago, and it felt that there were objections to it. I do not think that they are valid today. I need not recite them; they can be found in paragraph 639 of the Royal Commission's Report of 1920. The more recent Royal Commission had the earlier objections under consideration alongside current evidence. In my view, the Committee should, in these days, be prepared to accept this additional obligation on taxpayers to keep proper books and accounts. In the United States, the Bureau of Internal Revenue has powers of access to books and accounts and, in some of the larger businesses, so I am told, there are almost resident Income Tax inspectors who are able to see the books and accounts being made up as they go along, which is, no doubt, very useful to any scrutineer in these matters.
    Finally, I draw the attention of the Committee to what I regard as a very puzzling distribution of profits among traders which is, I think, suggestive that something is not right. The number of Schedule D assessments on profits and gains on all levels under Cases I and II of Schedule D in 1954–55 was 1,865,000. Of those, 1,516,000 were of assessments not exceeding £1,000 a year. That seems to be an extraordinary proportion of businesses the assessable profits of which do not exceed £1,000 a year. As a matter

    979
    of fact, there is an astonishing proportion of those assessments which do not exceed £250 a year, and the number between £250 and £500 a year also is, I think, surprisingly small.
    I find it astonishing that 1 million out of 1,865,000 Schedule D assessments under Cases I and II of Schedule D do not exceed £500 a year. I find it more astonishing how little these proportions have changed during the last five years. I am sure that profits have not been static during that time. Without detaining the Committee any longer, I would suggest to hon. Members interested that there is an interesting piece of research to be done from table 32 of the 94th Report, just to take the 1949–50 figures as a starting point, and table 30 in the 99th Report, so that a comparison can be made over five years.
    The conclusion one must draw, however tentative, is that many of these assessments are too low. I know that one explanation may be that more and more traders have come to employ their wives in their businesses. That, if I may say so without offence to those concerned, is amongst the Income Tax rackets, and there is no doubt that the employment of wives in businesses is spreading at an alarming rate. I say not more than that.
    The verdict, I suggest, is that some change is necessary in the present powers requiring taxpayers to keep books and accounts. This new Clause is a modest beginning, based upon the recommendations of the Royal Commission, which I confidently submit to the Committee for approval.
    Mr. Stevens: I listened with the greatest possible interest to the hon. Member for Sowerby (Mr. Houghton). My profession is one which would benefit very greatly should this new Clause prove acceptable to the Government. In a very short time after its acceptance, I should be riding in a carriage and pair; indeed, I think that I should probably have a spare carriage and an extra pair to the lend to the hon. Member for Sowerby.
    Mr. Ede: Why not have a coach and four yourself?
    Mr. Stevens: And for the right hon. Gentleman, also; I might even have three. I should be happy to see him in
    980
    his old age riding in great comfort and style.
    Mr. Ede: I hope that the hon. Member will live long enough to see me in my old age.
    Mr. Stevens: I can second that. The hon. Member for Sowerby simplified the problem a little too much. He indicated the extent of his oversimplification, I thought, when he gave that fantastic figure of the number of Schedule D assessments under £1,000 a year. I do not think he can have realised, and perhaps the Committee does not realise, what he has suggested. It is that every barrow boy should be required to keep proper books of account.
    8.0 p.m.
    I leave it to your imagination, Mr. Hynd, and to the imagination of the Committee what sort of answers one would get from barrow boys if they were told by the Government that they must keep proper double-entry books of accounts. This also applies to Mrs. Warren's profession, a very old profession. That is also assessable under Case 2 of Schedule D, and the ladies who follow that profession would also be required by the new Clause to keep books of account.
    I think that the hon. Member has rather over-simplified the position, and that he is ahead of his time. It is quite true that limited companies, whether exempt private companies or any others, at present have to keep proper books of account, and I hope that I shall live long enough, with the right hon. Member for South Shields, to see the day when his hon. Friends new Clause becomes a practical possibility.
    Mr. Houghton: How can the hon. Gentleman suggest that I am ahead of my time when I am already two years behind the Royal Commission?
    Mr. Stevens: That is a fair question. I must admit that I was not asked to give evidence before the Royal Commission. Had I been asked, I should have said exactly what I am saying now. I think it is asking too much to expect small traders of all kinds to keep the type of books and of accounts which alone would be sufficient to support their Income Tax returns. I have very much sympathy with the hon. Member, but I suggest that he is well ahead of his time.

    981
    I hope that the Government will not accept the new Clause but, on the other hand, I hope that they will bear it very much in mind and that the hon. Member's speech, and the suggestion which lies behind it, will receive the maximum amount of publicity, despite the fact that this decision will have the worst possible effect upon my future income.
    Mr. Birch: The hon. Member for Sowerby (Mr. Houghton) spoke about men employing their wives. I do not think that that is relevant to this new Clause; whether they keep accounts or not, they scan still employ their wives.
    Mr. Houghton: I mentioned it as a possible explanation of the fact that the profits of the business have remained so low.
    Mr. Birch: My hon. Friend the Member for Langstone (Mr. Stevens) wondered why the Royal Commission had made this recommendation. I have no doubt that the main reason was the eloquence of the hon. Member for Sowerby, who "knows his stuff" extremely well and who pressed this point upon them.
    The solution he has put forward in the new Clause is better than some solutions considered by the Royal Commission. If this were to be done at all, he is probably on the right lines, although I am advised that the new Clause is defective because it does not go quite as far as he intends; it would give power to compel a man make a declaration, but it might be held that it did not give power to make him keep the full accounts which the hon. Member wants him to keep.
    The present position is that any company or partnership is bound by law to keep accounts. The practice with single traders is that if anybody is thought to be earning over £500 and not to be keeping accounts, an assessment is made upon him. If he still does not keep accounts, the assessment is increased. If he gets sick of that, as he does sooner or later, and presents accounts, and they are inspected and he is found to have been cheating, then his affairs during past years can be investigated and he can be penalised. The power in the hands of the Revenue is, therefore, very considerable.
    982
    Under the new Clause, we are considering the cases of people who are earning a very small amount of money. My hon. Friend the Member for Langstone has made some rather distressing suggestions as to who they might be. Many people have great difficulty and trouble in keeping accounts. Consider the case, for instance, of the Welsh hill farmers with small incomes; they may not speak English at all and they do not find it easy to keep accounts. Although I do not press this point very much, to force such people to keep accounts might be held, in some cases, to be inquisitorial.
    The hon. Member for Sowerby spoke about evasion and false accounts and about the "big fish" who, as Inland Revenue accounts show, have got away with a lot of money. All those people kept accounts. The trouble is that accounts are not like the tablets of stone brought down from Mount Sinai. They are prepared by extremely fallible people.
    One of the difficulties about administering the hon. Member's suggestion is that it is not very much good having accounts kept unless they are examined with care. Very often these accounts—not through fraud—will be extremely defective. I am sure that the hon. Member agrees that the Revenue are not under-worked at the moment, and it is a question whether they would be spending their time very well if they were to examine rather simple and perhaps often not very good accounts put forward by people with very small incomes. I suggest to the hon. Member that, as far as the Revenue is concerned, he is in all this being plus royaliste que le roi. He is going a little further than the situation warrants.
    The hon. Member put some interesting and perhaps important points about the ninety-ninth Report, and I should very much like to do as he suggests, to do some research work into it and to see as a result of this research work what, if anything, ought to be done. That research work might well be done during the coming year and we might discuss the matter again next year after the study which I will make. In the meantime, I do not think that we can accept the new Clause. It is defective in itself, and we are not completely convinced without further study that it is a necessary provision.
    Mr. John Cronin: I am sure that all my hon. Friends will be very glad if the profession of the hon. Member for Langstone (Mr. Stevens) benefits from our new Clause, but I doubt whether it is likely that his profession will benefit from the new Clause nearly as much as he envisages. I do not think that he has read the Clause carefully, because it says:
    "Every person carrying on a trade or business, if required to do so by notice in writing from the surveyor, shall keep such books.…"
    The important phrase is "if required to do so." It is contemplated that this power would be necessary only in certain cases where the inspector or surveyor felt that there was some flagrant negligence or evasion. It is only in a small number of cases that the power would be necessary, and it is entirely discretionary.
    The Economic Secretary said that a company is already bound by law to keep accounts. The Clause is not so much concerned with this as with the quality of the accounts. The new Clause says:
    "such books and forms of account relating to his trade or business as may be prescribed by the Commissioners of Inland Revenue."
    The principal purpose of the Clause is to deal with the nature and quality of the accounts.
    The Economic Secretary is right to say that the law presupposes that accounts are kept. Obviously some form of accounts must be kept to arrive at a correct return of the gains of the year. But there is no legal compulsion to keep good, careful or even accurate accounts. These matters were gone into very carefully in the courts many years ago.
    I see some of my Scottish hon. Friends here. In Scotland, which is particularly famous for its business acumen, the matter came to a head, and in the case of The Edinburgh Life Assurance Company v. The Lord Advocate, in 1920, it was authoritatively stated that the rights neither of the Crown nor of the taxpayer can be made to depend on the way in which the taxpayer's accounts have been prepared, nor do the rights of either side depend on the character of the bookkeeping. The legal position is not at all helpful to the quality of the accounts. Obviously, this matter does not really concern public companies because it is generally agreed that the accounts which are acceptable in their
    984
    case are those which are submitted to the annual general meeting and, of course, have been audited by accountants.
    The problem here is largely that of the small firm, the small trader or professional man. Obviously, there must be in this matter a great temptation for the unscrupulous. If a man keeps vague and unsatisfactory accounts he can quite easily leave out receipts, with a greatly lessened chance of detection. To compel a trader or a professional man to keep accounts does not necessarily mean that he will therefore keep inaccurate accounts. An unscrupulous person can still make wrong entries, but if he is obliged to keep careful accounts and he makes a wrong statement, that statement has to occur periodically throughout his accounts. Very few people are completely unscrupulous and an attack on a man's conscience would be made every time he made an entry.
    Another advantage of keeping accounts is that a trader or a professional man would find that his assistants, his employees or secretaries would be aware of the situation and that would be a powerful inducement not to make improper returns. One ought not to lay too much stress on evasion. I think that conscious evasion is relatively uncommon. In most cases where the Revenue is deprived of money it is the result of impaired memory or absent-mindedness. The great psychologist Freud established that people tend to forget what they do not want to remember. Therefore, it is easy to be forgetful of payments and receipts if they occurred a long time before the actual return is made to the Income Tax inspector. If one is a trader, or even a professional man, it is easy to forget the amount one receives in cash over a given period of time or the occasion when a cheque was cashed at the drawer's branch bank. It is easy to forget whether a personal expense was really an expense which could be lawfully set against income for tax purposes. A businessman might find in his desk a bill for a champagne supper in a night club. He might easily find that a certain invoice really was due to an occasion when he entertained a lady friend, but his memory might be so defective that he might think that he had entertained another business associate for the purpose of getting more business. This lapse of memory might be repeated on various occasions.

    985
    The obligations placed upon the taxpayer by the new Clause is not a very onerous one. Most traders keep records of some kind. The Economic Secretary was a little unfair to the improving educational standards of the country when he suggested that many people who had to pay tax would be unable to keep correct accounts.
    Mr. Jay: Did not the Economic Secretary suggest that that only happened in Wales?
    Mr. Birch: Certainly not. My hon. Friend the Member for Langstone (Mr. Stevens) suggested all sorts of people who might not be able to keep accounts. I was merely suggesting that many old farmers in Wales had not learned English and were not very good at accounting. The standard of education in Wales is very much higher than the standard in England.
    Mr. H. Wilson: Does the Economic Secretary, representing as he does a Welsh-speaking constituency, say that because Welsh farmers cannot speak or write English they cannot keep accounts?
    Mr. Birch: Of course not. But one might have a case of an old man who very likely would not be able to keep accounts. That is all I had in mind. Most of these old men in fact do not keep accounts.
    Mr. Cronin: I am glad that the Economic Secretary has modified his statement to some extent, but it still seems to me rather unsatisfactory. The general impression left with the Committee is that the Economic Secretary thinks that Welsh hill farmers are in some way more illiterate than English, Scottish or Northern Irish farmers.
    Mr. Birch: I will add "All hill farmers all over the country", if the hon. Member prefers.
    8.15 p.m.
    Mr. Cronin: I am glad to have it put right on the record. I should not like to see the Principality attacked in any way, although I cannot claim any personal allegiance to it.
    Mr. Raymond Gower: Is not the trouble that the Inland Revenue and successive Governments have not gone
    986
    far enough in providing facilities for people who are more fluent in Welsh to make their Income Tax returns in Welsh?
    Mr. Cronin: The hon. Member has made a very fair point, but whether the Income Tax returns should be made in Welsh or in English is a very esoteric cultural matter on which I cannot give a firm opinion.
    Mr. Eric Fletcher: Ought we not to have the benefit of the advice of the Minister for Welsh Affairs?
    Mr. Cronin: If I may attempt to leave the affairs of Wales, which are always very interesting, and return to the wider, global sphere, I would say that the Economic Secretary has obviously done an immense amount of research into the matter in the last few years and certainly must be aware of the large proportion of civilised countries which insist upon their taxpayers accepting the same obligation as is suggested in the proposed new Clause. My hon. Friend the Member for Sowerby (Mr. Houghton) pointed out that the United States, Canada and Germany impose exactly this same obligation upon their taxpayers.
    The new Clause would not merely be valuable to the Board of Inland Revenue, and I do not think that the Committee would recommend it solely for that reason. It obviously would be valuable to the taxpayer himself. He would be relieved of the anxiety that he might well feel that he was not paying sufficient attention to his tax returns. He certainly would be a happier man. His business would be much more efficient. As a consequence, there would be a higher tax yield eventually and there would be a general advance in the country's economy.
    I think, therefore, that the new Clause would be such a valuable addition to our fiscal system that I strongly urge my hon. and right hon. Friends to vote in favour of it if the Economic Secretary does not accept it.
    Sir Eric Errington: The debate has ranged from as far as Mrs. Warren's profession via Freud to night clubs. I should have thought that the difficulty of calculating in Welsh was not insurmountable. It occurs to me that the proposed Clause places an obligation on

    987
    people who are primarily not the sort who would seek to avoid their obligations. It also places an obligation on people who can least afford to take steps to deal with the situation. In effect, it means that the profession of my hon. Friend the Member for Langstone (Mr. Stevens) and other associated and allied professions would be the beneficiaries if the Clause became law.
    I feel that however wise it may be for those who have small businesses to take
    advice about their accounts, to make it essential that they should have accounts prepared in a certain way is, in effect, inflicting upon them quite a serious expense. And as it happens to do that to the type of person who can least afford it, I hope that the Committee will not accept the proposed Clause.
    Question put, That the Clause be read a Second time:—
    The Committee divided: Ayes 220, Noes 244.

    Division No 158.]

    AYES

    [8.21 p.m.

    Ainsley, J. W.

    Gibson, C. W.

    Messer, Sir F.

    Allaun, Frank (Salford, E.)

    Greenwood, Anthony

    Mikardo, Ian

    Allen, Arthur (Bosworth)

    Grenfell, Rt. Hon. D. R.

    Mitchison, G. R.

    Allen, Scholefield (Crewe)

    Grey, C. F.

    Monslow, W.

    Awbery, S. S.

    Griffiths, William (Exchange)

    Moody, A. S.

    Bacon, Miss Alice

    Hale, Leslie

    Morris, Percy (Swansea, W.)

    Baird, J.

    Hall, Rt. Hon. Glenvil (Colne Valley)

    Morrison, Rt.Hn.Herbert(Lewis'm, S.)

    Balfour, A.

    Hamilton, W. W.

    Mort, D. L.

    Bence, C. R. (Dunbartonshire, E.)

    Hannan, W.

    Moss, R.

    Benn, Hn. Wedgwood (Bristol, S.E.)

    Harrison, J. (Nottingham, N.)

    Moyle, A.

    Benson, G.

    Hastings, S.

    Mulley, F. W.

    Beswick, Frank

    Hayman, F. H.

    Noel-Baker, Rt. Hon. P. (Derby, S.)

    Blackburn, F.

    Healey, Denis

    Oliver, G. H.

    Blenkinsop, A.

    Henderson, Rt. Hn. A. (Rwly Regis)

    Oswald, T.

    Blyton, W. R.

    Hewitson, Capt. M.

    Owen, W. J.

    Boardman, H.

    Hobson, C. R. (Keighley)

    Padley, W. E.

    Bottomley, Rt. Hon. A. G.

    Houghton, Douglas

    Paget, R. T.

    Bowden, H. W. (Leicester, S.W.)

    Howell, Charles (Perry Barr)

    Paling, Rt. Hon. W. (Dearne Valley)

    Bowles, F. G.

    Hoy, J. H.

    Palmer, A. M. F.

    Boyd, T. C.

    Hubbard, T. F.

    Pannell, Charles (Leeds, W.)

    Braddock, Mrs. Elizabeth

    Hughes, Emrys (S. Ayrshire)

    Pargiter, G. A.

    Brockway, A. F.

    Hughes, Hector (Aberdeen, N.)

    Parker, J.

    Broughton, Dr. A. D. D.

    Hunter, A. E.

    Parkin, B. T.

    Brown, Rt. Hon. George (Belper)

    Hynd, J. B. (Attercliffe)

    Pearson, A.

    Brown, Thomas (Ince)

    Irving, Sydney (Dartford)

    Peart, T. F.

    Burke, W. A.

    Isaacs, Rt. Hon. G. A.

    Pentland, N.

    Butler, Herbert (Hackney, C.)

    Janner, B.

    Popplewell, E.

    Butler, Mrs. Joyce (Wood Green)

    Jay, Rt. Hon. D. P. T.

    Prentice, R. E.

    Callaghan, L. J.

    Jeger, George (Goole)

    Price, Philips (Gloucestershire, W.)

    Carmichael, J.

    Jeger, Mrs.Lena(Holbn & St.Pncs.S.)

    Probert, A. R.

    Chapman, W. D.

    Jenkins, Roy (Stechford)

    Proctor, W. T.

    Chetwynd, G. R.

    Johnson, James (Rugby)

    Pryde, D. J.

    Clunie, J.

    Johnson, Douglas (Paisley)

    Randall, H. E.

    Coldrick, W.

    Jones, Rt.Hon.A.Creech(Wakefield)

    Rankin, John

    Collick, P. H. (Birkenhead)

    Jones, David, (The Hartlepools)

    Redhead, E. C.

    Collins, V.J. (Shoreditch & Finsbury)

    Jones, Elwyn (W. Ham, S.)

    Reeves, J.

    Cove, W. G.

    Jones, Jack (Rotherham)

    Robens, Rt. Hon. A.

    Craddock, George (Bradford, S.)

    Jones, J. Idwal (Wrexham)

    Roberts, Goronwy (Caernarvon)

    Cronin, J. D.

    Jones, T. W. (Merioneth)

    Robinson, Kenneth (St. Pancras, N.)

    Crossman, R. H. S.

    Kenyon C.

    Rogers, George (Kensington, N.)

    Cullen, Mrs. A.

    Ross, William

    Dalton, Rt. Hon. H.

    Key, Rt. Hon. C. W.

    Royle, C.

    Darling, George (Hillsborough)

    King, Dr. H. M.

    Shinwell, Rt. Hon. E.

    Davies, Ernest (Enfield, E.)

    Lawson, G. M.

    Short, E. W.

    Davies, Harold (Leek)

    Lee, Frederick (Newton)

    Shurmer, P. L. E.

    Davies, Stephen (Merthyr)

    Lee, Miss Jennie (Cannock)

    Silverman, Julius (Aston)

    Deer, G.

    Lewis, Arthur

    Silverman, Sydney (Nelson)

    de Freitas, Geoffrey

    Lindgren, G. S.

    Simmons, C. J. (Brierley Hill)

    Delargy, H. J.

    Lipton, Marcus

    Skeffington, A. M.

    Dodds, N. N.

    Logan, D. G.

    Slater, J. (Sedgefield)

    Donnelly, D. L.

    Mabon, Dr. J. Dickson

    Smith, Ellis (Stoke, S.)

    Dugdale, Rt. Hn. John (W. Brmwch)

    MacColl, J. E.

    Sorensen, R. W.

    Ede, Rt. Hon. J. C.

    McGovern, J.

    Soskice, Rt. Hon. Sir Frank

    Edwards, Rt. Hon. John (Brighouse)

    McInnes, J.

    Sparks, J. A.

    Edwards, Rt. Hon. Ness (Caerphilly)

    McKay, John (Wallsend)

    Steele, T.

    Edwards, Robert (Bilston)

    MacMillan, M. K. (Western Isles)

    Stewart, Michael (Fulham)

    Edwards, W. J. (Stepney)

    MacPherson, Malcolm (Stirling)

    Stokes, Rt. Hon. R. R. (Ipswich)

    Fernyhough, E.

    Mahon, Simon

    Stonehouse, John

    Fienburgh, W.

    Mallalieu, E. L. (Brigg)

    Stones, W. (Consett)

    Fletcher, Eric

    Mann, Mrs. Jean

    Strachey, Rt. Hon. J.

    Forman, J. C.

    Marquand, Rt. Hon. H. A.

    Strauss, Rt. Hon. George (Vauxhall)

    Fraser, Thomas (Hamilton)

    Mason, Roy

    Summerskill, Rt. Hon. E.

    Sylvester, G. O.

    Watkins, T. E,

    Williams, W. T. (Barons Court)

    Taylor, Bernard (Mansfield)

    Weitzman, D.

    Willis, Eustace (Edinburgh, E.)

    Taylor, John (West Lothian)

    Wells, Percy (Faversham)

    Wilson, Rt. Hon. Harold (Huyton)

    Thomas, George (Cardiff)

    West, D. G.

    Winterbottom, Richard

    Thomas, Iorwerth (Rhondda, W.)

    Wheeldon, W. E.

    Woodburn, Rt. Hon. A.

    Thomson, George (Dundee, E.)

    White, Mrs. Eirene (E. Flint)

    Woof, R. E.

    Thornton, E.

    White, Henry (Derbyshire, N.E.)

    Yates, V. (Ladywood)

    Timmons, J.

    Wilkins, W. A.

    Younger, Rt. Hon. K.

    Tomney, F.

    Willey, Frederick

    Zilliacus, K.

    Ungoed-Thomas, Sir Lynn

    Williams, David (Neath)

    Usborne, H. C.

    Williams, Rev. Llywelyn (Ab'tillery)

    TELLERS FOR THE AYES:

    Viant, S. P.

    Williams, Ronald (Wigan)

    Mr. Holmes and Mr. J. T. Price.

    Warbey, W. N.

    Williams, W. R. (Openshaw)

    NOES

    Agnew, Sir Peter

    Farey-Jones, F. W.

    Kimball, M.

    Aitken, W. T.

    Fell, A.

    Kirk, P. M.

    Amery, Julian (Preston, N.)

    Finlay, Graeme

    Lambton, Viscount

    Amory, Rt. Heathcoat (Tiverton)

    Fisher, Nigel

    Leavey, J. A.

    Arbuthnot, John

    Fletcher-Cooke, C.

    Leburn, W. G.

    Armstrong, C. W.

    Fort, R.

    Legge-Bourke, Maj. E. A. H.

    Ashton, H.

    Fraser, Hon. Hugh (Stone)

    Legh, Hon. Peter (Petersfield)

    Astor, Hon. J. J.

    Freeth, Denzil

    Lindsay, Hon. James (Devon, N.)

    Atkins, H. E.

    Gammans, Lady

    Lindsay, Martin (Solihull)

    Baldock, Lt.-Cmdr. J. M.

    Garner-Evans, E. H.

    Linstead, Sir H. N.

    Balniel, Lord

    George, J. C. (Pollok)

    Lloyd, Maj. Sir Guy (Renfrew, E.)

    Barber, Anthony

    Gibson-Watt, D.

    Low, Rt. Hon. A. R. W.

    Barlow, Sir John

    Glover, D.

    Lucas, Sir Jocelyn (Portsmouth, S.)

    Barter, John

    Glyn, Col. R.

    Lucas, P.B.(Brentford & Chiswick)

    Baxter, Sir Beverley

    Gomme-Duncan, Col. Sir Alan

    McAdden, S. J.

    Beamish, Maj. Tufton

    Goodhart, Philip

    Macdonald, Sir Peter

    Bell, Philip (Bolton, E.)

    Gough, C. F. H.

    Mackeson, Brig. Sir Harry

    Bell, Ronald (Bucks, S.)

    Gower, H. R.

    McKibbin, A. J.

    Bennett, F. M. (Torquay)

    Graham, Sir Fergus

    Mackie, J. H. (Galloway)

    Bevins, J. R. (Toxteth)

    Grant, W. (Woodside)

    McLaughlin, Mrs. P.

    Biggs-Davison, J, A.

    Green, A.

    Maclean, Sir Fitzroy (Lancaster)

    Birch, Rt. Hon. Nigel

    Gresham Cooke, R.

    MacLeod, John (Ross & Cromarty)

    Bishop, F. P.

    Grimston, Hon. John (St. Albans)

    Macmillan, Maurice (Halifax)

    Black, C. W.

    Grimston, Sir Robert (Westbury)

    Macpherson, Niall (Dumfries)

    Body, R. F.

    Grosvenor, Lt.-Col. R. G.

    Maddan, Martin

    Bossom, Sir Alfred

    Gurden, Harold

    Maitland, Cdr. J. F. W. (Hornoastle)

    Bowen, E. R. (Cardigan)

    Hall, John (Wycombe)

    Maitland, Hon. Patrick (Lanark)

    Boyle, Sir Edward

    Harris, Frederic (Croydon, N.W.)

    Manningham-Buller, Rt. Hn. Sir R.

    Braine, B. R.

    Harris, Reader (Heston)

    Markham, Major Sir Frank

    Braithwaite, Sir Albert (Harrow, W.)

    Harrison, A. B. C. (Maldon)

    Marlowe, A. A. H.

    Browne, J. Nixon (Craigton)

    Harvey, Sir Arthur Vere (Macclesfd)

    Marples, Rt. Hon. A. E.

    Bryan, P.

    Harvey, John (Walthamstow, E.)

    Marshall, Douglas

    Bullus, Wing Commander, E. E.

    Hay, John

    Mathew, R.

    Burden, F. F. A.

    Heald, Rt. Hon. Sir Lionel

    Mawby, R. L.

    Butcher, Sir Herbert

    Heath, Rt. Hon. E. R. G.

    Maydon, Lt.-Comdr. S. L. C.

    Carr, Robert

    Henderson-Stewart, Sir James

    Milligan, Rt. Hon. W. R.

    Cary, Sir Robert

    Hesketh, R. F.

    Molson, Rt. Hon. Hugh

    Channon, Sir Henry

    Hicks-Beach, Maj. W. W.

    Mott-Radclyffe, Sir Charles

    Chichester-Clark, R.

    Hinchingbrooke, Viscount

    Nabarro, G. D. N.

    Clarke, Brig. Terence (Portsmth, W.)

    Hirst, Geoffrey

    Nicholls, Harmar

    Cole, Norman,

    Holland-Martin, C. J.

    Nicholson, Godfrey (Farnham)

    Conant, Maj. Sir Roger

    Hope, Lord John

    Nicolson, N. (B'n'm'th, E. & Chr'ch)

    Cooke, Robert

    Hornby, R. P.

    Nugent, G. R. H.

    Cooper-Key, E. M.

    Hornsby-Smith, Miss M. P.

    Oakshott, H. D.

    Cordeaux, Lt.-Col. J. K.

    Howard, Hon. Greville (St. Ives)

    O'Neill, Hn. Phelim (Co. Antrim, N.)

    Corfield, Capt. F. V.

    Howard, John (Test)

    Orr, Capt. L. P. S.

    Craddock, Beresford (Spelthorne)

    Hudson, W. R. A. (Hull, N.)

    Orr-Ewing, Charles Ian (Hendon, N.)

    Crosthwaite-Eyre, Col. O. E.

    Hughes Hallet, Vice-Admiral J.

    Osborne, C.

    Crowder, Sir John (Finchley)

    Hughes-Young, M. H. C.

    Page, R. G.

    Crowder, Petre (Ruislip-Northwood)

    Hutchison, SirlanClark (E'b'gh, W.)

    Pannell, N. A. (Kirkdale)

    Cunningham, Knox

    Hutchison, Michael Clark (E'b'gh.S.)

    Peyton, J. W. W.

    Currie, G. B. H.

    Hylton-Foster, Rt. Hon. Sir Harry

    Pickthorn, K. W. M.

    Dance, J. C. G.

    Iremonger, T. L.

    Pike, Miss Mervyn

    Davidson, Viscountess

    Irvine, Bryant Godman (Rye)

    Pilkington, Capt. R. A.

    D'Avigdor-Goldsmid, Sir Henry

    Jenkins, Robert (Dulwich)

    Pitman, I. J.

    Deedes, W. F.

    Jennings, J. C (Burton)

    Pitt, Miss E. M.

    Digby, Simon Wingfield

    Jennings, Sir Roland (Hallam)

    Pott, H. P.

    Dodds-Parker, A. D.

    Johnson, Dr. Donald (Carlisle)

    Powell, J. Enoch

    Donaldson, Cmdr. C. E. McA.

    Johnson, Eric (Blackley)

    Price, David (Eastleigh)

    Drayson, G. B.

    Johnson, Howard (Kemptown)

    Prior-Palmer, Brig. O. L.

    du Cann, E. D. L.

    Jones, Rt. Hon. Aubrey (Hall Green)

    Raikes, Sir Victor

    Dugdale, Rt. Hn. Sir T. (Richmond)

    Joseph, Sir Keith

    Ramsden, J. E.

    Duthie, W. S.

    Joynson-Hicks, Hon. Sir Lancelot

    Rawlinson, Peter

    Eden, J. B. (Bournemouth, West)

    Keegan, D.

    Redmayne, M.

    Elliot, R.W.(N'castle upon Tyne, N)

    Kerby, Capt. H. B.

    Rees-Davles, W. R.

    Errington, Sir Eric

    Kerr, Sir Hamilton

    Remnant, Hon. P.

    Erroll, F. J.

    Kershaw, J. A.

    Robinson, Sir Roland (Blackpool, S.)

    990

    991

    Robson Brown, Sir William

    Sumner, W. D. M. (Orpington)

    Walker-Smith, Rt. Hon. Derek

    Rodgers, John (Sevenoaks)

    Taylor, Sir Charles (Eastbourne)

    Wall, Major Patrick

    Roper, Sir Harold

    Taylor, William (Bradford, N.)

    Ward, Dame Irene (Tynemouth)

    Russell, R. S.

    Teeling, W.

    Waterhouse, Capt. Rt. Hon. C.

    Sharples, R. C.

    Temple, John M.

    Watkinson, Rt. Hon. Harold

    Shepherd, William

    Thomas, Leslie (Canterbury)

    Whitelaw, W. S. I.

    Simon, J. E. S. (Middlesbrough, W.)

    Thompson, Kenneth (Walton)

    Williams, Paul (Sunderland, S.)

    Smithers, Peter (Winchester)

    Thompson, Lt.-Cdr.R.(Croydon, S.)

    Williams, R. Dudley (Exeter)

    Smyth, Brig. Sir John (Norwood)

    Thornton-Kemsley, C. N.

    Wills, G. (Bridgwater)

    Spearman, Sir Alexander

    Tiley, A. (Bradford, W.)

    Wood, Hon. R.

    Speir, R. M.

    Tilney, John (Wavertree)

    Woollam, John Victor

    Spence, H. R. (Aberdeen, W.)

    Turton, Rt. Hon. R. H.

    Yates, William (The Wrekin)

    Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)

    Vane, W. M. F.

    Stevens, Geoffrey

    Vaughan-Morgan, J. K.

    TELLERS FOR THE NOES:

    Storey, S.

    Vickers, Miss Joan

    Mr. Brooman-White and

    Studholme, Sir Henry

    Wakefield, Edward (Derbyshire, W.)

    Colonel J. H. Harrison.

    New Clause.—(EXEMPTION FROM EXCISE DUTY OF SCOTTISH SHALE OIL.)
    (1)On and after the sixth day of August, nineteen hundred and fifty-seven, hydrocarbon oil produced from shale mined in Scotland shall be exempted from excise duty, and accordingly, on and after that date section two of the Finance Act, 1950 (which imposes a duty on hydrocarbon oils), shall have effect with the addition at the end of subsection (2) of that section of the following words, that is to say, "or
    (c) to oils produced from shale mined in Scotland".
    (2) The powers of the Commissioners of Customs and Excise to make regulations under section one hundred and ninety-eight of the Customs and Excise Act, 1952 (which empowers those Commissioners to make regulations relating to hydrocarbon oils), shall include power to make such regulations as appear to the Commissioners to be required to give effect to the last foregoing subsection.
    (3) Where excise duty has been charged before or after the passing of this Act, and by virtue of this section no such duty should have been charged, or the duty should have been charged at the lower rate than that at which it was in fact charged, the person by whom the duty was paid shall be entitled to repayment of the amount of the overcharge.—[Mr. J. Taylor.]
    Brought up, and read the First time.
    8.30 p.m.
    Mr. John Taylor: I beg to move, That the Clause be read a Second time.
    At first sight, the Clause appears very complicated, but I need not go into details except to say that its purpose is to exempt the chief indigenous oil industry of this country from taxation. The times I have spoken on this subject have been numerous. This is indeed the fourth time within one Parliamentary year, but this occasion is also the second time within a Parliamentary year when I have submitted precisely the same new Clause, and I feel that I can adopt perhaps a slightly different approach to it.
    992
    On the eight or nine occasions on which my hon. Friend the Member for Midlothian (Mr. Pryde) and myself, who represent the two constituencies mainly, indeed wholly, affected by this important home oil-producing industry have spoken on this subject, our emotions have run through the whole gamut from extreme acerbity and indeed anger to almost pitiful pleading to the Ministers concerned.
    On this occasion, I have a certain instinct about it, or at least I had until a moment or two ago. I see that the reception which this new Clause is receiving is very similar to that given by numerous other Financial Secretaries to the Treasury—I do not want to be tactless about this, but up to this moment it has been an attitude of almost supreme indifference. I was saying that the reception has been that kind of reception hitherto, but I had a certain instinct that on this occasion it might be received more kindly.
    I am induced to that opinion for two main reasons. First, the Paymaster-General, speaking in his capacity as the Minister responsible in the House of Commons for fuel and power policy, on 30th April last, in the course of a remarkable and interesting speech outlining the Government's policy on fuel and power at a time when it was supremely important, said:
    "… the Government must have an overall responsibility for the strategy of fuel policy and must be prepared to intervene, to guide, influence and stimulate where necessary so as to enable us to meet our two main objectives: first, to ensure that our fuel supplies are adequate; and, secondly, that the contribution to our balance of payments from indigenous supplies is as large as we can possibly make it."—[OFFICIAL REPORT, 30th April, 1957; Vol. 569, c. 36.]
    That was a very important pronouncement, and I listened to it with the greatest

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    possible gratification, because it was the first indication that we had had since 1952 that the Government were concerned about indigenous oil supplies.
    The second reason I feel more hopeful tonight than on previous occasions when speaking about this important industry is that there is surely no conceivable argument against supporting a British oil-producing industry. There is no conceivable argument for letting an industry of that nature die. The hard, inescapable, irrefragable fact is that unless the Clause or a similar one is conceded, the industry will die, and a source of almost priceless oil will be lost to the nation.
    I have been surprised in previous debates to discover what a large number of people in Britain do not know that we produce oil in this country. It is a revelation to them that we have a home oil supply which produces first-class diesel oil and excellent motor spirit. I have never at any time pretended, nor has my hon. Friend the Member for Midlothian, that this is a considerable source of supply. We have always frankly stated that in comparison with this country's total oil consumption it is an almost infinitesimal supply. Nevertheless it is a source of oil. It is a British source. Indeed, it is a Scottish source of oil.
    Perhaps hon. Members will forgive me if I remind them that this was the pioneer oil industry of the world. There was not an oil industry in the world until that of West Lothian and Midlothian was established. The first oil ever used in the United States of America was carried over the Atlantic from the West Lothian oil industry.
    Today this industry is a highly efficient one. We have frankly admitted that it is not possible to produce oil from shale as economically and cheaply as oil is produced from what are termed within the oil industry as "natural resources". Nevertheless, research is going on continuously, and in other parts of the world, particularly the United States, there is an increasing supply of oil from shale. The United States Government have seen the value, advantage and potential of this source of oil and Congress has voted considerable sums in order to increase the research. There have recently been important pronouncements to the effect
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    that, as a result of the research, it is believed that it will soon be possible to produce oil from shale at the same cost as that produced from natural sources.
    I have not pretended that this industry can, in present circumstances, be economic in competition with well-produced oil. I have tried to be honest about this and to be non-partisan about it. I welcome the support of hon. Members opposite, hon. Members who understand that the purpose behind the Clause means a great deal to Scotland. I have always been encouraged to be non-partisan in this issue. It is a great temptation to score party points in matters of this kind, but I have always resisted that temptation—it is almost the only temptation I have been able to resist; I can resist almost anything except temptation—because, when discussing what is not merely an important constituency point, but one of considerable interest to his native country and Britain as a whole, the prime concern of an hon. Member should be the broad effect on the national economy rather than that of merely trying to be popular with his own constituents or his own party.
    This industry employs 3,000 people. At one time, the number was 12,000. The industry and others in the area dependent on it—there is no compensating industry in the area—are essential to a large number of my constituents and other people in the vicinity. It is most important to them that this industry should not die. Within the last year we have had a salutary lesson about the value to this country of every drop of oil, and it seems impossible that there can be any argument for allowing the industry to lapse, as it will unless it receives this support.
    It is an amazing and an almost Gilbertian situation that we should have an industry which is producing a valuable product and which is being strangled by a form of taxation which was never meant to apply to it. The Excise Duty on oil was never meant to apply to such an extent that our small, but important indigenous oil industry should be strangled to death by it, particularly after the events of the last twelve months.
    Facing these facts, persuaded by these arguments, unable to contemplate that the Government can turn down this proposal again, as they did last year when they gave it an almost contemptuous

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    reception, in view of all that has happened since then, since this has become a major issue in Scotland, this is regarded in Scotland as a symbol of the Government's attitude towards Scottish industry. By inattention and indifference the industry has been allowed to contract to 25 per cent. of its total capacity.
    In view of other indications, such as the withdrawing of maintenance facilities for civil aircraft and the probable closing down of ordnance factories, this is regarded as a test of the Government's attitude towards Scottish industry. This small and easily-given gesture at little cost to the nation will be well worth the Government's while, and we cannot conceive that they will ignore it.
    8.45 p.m.
    I hope that if there are technical reasons why the Clause in its present form is unacceptable and if there are constitutional reasons why it cannot be met, the Financial Secretary will give us some hope that there are other means of sustaining, maintaining and guaranteeing the future of this industry which could be expanded to increase its present output by 50 per cent. and could continue for another twenty years usefully producing oil for this nation inside this nation.
    I think that it would be a good thing, if my hon. Friends and other hon. Members who support the Motion agree with me, that the Financial Secretary should indicate immediately whether he is inclined to be forthcoming or helpful on this new Clause. By doing so he might shorten the debate considerably. If he is inclined to give that indication, I am sure that we should all welcome it very much. If, on the other hand, he prefers the debate to run and intends to give us another dusty answer, I am afraid that my hon. Friends are bound to express their indignation I do not say that as a threat. It is their duty to do so and they would be failing in their duty to their country and their constituencies if they did not do so.
    I have made speeches on this subject so often that anything that I say sounds in my ears like tedious repetition. I will, therefore, content myself with what I have said and hope that at this stage the Financial Secretary will be helpful towards this very valuable and potentially
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    long-living industry which has had such a hard time in the last few years.
    Mr. Powell: I do not know whether I am correctly interpreting the rather ambiguous invitation which the hon. Member for West Lothian (Mr. J. Taylor) has issued to me, but perhaps it may be convenient, in any case, if I intervene at this point.
    He has discussed once again the past of this industry, has reminded the Committee of its unique character and has once again voiced the anxieties which I and Her Majesty's Government know are felt in the area, and in Scotland, in regard to its future. Of course, in looking at the Clause, we are considering a purely fiscal question. We are considering not the general question whether, and if so what, assistance ought to be given to the industry, but the fiscal question whether it is right and wise that the Excise Duty on indigenous oil—the preference which indigenous oil as a whole enjoys—should be increased in regard to this sector of indigenous oil by the exemption of it from Excise Duty.
    It is quite true that if it were possible and practicable to isolate this small element of indigenous hydrocarbon oil, the cost of its exemption from Excise Duty would not be immoderate. It would be something of the nature of £750,000 per annum, although, of course, that represents a sum of £4 or £5 per head of the men employed in the industry.
    The question is whether it would be possible to maintain for any length of time a distinction between this sector and the whole of indigenous hydrocarbon oils. From the beginning of the Excise Duty upon hydrocarbon oils in 1928, indigenous hydrocarbon oils have always been treated specially and uniformly.
    Before the war, each time a guarantee was given that that special treatment would last for a certain number of years, it was given for indigenous oils of all kinds and from all sources. When preference has been given, either upon the occasion of an increase in the general duty or, as for example, in October, 1953, when the preference was increased by 6d. for indigenous hydrocarbon oils, the industry has always been treated as a whole and no distinction has been made between one section and another.

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    Frequently—and, indeed, quite recently—representations for a reduction in the rate of excise and an increase in the preference have been received from other sections of the indigenous oil industry. I would therefore suggest to the Committee that it is really unrealistic to imagine that it would be possible for long to give a special preference to one section of the industry.
    Mr. J. Taylor: I appreciate the hon. Member's argument and his difficulty, but does not he think it important to take into consideration the fact that whereas practically all the rest of the industry produces oil as a by-product of some other process, the shale oil, and the oil produced from the borings in Nottinghamshire, which is refined in the refineries of the shale oil industry, is the main product? Is not there a distinction? Is it not possible to give an additional preference to that section of the industry where oil is the main product?
    Mr. Powell: I intended to remind the Committee of the point which the hon. Member has just made, namely, that oil which is not shale oil is actually refined together with shale oil in the Lothians, so it would clearly be impracticable to avoid going that step further in making a special concession. But, step by step, the other sections of the industry have made strong representations, based upon their difficulties and their situation, for preference and relief. It was not merely with regard to the difficulty of the shale oil industry but in relation to the position of the indigenous oil industry as a whole that the latest reduction in Excise Duty was made, in October, 1953.
    The cost of the extension of what is here suggested to all indigenous hydrocarbon oils would be very substantial—about £10 million a year. I must, therefore, tell the Committee that it would be imprudent and unrealistic to suppose that this particular preference could be given to this particular section of the industry without its being rapidly extended to the rest of the industry and without a quite irresistible pressure to take that action developing.
    I repeat that that does not mean that because the fiscal method is impracticable—and certainly highly unselective—there may be no case for other means being
    998
    used for the assistance of the industry, as the hon. Member himself mentioned. That is not a question for the Treasury. I am concerned here only with the fiscal question. I would ask the Committee, however, not to deduce that, because I feel obliged to advise it against making a concession upon the Excise Duty, the Government are unaware of the difficulties under which the shale oil industry is placed, and that for this reason the application of other means is necessarily ruled out.
    Mr. David J. Pryde: The Financial Secretary has not improved upon the position from last year. I was not particularly satisfied with the defence of the Government last year. I felt that it was wobbly and most unsure and that apparently the Government spokesmen were not then, and are not today, aware of the economic position of free oil compared with indigenous oil. We are told that the comparison is in favour of so-called free oil. There is no such thing as free oil because, if the oil got from the Middle East is costed realistically, if everything is taken into account and it is brought to Southampton, then common sense tells us that the indigenous oil in this country or in Scotland is far cheaper than that brought from the Middle East. The proof is that the natives of Kuwait are worth thousands of pounds individually and that the people in Scotland who produce the indigenous oil, and have done since the history of oil began, are on National Assistance.
    The shale oil industry in Scotland is a rich industry. It produces detergents which are given the go-by so far as costing is concerned. We are not asking for any subsidy. We ask for a square deal, and we are not getting it. The whole of Britain is behind this so-called free oil, but there is nothing behind the shale oil of Scotland. Last year we were told in most superior tones that there was "nothing doing" so far as the United States were concerned, so I took the trouble to get in touch with a great American who stands very near the Presidential chair and I have his letter in my hand. I will not give his name. He states:
    "Several of us have viewed very carefully the prospects in regard to the shale oil in the Lothians and also in cannel coal. We agree they are a sound proposition …"

    999
    The writer says, inter alia:
    "You will require to please depend upon your own British financiers for an approach to the problem."
    In short the Yankees are not caring about interfering, but he gives it the character of being a sound proposition.
    I was not satisfied because what I was after was money to prove conclusively that Scottish shale oil could be worked economically. I got in touch with the Mayor of Laramie who proved to be a lady. With the celerity of her sex she put me in touch with the Minister of the Interior. In turn he sent me two brochures. Apparently the Yankees "know their stuff," to use the phrase used recently by the Economic Secretary, because they have two great experimental plants, one in the University of Wyoming, and they are at the disposal of the Government. That demonstrates clearly that the United States is not of the same way of thinking as the British Government. It tells me that huge deposits of oil shale exist in Colorado and Wyoming and that the Americans are experimenting to such an extent that they are not afraid of the day when oil will run dry.
    9.0 p.m.
    Oil will never have the age of coal, and is bound to go dry, as far as economy is concerned. It will never be able to carry on for the same length of time and in such widespread fashion as has been the case with coal. Even coal is being burnt and sent up chimneys in smoke when we might be producing oil from it. Information which I have from the City of London tells me that the day of coal in Scotland is yet to come—cannel coal.
    I have here a photograph of the Lothian coal field, north and south. The coal field contains untold wealth. It is nearly three miles across, is below two rivers and has more seams than any coal field in Britain—of rich cannel coal. The authors of this document say that it can produce fifty gallons of oil to the ton.
    I had another stroke of luck during the year in pursuing my inquiries into the Government's position in obtaining oil from coal. Two South African engineers, both Scots, called on me on their way back from the United States. They were briefed to go to the United States to study the American technique in mining. When
    1000
    they called upon me here I put certain questions to them. When I stated the Government's difficulty they laughed and said, "Look at South Africa. We have no oil deposits, but we have a coal field. Our extraction of oil from coal is quite sufficient to keep us in fuel."
    Scottish coal has a greater calorific quality than any coal in South Africa yet we send it up the chimney because the Government say it would not be an economic proposition to turn it into oil. They forget about the battleships, the seamen, the tankers, the harbours and the baksheesh to the sheiks of the Middle East. I ask the Committee to go into the Division Lobby and tell the Government straight that they have to do something because failure to do it is neglect of their duty in taking care of this country.
    Mr. J. C. George: I had great pleasure in going along with hon. Gentlemen opposite until the speech made by the hon. Member for Midlothian (Mr. Pryde). I am afraid that he did not pay close enough attention to what was said in reply to the hon. Member for West Lothian (Mr. J. Taylor). I feel that the fight has failed on one ground. I confess that I am not able to answer the argument put forward by the Financial Secretary regarding the impossibility of separating the products of the shale oil industry from other oil products. I can quite appreciate that that is a tremendous difficulty, but, though I may be putting it too high, I felt that in not ruling out some other method of assisting the industry, my hon. Friend had gone a very long way to giving us hope—
    Mr. James McInnes: Could the hon. Member say what the other methods are?
    Mr. George: I would not press that issue at this stage. I am quite happy to feel that the Government are thinking along other lines to assist—
    Mr. William Ross: I wonder whether the hon. Gentleman heard what his hon. Friend said. He said that he was not committing anyone at all.
    Mr. George: That is quite true, and I would not expect him to say anything else at present, but he did not rule out

    1001
    some other method being used, and I am extremely happy to have that said, if nothing else.
    We have travelled far in this debate, but I would like to put forward a few of the arguments that I had intended to use to show where we stand on this issue. We feel, as the Minister said, that this is a unique industry. It is, indeed, a unique industry, and its importance has been substantially increased by recent happenings. I have here the World Economic Survey for 1956, published only this week. In Chapter 4, page 10, talking about the supply of energy, it says:
    "The Suez crisis in the fall of 1956 dramatically focussed the world's attention on Western Europe's energy problem. The immediate impact of the blocking of the Suez Canal and the damage done to one of the major oil pipelines was an acute shortage of oil in most of the Western European countries. More important in a longer perspective was probably the exposure of the high degree of vulnerability of one of Europe's major sources of energy."
    In different words, we have said these things before about the shale oil industry, and we reiterate them now. I cannot imagine that we could, unless the cost was unreasonably high, stand aside and see an indigenous source of oil destroyed at this time. Therefore, I join with hon. Gentlemen opposite. I will not press that issue further now, but I would step aside to answer one of my hon. Friends, who interjected earlier to say that imported oil was, perhaps, not as cheap as it seems.
    Arguments have been put forward before by hon. Members opposite, pointing out that we cannot isolate from imported oil the cost of the former Suez base, of the Cyprus base, of the cost of Jordan. All these things represent invisible costs. That was a point which the hon. Member for Midlothian (Mr. Pryde) was trying to make. Though not apparent, those costs should be added to the cost of imported oil.
    Perhaps I should be in order in discussing what might happen if nothing were done to assist this indigenous oil industry. The immediate impact, the shock, of nothing being done has already been graphically described by hon. Gentlemen opposite. The fact is that almost 3,000 men are employed in the industry, and they would not very easily find alternative employment in the area.
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    There has been going on a gradual process of running down, and jobs have been found a long way off for many of the men by the very public-minded company that runs the shale oil industry.
    The Government should remember that the industry has not reached a crisis only because that company has continued to lose money in keeping the industry going at a heavy loss for some years. That is, indeed, a great act of public service. The company could decide that it had gone on long enough, and if it saw no hope of help coming and suddenly shut down the industry there would be severe unemployment in that area.
    If the plea made by those of us who have put our names to this new Clause is completely unsuccessful, the other aspects of the matter should be thoroughly studied. If 3,000 people became unemployed in the area, there would be an immediate demand in Scotland for the scheduling of the area under the Distribution of Industry Act.
    Mr. Pryde: Is the hon. Gentleman not aware that this was the first area scheduled under the Distribution of Industry Act, and it still is today, having had no assistance at all?
    Mr. George: If not for scheduling under the Distribution of Industry Act—I am glad to have the information the hon. Gentleman has given me—then for action under the Distribution of Industry Act. The Chancellor might be faced with fairly heavy burdens in providing factories for the area to take up the workers who would be rendered unemployed by a shut-down.
    Therefore, there should be, if not a complete exemption, some means found to give the industry a reason for carrying on on an agreed run-down policy. That assistance should be arranged so that no loss would be incurred during the time of running the industry down from its present size to a stage when it would be completely extinguished. During that time, when the company would not be incurring heavy losses, there would be a chance for the mobility of labour to operate. An opportunity for labour to be removed from that area to other districts would be open to us, and we should, in the end, perhaps, avoid the need to spend money on factories by transferring workmen to areas where they were needed

    1003
    and where their work would be of use to the country as a whole.
    The job might be done in two parts. The mobility of labour might be allowed to run its course, efficient miners, perhaps, finding work in the mining area or, perhaps, in the expanding Grangemouth area. Then, at the end, if we found that there was a hard core of unemployment, and that it would be far better to use social capital already in the area and build some factories to provide work for the rest, that might, perhaps be done and be found to be cheaper in the long run.
    There is good reason now for the Treasury or another Department having close contact with those who run the industry and working out a plan to—let me use the word—subsidise the industry for a short term of years in order to carry out its run-down, as I have suggested, transferring population without hardship, and, perhaps building some factories to employ workmen who could not be employed elsewhere.
    I believe that the problem before us should be studied very carefully now by the Departments concerned, principally the Board of Trade. It should be looked at in the light of a social problem which must, sooner or later, confront us.
    The Deputy-Chairman (Sir Gordon Touche): The hon. Gentleman is going far beyond the new Clause.
    Mr. George: I hoped that I was in order in discussing what would happen if this new Clause were not accepted.
    I feel that I can summarise the matter by saying that the industry is of great importance to the nation. There is a strong feeling in Scotland that it should not be allowed to close down. If we cannot succeed in the plea we make in moving the new Clause, some arrangements should be made to deal with unemployment in the area by the subsidising of the industry over a number of years and, perhaps, building factories to take up those ultimately unemployed.
    Mr. E. Shinwell: My only excuse for intervening in this debate is that more than thirty years ago I represented the Parliamentary division of West Lothian, which is the principal district where shale mining is undertaken and
    1004
    where oil is produced. I recall the debates we had at that time on precisely the subject which is occupying our attention this evening.
    Mr. Ellis Smith: My right hon. Friend wrote a pamphlet too.
    Mr. Shinwell: The problem then was rather more acute than it is now, because the industries of the surrounding area were not then as varied as they are today. Even now, they are far from satisfactory in relation to the need for absorbing unemployed persons.
    9.15 p.m.
    In spite of what has been said, I do not think that this problem of the shale oil industry can be solved exclusively by fiscal means. It is true that thirty years ago the industry was sustained, but only after considerable pressure by Parliamentarians and outside interests and by the adoption of fiscal methods, implying a preferential treatment, and even then it was regarded as a temporary device. I think more is required than the operation of the fiscal method.
    I was particularly interested in what the Financial Secretary said in almost his concluding sentences. He rejected the proposal submitted by my hon. Friends, but said that there were other means. We do not know what those other means are. It may be that before the debate is concluded a little more information will be furnished to hon. Members on that score. May I venture to tell the hon. Member what I believe is a possible way of dealing with this problem, apart from the purely fiscal method?
    Let the history of this industry not be forgotten. It goes back a long time. It goes back to the days of Mr. Young, who was responsible for its formation in the township of Broxburn more than 100 years ago. At that time the intention was to produce paraffin, for obvious reasons, in the days before gas and electricity were used. It developed until it was discovered that through the production of shale there could be produced not only paraffin but oils of various kinds. In consequence of the production of oil and its refinement, it was possible to produce a great variety of by-products. The shale industry not only produces shale and then oil. It also produces candles and wax and a great many other derivatives. It is therefore a very important industry.

    1005
    In the twenties and thirties the problem assumed a new form because Scottish Oil, which was an individual undertaking, was conjoined with the old Anglo-Persian Oil Company, and the Anglo-Persian Oil Company exercised some supervision over Scottish Oil. The old Anglo-Persian Oil Company has become the British Petroleum Company. It should be noted that the Government's holdings in the British Petroleum Company, at one time the Anglo-Persian Oil Company, are about £400 million or £500 million, which is a vast sum. Is not it possible for the Government to use some part of the profits which they derive from their holdings in Lie British Petroleum Company for the purpose of buttressing the shale oil industry, at any rate for a time, until it is possible, as a result of further inquiry, to ascertain what are the best means of enabling the industry to survive? That is a perfectly fair proposal which I put to the Financial Secretary.
    If it had not been for the enterprise of a Government before the First World War we should not have at present this extensive financial holding in British Petroleum. Although it was undertaken at the time for strategic reasons, ever since then there have been commercial considerations to take into account. Be that as it may, the point is that in these profits, to which the Government do not contribute themselves, for this is a purely financial holding, there is an opportunity to provide some financial help to enable the Scottish oil industry to continue, if not for an indefinite period then at any rate for some time to come until it is possible to ascertain what is to be the industry's future.
    I will not enter into all the social and economic considerations involved—the question of employment or unemployment and what will happen to the townships of Broxburn and Uphall and some of the other villages and townships both in West Lothian and in Midlothian. It will be very hard for them in the future if something cannot be done for the industry. It is true that the industry does not employ anything like the number employed thirty years ago. The number of shale miners has been reduced by two-thirds but, on the other hand, it should not be forgotten that as a result of the expansion at the Grangemouth
    1006
    refineries, as a result of this Scottish co-operation with British Petroleum, a very large amount of employment is found for people engaged in the refineries.
    I do not enter into the question of social considerations and the possibility of further employment, but I support the hon. Member for Pollok (Mr. George) and say to hon. Members that here is an important source of indigenous oil. I protest against its abandonment just as I have protested many times about our refusal to use our coal resources similarly for the production of oil and various oil derivatives. Where we have an important industry of this kind it should not be abandoned. We should use the oil, not for the purpose of providing employment but because in a country like ours we cannot afford to abandon any of our natural resources.
    When I was Secretary for Mines in 1923–24 I had to deal with this problem, as I had to deal with it subsequently as Minister of Mines. It came before us again when I was Minister of Fuel and Power. This is not merely a social problem for West Lothian or Midlothian or a question of maintaining a number of people in employment. It is a question of whether we in a small country, with a vast, overcrowded population and with very few natural resources, can afford to neglect this matter. This argument can be extended in many directions, to coal and even to copper, to tin, to timber and to lead. I do not believe that we have exhausted the possibilities of geological survey in this country. Some surveys have been undertaken but not in an exhaustive fashion.
    There is nothing partisan about this argument. It is a question of what is best for the country. Even if we differ from time to time, as undoubtedly we do, we must concern ourselves, at any rate on some occasions, with what is best in the interest of the country. I beg the Financial Secretary and the Economic Secretary to give this matter their attention. I ask them to give my hon. Friend the Member for Midlothian (Mr. Pryde) some indication that there is a little hope in the future by considering, if not the fiscal method of approach—which is not I believe a complete solution—whether there is some means, probably through using some of the funds at the Government's disposal derived from profits in

    1007
    British Petroleum for the purpose, temporarily at any rate, of bolstering up the industry until an effective and lasting solution can be found.
    Dr. J. Dickson Mabon: We are very much indebted to my right hon. Friend the Member for Easington (Mr. Shinwell) for his formidable support of this case. As my hon. Friend the Member for West Lothian (Mr. J. Taylor) said, this matter has been raised on numerous occasions in the House, and each time we have been given a dusty reply. On this occasion a glimmer of hope is given by the Financial Secretary, namely, that there are other means by which the case which we seek to present can be met.
    My right hon. Friend the Member for Easington has underlined one possibility, but, with all respect to him, that is a speculation. The Government have not indicated that it is the avenue of approach which they will follow in this case. Indeed, as my hon. Friend the Member for Kilmarnock (Mr. Ross) said, the Government have committed themselves to nothing. Unlike the hon. Member for Pollock (Mr. George), I am not prepared to accept the idea that the Government have some well-meaning and effective plan by which to save the industry.
    That is not a dramatic phrase—"to save the industry"—because, since we raised the matter in the House a year ago, its production has dropped from 100,000 tons to 78,000 tons in one year. There have been substantial closures of factory installations, and the prospect of unemployment is now becoming alarming to the men and women in the constituencies so affected. The people of Scotland are very much perturbed, not only those in West Lothian and Midlothian, but all over the country, that one of the ancient Scottish industries should apparently be deserted by the Government.
    We are entitled tonight, before any effort is made on our side to withdraw the Motion or to seek in any way to be helpful to the Government, to have a firm undertaking as to what the Government intend to do, instead of having a non-committal phrase about "other means." Is it true that it is fiscally impossible or undesirable for the Government to take any action? That was the case of the
    1008
    Financial Secretary, although it strikes me, with some appreciation of the ingenuity of the Treasury, that it cannot be impossible for the Treasury to devise some way of separating one part of the industry from another for the purpose of taxation.
    That apart, the next argument is that there are some other means. We should like to know what those means are. Is it true that it is simply the province of British Petroleum to save the indus1try? Is it true that British Petroleum is neglecting it and allowing it to perish? Is it dying of the indifference of private enterprise or of the indifference of the Government? Which? We are entitled to know. Nobody can deny that the industry will perish in a matter of three or four years. That will be the end of it, and we shall have no means of resisting that. We are entitled to know the position. As I have said, the matter has been raised on numerous occasions, and each time we have been given an answer which has led the industry precisely nowhere.
    Are we now to go back to Scotland and say that we have raised it again, that we have been given this new answer, but that in a year's time the industry's production, which has already fallen substantially over last year, will fall again and that we now have had the death sentence of the industry? We will not do that. I hope, therefore, that the Financial Secretary will give us an indication now as to what is to happen to save the industry. Otherwise, party politics aside, there is no doubt that the Conservative Government will stand condemned as being indifferent to the future of this substantial industry.
    9.30 p.m.
    Mr. William Ross: I want to probe a little further into the answer from the Financial Secretary to the Treasury, and to try to disabuse the hon. Member for Pollok (Mr. George) whose support for the shale oil industry seems to be faltering. The hon. Gentleman is certainly very quickly persuaded from making efforts at the right time.
    The Financial Secretary said that he did not rule out some other form of help being made available, quite apart from this Clause. May I ask the Financial Secretary whether this matter has been

    1009
    discussed by himself with other Ministers? Has it been the subject of discussion at all, to his own knowledge, with the Secretary of State for Scotland, the Minister of Power or anyone? Or is this just a phrase which he put in for the purpose of answering the speech of my hon. Friend the Member for West Lothian (Mr. J. Taylor) in moving this new Clause?
    I think we are entitled to know especially when we hear that an hon. Gentleman of considerable acumen and good business sense who represents the Pollok division of Glasgow, who realises that something could or should be done for this industry, is prepared to drop his support for the shale oil industry on that one phrase.
    The second point is this. To my mind, there is a certain amount of confusion in the hon. Gentleman's reply. He said at one stage that it was difficult and well-nigh impossible to separate the shale oil industry from other indigenous industries, but later on he said that if the Government granted this concession, which would mean £750,000, they would be met by claims for similar treatment from all the other indigenous industries, and together the cost would come to about £10 million. The hon. Gentleman must make up his mind one way or the other. Is it administratively impossible to accept the suggestion that we have put forward? If it is not impossible, and if the Government could meet it, the hon. Gentleman must then persuade the Committee that this proposal should be turned down on its merits.
    The merits of the proposal are simply these. This industry is dying. The relief that could be given by the acceptance of the suggestion in the new Clause will cost £750,000 a year, and that £750,000 might go well on the way to stopping the rot in the industry. That is the simple fact, and to place against that a promise that something could be done by somebody else unspecified is something that I for my part, and I hope no one else on this side of the Committee, is prepared to accept.
    I think it has been made perfectly clear by my hon. Friends that we are not raising the matter purely as a matter of local politics. My right hon. Friend the Member for Easington (Mr. Shinwell), in
    1010
    a speech which I certainly applaud not only for its sincerity, but for the way in which he went back to thirty years ago and brought forward historical facts and figures, which indicated a very fine grasp and memory of that situation, pointed out that in actual fact this is something related to our national well-being. I am not inhibited, as was my hon. Friend, by feelings of non-partisanship, and my hon. Friend did not get very much for his own attitude of non-partisanship today. It is a curious fact that we have two sources of oil in the Commonwealth and in our own country, and the Tories sell one of them and let the other die. It is a record of which to be proud, is it not?
    The actual fact is that if we take what was spent over our pre-occupation with the safety of our other oil supplies, and spent rather foolishly in the minds of a majority of hon. Members in this House, what was spent in two months could have set this industry on its feet for more than twenty years. Not only would it have saved it from dying, but it would have led to an expansion of that industry which would have brought some real return for the money expended. When we take into account the invisible cost, as stated by the hon. Member for Pollok and by my hon. Friend, there is no doubt that the Government should consider this modest request for this relief, which would amount to only £750,000.
    I sincerely hope that a Government representative will give us another reply, because the first reply was neither satisfying nor clear. I feel that if we do not have an adequate reply and are not told that there is a concrete proposal for further help, as was hinted at by the Financial Secretary, we should have no hesitation in registering our opposition in the Lobby.
    Mr. Jay: The Financial Secretary gave a totally unsatisfactory answer to the very powerful and convincing arguments that were advanced from this side of the Committee. It may be that the Chancellor will come in in ten minutes' time and again throw over the Financial Secretary; but he has not yet done so.
    The Financial Secretary told us that the Government might do something unspecified at some time, but he did not tell us when, what or how. That seems to me to be a most feeble reply to the arguments

    1011
    of my hon. Friend the Member for West Lothian (Mr. J. Taylor). The hon. Gentleman says that the difficulty is that one cannot discriminate in tax relief between one form of indigenous oil and another. If that is so, why does he not grant the relief to all forms of indigenous oil production? Surely, any form of indigenous oil production at present is an extremely precious national asset, whether it is from shale oil or otherwise.
    If the Financial Secretary's objection to that is that the cost, £10 million, would be too great—I am not at all sure that I should accept that—I would suggest two practical compromises. Why should he not go at least part of the way to meet my hon. Friend and apply the concession over the whole field of indigenous oil production? If the hon. Gentleman has some objection to that, why should he not make a slight adjustment of the Hydrocarbon Oil Duty generally in such a way as to give this relief to home produced oil so that there would not be any net loss of duty to the Exchequer? I feel sure that that must be possible arithmetically; at all events, it must be possible to reduce the loss to a negligible sum.
    The case for doing something in this respect must surely be absolutely overwhelming. Home produced oil must surely be more valuable than almost any other economic asset that we could have. If the Government have not been convinced of this during the past year, goodness knows what will convince them. It is incredible that during the past year the production of oil by the Scottish industry has fallen. My hon. Friends are correct in saying that in the United States the production of oil from shale is developing and expanding and a great deal of money is being devoted to research into the production of this type of oil.
    I urge the Financial Secretary, or the Chancellor if he can be brought in once again to rescue the Financial Secretary, to tell us here and now what measures the Government have in mind to assist the industry. We wish to be told in concrete detail what they are and when the Government will apply them. If we cannot be told this, I hope that my hon. Friends will carry the matter to a Division.
    Mr. Bence: There is a simple point which has occurred to me tonight and on many previous occasions. I have fre-
    1012
    quently listened to debates on subsidies for agriculture and fishing. The last time I listened to debate on fiscal policy in respect of fishing, I found that a different subsidy was given for different types of fishing. In granting subsidies the Treasury seem to be able to distinguish between one type of fishing and another and one type of farming and another, but when we ask for Income Tax relief for an industry so important to the national economy the Treasury says that it cannot distinguish between one form of production and another.
    This occurs time and again. I am not an expert in oil production and I know nothing about shale oil, but are we really to believe that it is absolutely impossible to distinguish between oil produced from shale and oil produced in other ways? I cannot accept that and I hope that the people of Scotland will not accept it. I am satisfied that if we can give different subsidies for different kinds of fishing we can distinguish between different forms of oil extraction. When we consider the money we spend year by year and the risks which we took last year, risks which may have plunged us into world war, to save oil in the Middle East, it is remarkable that we should be told by the Financial Secretary that it is impossible to separate shale oil from other oils and so we can do nothing about it.
    That may be the view of the experts, but if it was possible to raise the hullabaloo and do all that we did with the organisation and terrific concentration of power to save oil in the Middle East, surely we can find the £750,000 which the experts in the Treasury tell us would be needed to save production of the indigenous shale oil in Scotland. This is a simple proposition in view of what we have done in other matters and I hope that the Government will reconsider and make this concession.
    Mr. J. Taylor: When I heard the reply of the Financial Secretary I was rather sick with disappointment. I was hoping that this proposal would be accepted, but it was a hope apparently based on insufficiently sure foundations. I thought that our case had been made. Trying to gather what crumbs of comfort I can from the final sentence of the Financial Secretary, perhaps hon. Members will forgive me if I press him on these matters, as some of my hon. Friends have done.

    1013
    The hon. Member based his case on the constitutional and fiscal impossibility of acceding to the proposal. He said that, fiscally, it was not possible to separate one source of indigenous oil supply from other sources. Why is it impossible? It can be stated in a moment that the present production of oil from shale is 78.000 tons. We know of every drop of oil, derv or motor spirit which is produced from shale; obviously, because we have to know for tax and Excise purposes. We know of every drop which comes from by-products in every process. We know to precisely half a pint how much oil we refine in our refineries is produced from oil wells in the constituency of my hon. Friend the Member for Newark (Mr. Deer). It is 66,000 tons. The refineries at Pumpherston and Westwood between them refine 26 per cent. of the indigenous oil supplies in this country.
    As a matter of fact, the remaining sources of indigenous oil are by-products of other industries. There is no tenable case against the proposal for not only increasing the preference, but abolishing Excise duty on shale oil. A comparatively large proportion of our indigenous oil supply, 314,500 tons a year, comes from hydrogenation. That is 57 per cent. of our indigenous oil supply. There is no difficulty about separating those figures.
    9.45 p.m.
    A very large number of industries that produce these other sources as byproducts have no reason for the concession and I would not argue their case. I am arguing that this is simply and fiscally possible and that there is no difficulty about it. I cannot and never could understand the argument that because we give this concession to one section of indigenous industry we must give it to all. There are different reasons and different cases.
    When the Financial Secretary hints that there are other methods of assistance, will he tell us what those other methods are, or give us a hint as to what they are? He says that it is not a matter for the Treasury. In that case, for what Ministry is it a matter? Is it the Ministry of Power, and, if so, by what means? What other Ministry could it conceivably be? In any case, must it not come back to the Treasury in the long run?
    1014
    These are really important matters to Scotland and to this industry. I know that I have been saying for five years that this industry is dying and the Treasury can perhaps be excused for saying that, like King Charles II, it is an unconscionable time in doing so. But this industry is really hanging on, hoping, year by year, to get some assistance.
    Mr. Ellis Smith: I hope that my hon. Friend will not forget the constructive proposals made by my right hon. Friend the Member for Easington (Mr. Shinwell).
    Mr. Taylor: What I am trying to produce from the Financial Secretary is precisely what action he has in mind. I do not think that, knowing him as I do, he would make such a statement unless he had a proposal in mind. It would be completely unworthy of him and I do not believe for a moment that he is just saying this to fob us off. I am quite unrepentant about maintaining a nonpartisan attitude about this Clause, because I do not think that it is a party matter, and I refuse to try to make party capital out of a matter which is so vital to my constituency.
    Finally, will the Financial Secretary tell us exactly what is the position? May I say to my hon. Friends who have pointed out that there has been a 25 per cent. reduction in the products of this industry during the last year that the reason is that the industry was bound to make contractions on its most uneconomical section. We are hoping that it will not have to contract itself entirely out of existence. It has been hanging on, and this time the hopes of the industry are really dependent upon the result of this debate. Its last remaining hope is that the Financial Secretary should now say quickly, and in no ambiguous manner, in what way this industry can expect support, when it will he forthcoming, whether it is really practicable to expect it and whether it will maintain the industry.
    Mr. Jay: Will not the Financial Secretary at least tell us what are the proposals which he has in mind?
    Mr. Ross: The Financial Secretary used the phrase, in failing to accept our suggestion, that "he did not rule out some other action being taken." His phrase was sufficiently important to persuade one of his hon. Friends to

    1015
    change his mind about his attitude to the Clause. I think that out of courtesy to the Committee the Financial Secretary should say whether he has discussed this matter with any other Minister and why he used that phrase.
    Mr. Powell: If I may repeat what I said, I made it clear that we are here dealing with a proposal to deal with the problems of this industry by fiscal methods. I then said that my advice to the Committee to reject this new Clause did not prejudice one way or the other the prospect or the possibility of other means, to which the hon. Member—I was quoting the hon. Member for West Lothian (Mr. J. Taylor)—had referred. That was what I said.
    Mr. Shinwell: May I ask the hon. Member whether he would respond to one suggestion? As he and all hon. Members know, if there is a dispute in Committee and there is a possibility of obtaining a rather more satisfactory reply on Report, the Government usually try to meet the wishes of hon. Members.
    It may be that for many reasons it is impossible for the Financial Secretary to give a firm reply at this stage, but since, speaking on behalf of the Government, he has said that he does not rule out the possibility of some means being adopted to meet the views of my hon. Friends, can he say that, on Report, the Government will indicate the means by which it is possible to give some assistance to the industry?
    If it is not possible for the hon. Gentleman to do that, his reply is completely negatived, and is of no satisfaction to anybody. I am quite sure that he does not want to leave the position there. Is it possible for him to respond in the manner I have suggested?
    Mr. Jay: If the Financial Secretary cannot do that, can he at least tell us whether he has any concrete proposals in his mind at all?
    Question put, That the Clause be read a Second time.
    The Committee divided: Ayes 221, Noes 248.

    Division No. 159.]

    AYES

    [9.51 p.m.

    Alnsley, J. W.

    Dalton, Rt. Hon. H.

    Hughes, Hector (Aberdeen, N.)

    Allaun, Frank (Salford, E.)

    Darling, George (Hillsborough)

    Hunter, A. E.

    Allen, Arthur (Bosworth)

    Davies, Ernest (Enfield, E.)

    Hynd, J. B. (Attercliffe)

    Allen, Scholefield (Crewe)

    Davies, Harold (Leek)

    Irving, Sydney (Dartford)

    Awbery, S. S

    Davies, Stephen (Merthyr)

    Isaacs, Rt. Hon. G. A.

    Bacon, Miss Alice

    Deer, G.

    Janner, B.

    Baird, J.

    de Freitas, Geoffrey

    Jay, Rt. Hon. D. P. T.

    Balfour, A.

    Delargy, H. J.

    Jeger, George (Goole)

    Benoe, C. R. (Dunbartonshire, E.)

    Dodds, N. N.

    Jeger, Mrs.Lena(Holbn & St.Pnos, S.)

    Benn, Hn. Wedgwood (Bristol, S.E.)

    Donnelly, D. L.

    Jenkins, Roy (Stechford)

    Benton, G.

    Dugdale, Rt. Hn. John (W. Brmwch)

    Johnson, James (Rugby)

    Beswick, Frank

    Ede, Rt. Hon. J. C.

    Johnston, Douglas (Paisley)

    Blackburn, F.

    Edwards, Rt. Hon. John (Brighouse)

    Jones, Rt. Hon. A. Creech (Wakefield)

    Blenkinsop, A.

    Edwards, Rt. Hon. Ness (Caerphilly)

    Jones, David (The Hartlepools)

    Blyton, W. R.

    Edwards, Robert (Bilston)

    Jones, Elwyn (W. Ham, S.)

    Boardman, H.

    Edwards, W. J. (Stepney)

    Jones, Jack (Rotherham)

    Bottomley, Rt. Hon. A. G.

    Fernyhough, E.

    Jones, J. Idwal (Wrexham)

    Bowden, H. W. (Leicester, S.W.)

    Flenburgh, W.

    Jones, T. W. (Merioneth)

    Bowen, E. R. (Cardigan)

    Fletcher, Erio

    Kenyon, C.

    Boyd, T. C.

    Forman, J. C.

    Key, Rt. Hon. C. W.

    Braddock, Mrs. Elizabeth

    Fraser, Thomas (Hamilton)

    King, Dr. H. M.

    Brockway, A. F.

    Gibson, C. W.

    Lawson, G. M.

    Broughton, Dr. A. D. D.

    Greenwood, Anthony

    Lee, Frederick (Newton)

    Brown, Rt. Hon. George (Belper)

    Grey, C. F.

    Lee, Miss Jennie (Cannock)

    Brown, Thomas (Ince)

    Griffiths, William (Exchange)

    Lewis, Arthur

    Burke, W. A.

    Hale, Leslie

    Lindgren, G. S.

    Butler, Herbert (Hackney, C.)

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Lipton, Marcus

    Butler, Mrs. Joyce (Wood Green)

    Hamilton, W. W.

    Logan, D. G.

    Hannan, W.

    Mabon, Dr. J. Dickson

    Callaghan, L. J.

    Harrison, J. (Nottingham, N.)

    MacColl, J. E.

    Carmichael, J.

    Hastings, S.

    McGovern, J.

    Chapman, W. D.

    Hayman, F. H.

    McInnes, J.

    Chetwynd, G. R.

    Healey, Denis

    McKay, John (Wallsend)

    Clunie, J.

    Henderson, Rt. Hn. A. (Rwly Regis)

    MacMillan, M. K. (Western Isles)

    Coldrick, W.

    Hewitson, Capt. M.

    MacPherson, Malcolm (Stirling)

    Collick, P. H. (Birkenhead)

    Hobson, C. R. (Keighley)

    Mahon, Simon

    Collins, V.J.(Shoredltoh & Finsbury)

    Holmes, Horace

    Mallalieu, E. L. (Brigg)

    Cove, W. G.

    Houghton, Douglas

    Mann, Mrs. Jean

    Craddock, George (Bradford, S.)

    Howell, Charles (Perry Barr)

    Marquand, Rt. Hon. H. A.

    Cronin, J. D.

    Hoy, J. H.

    Mason, Roy

    Crossman, R. H. S.

    Hubbard, T. F.

    Mellish, R. J.

    Cullen, Mrs. A.

    Hughes, Emrys (S. Ayrshire)

    Messer, Sir F.

    Mikardo, Ian

    Rankin, John

    Thomas, Iorwerth (Rhondda, W.)

    Mitchison, G. R.

    Redhead, E. C.

    Thomson, George (Dundee, E.)

    Monslow, W.

    Reeves, J.

    Thornton, E.

    Moody, A. S.

    Robens, Rt. Hon. A.

    Timmons, J.

    Morris, Percy (Swansea, W.)

    Roberts, Qoronwy (Caernarvon)

    Tomney, F.

    Morrison, Rt.Hn.Herbert(Lewis'm, S.)

    Robinson, Kenneth (St. Pancras, N.)

    Ungoed-Thomas, Sir Lynn

    Mort, D. L.

    Rogers, George (Kensington, N.)

    Usborne, H. C.

    Moss, R.

    Ross, William

    Viant, S. P.

    Moyle, A.

    Royle, C.

    Wade, D. W.

    Mulley, F. W.

    Shinwell, Rt. Hon. E.

    Watkins, T. E.

    Noel-Baker, Rt. Hon. P. (Derby, S.)

    Short, E. W.

    Weitzman, D.

    Oliver, G. H.

    Shurmer, P. L. E.

    Wells, Percy (Faversham)

    Oram, A. E.

    Silverman, Julius (Aston)

    West, D. G.

    Oswald, T.

    Silverman, Sydney (Nelson)

    Wheeldon, W. E.

    Owen, W. J.

    Skeffington, A. M.

    White, Mrs. Eirene (E. Flint)

    Padley, W. E.

    Slater, J. (Sedgefield)

    White, Henry (Derbyshire, N.E.)

    Paget, R. T.

    Smith, Ellis (Stoke, S.)

    Wilkins, W. A.

    Paling, Rt. Hon. W. (Dearne Valley)

    Snow, J. W.

    Willey, Frederick

    Palmer, A. M. F.

    Sorensen, R. W.

    Williams, David (Neath)

    Pannell, Charles (Leeds, W.)

    Soskice, Rt. Hon. Sir Frank

    Williams, Rev. Llywelyn (Ab'tlllery)

    Pargiter, G. A.

    Sparks, J. A.

    Williams, Ronald (Wigan)

    Parker, J.

    Steele, T.

    Williams, W. R. (Openshaw)

    Parkin, B. T.

    Stewart, Michael (Fulham)

    Williams, W. T. (Barons Court)

    Peart, T. F.

    Stokes, Rt. Hon. R. R. (Ipswich)

    Willis, Eustace (Edinburgh, E.)

    Pentland, N.

    Wilson, Rt. Hon. Harold (Huyton)

    Stonehouse, John

    Winterbottom, Richard

    Popplewell, E.

    Stones, W. (Consett)

    Woodburn, Rt. Hon. A.

    Prentice, R. E.

    Strachey, Rt. Hon. J.

    Woof, R. E.

    Price, J. T. (Westhoughton)

    Strauss, Rt. Hon. George (Vauxhall)

    Yates, V. (Ladywood)

    Price, Philips (Gloucestershire, W.)

    Summerskill, Rt. Hon. E.

    Younger, Rt. Hon. K.

    Probert, A. R.

    Sylvester, G. O.

    Proctor, W. T.

    Taylor, Bernard (Mansfield)

    TELLERS FOR THE AYES:

    Pryde, D. J.

    Taylor, John (West Lothian)

    Mr. Pearson and Mr. Simmons.

    Randall, H. E.

    Thomas, George (Cardiff)

    NOES

    Agnew, Sir Peter

    Cooper-Key, E. M.

    Grimston, Sir Robert (Westbury)

    Aitken, W. T.

    Cordeaux, Lt.-Col. J. K.

    Grosvenor, Lt.-Col. R.G.

    Amery, Julian (Preston, N.)

    Corfield, Capt. F. V.

    Gurden, Harold

    Amory, Rt. Hn. Heathcoat (Tiverton)

    Craddock, Beresford (Spelthorne)

    Hall, John (Wycombe)

    Arbuthnot, John

    Crosthwaite-Eyre, Col. O. E.

    Harris, Frederic (Croydon, N.W.)

    Armstrong, C. W.

    Crowder, Sir John (Finchley)

    Harris, Reader (Heston)

    Ashton, H.

    Crowder, Petre(Ruislip—Northwood)

    Harrison, A. B. C. (Maldon)

    Astor, Hon. J. J.

    Cunningham, Knox

    Harrison, Col. J. H. (Eye)

    Atkins, H. E.

    Currie, G. B. H.

    Harvey, Sir Arthur Vere (Macolesfd)

    Baldock, Lt.-Cmdr. J. M.

    Dance, J. C. G.

    Harvey, John (Walthamstow, E.)

    Baldwin, A. E.

    Davidson, Viscountess

    Hay, John

    Balniel, Lord

    D'Avigdor-Goldsmid, Sir Henry

    Heald, Rt. Hon. Sir Lionel

    Barber, Anthony

    Deedes, W. F.

    Heath, Rt. Hon. E. R. G.

    Barlow, Sir John

    Digby, Simon Wingfield

    Henderson, John (Cathcart)

    Barter, John

    Dodds-Parker, A. D.

    Henderson-Stewart, Sir James

    Baxter, Sir Beverley

    Donaldson, Cmdr. C. E. McA.

    Hesketh, R. F.

    Beamish, Maj. Tufton

    Drayson, G. B.

    Hicks-Beach, Maj. W. W.

    Bell, Philip (Bolton, E.)

    du Cann, E. D. L.

    Hirst, Geoffrey

    Bell, Ronald (Bucks, S.)

    Dugdale, Rt. Hn. Sir T. (Richmond)

    Holland-Martin, C. J.

    Bennett, F. M. (Torquay)

    Duthie, W. S.

    Hope, Lord John

    Bevins, J. R. (Toxteth)

    Eden, J. B. (Bournemouth, West)

    Hornby, R. P.

    Biggs-Davison, J. A.

    Elliott, R.W.(N'castle upon Tyne.N.)

    Hornsby-Smith, Miss M. P.

    Birch, Rt. Hon. Nigel

    Errington, Sir Eric

    Horobin, Sir Ian

    Erroll, F. J.

    Howard, Hon. Greville (St. Ives)

    Bishop, F. P.

    Farey-Jones, F. W.

    Howard, John (Test)

    Black, C. W.

    Fell, A.

    Hudson, W. R. A. (Hull, N.)

    Bossom, Sir Alfred

    Finlay, Graeme

    Hughes Hallett, Vice-Admiral J.

    Boyle, Sir Edward

    Fisher, Nigel

    Hughes-Young, M. H. C.

    Braine, B. R.

    Fletcher-Cooke, C.

    Hutchison, Sir Ian Clark (E'b'gh, W.)

    Braithwaite, Sir Albert (Harrow, W.)

    Fort, R.

    Hutchison, Michael Clark (E'b'gh, S.)

    Bromley-Davenport, Lt.-Col. W. H.

    Fraser, Hon. Hugh (Stone)

    Hylton-Foster, Rt. Hon. Sir Harry

    Brooke, Rt. Hon. Henry

    Freeth, Denzil

    Iremonger, T. L.

    Brooman-White, R. C.

    Gammans, Lady

    Irvine, Bryant Godman (Rye)

    Browne, J. Nixon (Craigton)

    Garner-Evans, E. H.

    Jenkins, Robert (Dulwich)

    Bullus, Wing Commander E. E.

    Gibson-Watt, D.

    Jennings, J. C. (Burton)

    Burden, F. F. A.

    Glover, D.

    Jennings, Sir Roland (Hallam)

    Butcher, Sir Herbert

    Glyn, Col. R.

    Johnson, Dr. Donald (Carlisle)

    Carr, Robert

    Gomme-Duncan, Col. Sir Alan

    Johnson, Eric (Blackley)

    Cary, Sir Robert

    Goodhart, Philip

    Johnson, Howard (Kemptown)

    Channon, Sir Henry

    Gough, C. F. H.

    Jones, Rt. Hon. Aubrey (Hall Green)

    Chichester-Clark, R.

    Gower, H. R.

    Joseph, Sir Keith

    Clarke, Brig. Terence (Portsmth, W.)

    Graham, Sir Fergus

    Joynson-Hicks, Hon. Sir Lancelot

    Cole, Norman

    Grant, W. (Woodside)

    Keegan, D.

    Conant, Maj. Sir Roger

    Green, A.

    Kerby, Capt. H. B.

    Cooke, Robert

    Gresham Cooke, R.

    Kerr, Sir Hamilton

    Cooper, A. E.

    Grimston, Hon. John (St. Albans)

    Kershaw, J. A.

    1018

    1019

    Kimball, M.

    Nabarro, G. D. N.

    Spearman, Sir Alexander

    Kirk, P. M.

    Neave, Airey

    Speir, R. M.

    Lancaster, Col. C. G.

    Nicholls, Harmar

    Spence, H. R. (Aberdeen, W.)

    Leather, E. H. C.

    Nicholson, Godfrey (Farnham)

    Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)

    Leavey, J. A.

    Nicolson, N. (B'n'm'th.E. & Chr'ch)

    Stevens, Geoffrey

    Legge-Bourke, Maj. E. A. H.

    Oakshott, H. D.

    Storey, S.

    Legh, Hon. Peter (Petersfield)

    O'Neill, Hn. Phelim (Co.Antrim, N.)

    Studholme, Sir Henry

    Lindsay, Hon. James (Devon, N.)

    Orr, Capt. L. P. S.

    Sumner, W. D. M. (Orpington)

    Lindsay, Martin (Solihull)

    Orr-Ewing, Charles Ian (Hendon, N.)

    Taylor, Sir Charles (Eastbourne)

    Linstead, Sir H. N.

    Osborne, C.

    Taylor, William (Bradford, N.)

    Lloyd, Maj. Sir Guy (Renfrew, E.)

    Page, R. G.

    Teeling, W.

    Low, Rt. Hon. A. R. W.

    Pannell, N. A. (Kirkdale)

    Temple, John M.

    Lucas, Sir Jocelyn (Portsmouth, S.)

    Paton, John

    Thomas, Leslie (Canterbury)

    Lucas, P. B. (Brentford & Chiswick)

    Pickthorn, K. W. M.

    Thompson, Kenneth (Walton)

    Lucas-Tooth, Sir Hugh

    Pike, Miss Mervyn

    Thompson Lt.-Cdr- R. (Croydon, S.)

    McAdden, S. J.

    Pilkington, Capt. R. A.

    Thornton-Kemsley C. N.

    Macdonald, Sir Peter

    Pitman, I. J.

    Tiley, A (Bradford, W.)

    Mackeson, Brig. Sir Harry

    Pitt, Miss E. M.

    Tilney, john (Wavertree)

    McKibbin, A. J.

    Pott, H. P.

    Turner, H. F. L.

    Mackie, J. H. (Galloway)

    Powell, J. Enoch

    Turton, Rt. Hon. R. H.

    McLaughlin, Mrs. P.

    Price, David (Eastleigh)

    Vane, W. M. F.

    Maclean, Sir Fitzroy (Lancaster)

    Prior-Palmer, Brig. O. L.

    Vaughan-Morgan, J. K.

    MacLeod, John (Ross & Cromarty)

    Raikes, Sir Victor

    Vickers, Miss Joan

    Macmillan, Maurice (Halifax)

    Ramsden, J. E.

    Walker-Smith, Rt. Hon. Derek

    Macpherson, Niall (Dumfries)

    Rawlinson, Peter

    Wall, Major Patrick

    Maddan, Martin

    Redmayne, M.

    Ward, Dame Irene (Tynemouth)

    Maitland, Cdr. J. F. W. (Horncastle)

    Rees-Davies, W. R.

    Waterhouse, Capt. Rt. Hon. C.

    Manningham-Buller, Rt. Hn. Sir R.

    Remnant, Hon. P.

    Watkinson, Rt. Hon. Harold

    Markham, Major Sir Frank

    Ridsdale, J. E.

    Whitelaw, W. S. I.

    Marlowe, A. A. H.

    Robinson, Sir Roland (Blackpool, S.)

    Williams, Paul (Sunderland, S.)

    Marples, Rt. Hon. A. E.

    Rodgers, John (Sevenoaks)

    Williams, R. Dudley (Exeter)

    Marshall, Douglas

    Roper, Sir Harold

    Wills, G. (Bridgwater)

    Mathew, R.

    Russell, R. S.

    Wood, Hon. R.

    Mawby, R.L.

    Sharples, R. C.

    Woollam, John Victor

    Maydon, Lt.-Comdr. S. L. C.

    Shepherd, William

    Yates, William (The Wrekin)

    Milligan, Rt. Hon. W. R.

    Simon, J. E. S. (Middlesbrough, W.)

    Molson, Rt. Hon. Hugh

    Smithers, Peter (Winchester)

    TELLERS FOR THE NOES:

    Mott-Radclyffe, Sir Charles

    Smyth, Brig. Sir John (Norwood)

    Mr. E. Wakefield and Mr. Bryan.

    New Clause.—(CAPITAL ALLOWANCES FOR BUILDINGS, &C., OF BRIDGE UNDERTAKINGS.)
    Subsection (1) of section two hundred and seventy-one of the Income Tax Act, 1952 (which defines "industrial building or structure" for the purposes of Chapter I of Part X of that Act to mean a building or structure in use for the purposes listed in paragraphs (a) to (g) of the subsection), shall be amended by substituting for the words "or tunnel undertaking" in paragraph (b) of the subsection (as amended by section twenty-five of the Finance Act, 1952) the words "tunnel or bridge undertaking":
    Provided that the amendment made by this section shall have effect only in relation to expenditure which is to be treated for the purposes of the said Chapter I as incurred after the coming into force of this section.—[Mr. J. J. Astor.]
    Brought up, and read the First time.
    Mr. J. J. Astor: I beg to move, That the Clause be read a Second time.
    The proposed Clause appears complicated but is very simple. It relates to the depreciation allowance given to industrial buildings not more than fifty years old and in use for the purpose of the qualifying trades defined in Section 271 of the 1952 Income Tax Act. In those trades are such matters as inland navigation
    1020
    and docks, but not toll bridges. The proposed new Clause relates to toll bridges.
    Some time ago it was proposed to put a bridge across the River Tamar, which runs between Cornwall and Devon. It is to be built in the vicinity of Plymouth. In order to do this a private Bill, known as the Tamar Bridge Bill, had to be introduced. In the Bill is a Clause to allow the proposed bridge operation to benefit by the allowance to which I have referred.
    Toll bridges in general do not benefit from the allowance. I suggest that it is neither fair nor reasonable that one bridge operation should benefit from the allowance while others do not, the more so because, in conjunction with the drive for better highways, there are proposals for further toll bridges.
    The Clause proposes to allow expenditure on the construction of toll bridges to benefit from the allowance. This is not a party issue; no party principles or policies are involved. It is a reasonable and beneficial proposal and should commend itself to the Committee.
    Mr. F. H. Hayman: I beg to second the Motion.

    1021
    I feel that the new Clause is perfectly reasonable; and that, in view of the Government's new policy of insisting that all future bridges shall be tall bridges, toll bridges ought not to be in a position less favourable than that of dock undertakings, and, indeed, that of the Mersey Tunnel. The Mersey Tunnel, when it was constructed, received from the Government a grant of £1½ million which, at the time, represented about 30 per cent. of the cost.
    The Tamar bridge to which the hon. Member for Plymouth, Sutton (Mr. J. J. Astor) referred, will get no Government grant at all, nor will similar bridges which will be built in the future. A special Clause had to be added to the 1952 Finance Bill to enable the Mersey Tunnel undertaking to benefit by this tax concession. By that time, the Mersey Tunnel was a very profitable undertaking. It is very unlikely that the Tamar Bridge, or any bridges built after it will be very profitable.
    The principal point to be borne in mind is that this is a local authority undertaking and not one which is run for private profits. At the moment, congestion on the Torpoint ferry, which takes the main traffic from Plymouth to South Cornwall is terrible and waits of up to two hours are necessary. The bridge is essential, and the Bill relating to it has been promoted by the Cornwall County Council and by the Plymouth Corporation. The Measure has gone through all its stages in the House, and is now before another place. If this tax concession is granted, it will not benefit Cornwall and Plymouth only but all future undertakings of this kind. For that reason, I hope that the Government will accept the Clause.
    Mr. Powell: This new Clause removes what is, at present, an absurdity—that a toll bridge qualifies for capital allowance if it is operated by a transport or dock undertaking, but not if it is operated, for example, by a county council. That is clearly an indefensible situation and, as my hon. Friend the Member for Plymouth, Sutton (Mr. J. J. Astor) has said, it is one which ought to be remedied by general legislation, and not within the ambit of a Private Bill. I would, therefore, recommend the Committee to add the Clause to the Bill.
    Mr. Douglas Marshall: I want to thank the Minister for accepting this Clause. My hon. Friend the Member for Plymouth, Sutton (Mr. J. J. Astor) referred to the bridge as being located in Plymouth, but as it crosses the Cornish River Tamar into Saltash, which is in my constituency, I am glad of the opportunity of expressing my thanks.
    Mr. J. J. Astor: I would like to thank my hon. Friend the Financial Secretary for being able to see his way to accepting the Clause which will, I think. be of general benefit to everyone.
    Question put and agreed to.
    Clause read a Second time and added to the Bill.

    New Clause.—(DUTIES OF CUSTOMS ON WINES.)
    Section four of the Finance Act, 1949 (which imposes duties of customs on wines), shall have effect as if the second schedule of the Act were amended by the substitution of "£1 6s 0d."and" £0 16s. 0d."for"£2 10s. 0d."and"£2 0s. 0d."respectively as the rates of customs duty for wines other than light wines. being still and not in bottle of non-Empire production and of Empire production respectively.—[Mr. Snow.]
    Brought up, and read the First time.
    Mr. Julian Snow: I beg to move, That the Clause be read a Second time. Even if the absence of those other hon. Members who put their names to this new Clause means that they no longer have faith in port, I feel that a word should be said in its favour from this side. I see that the hon. and gallant Member far Knutsford (Lieut.-Colonel Bromley-Davenport) has now arrived, and will no doubt, be adding his voice to the discussion.
    It is a curious quirk of the minds of romantic lady historical novelists that port is a drink solely consumed by the past and present aristocracy. This is, of course, not true at all. Port is a working-class drink. It is generally consumed by many of my lady constituents—and very properly so. if I might say so with great respect. it is a drink preferable in many ways to the hard liquor which they might otherwise consume. Why it should be penalised in this way, I do not know, for it has many civilised attributes and, generally, there is good reason for encouraging its production.

    1023
    As hon. Members know perfectly well, port is produced in the great country of Portugal, a country to which there was a State visit during the past year. Although it is perhaps a little flippant to say that we should not set too much store by the fact that Portugal is our oldest ally, and while I do not myself regard Dr. Salazar's régime as deserving of very much encouragement, port is, I imagine, the major export of Portugal, and something should be said about encouraging the economies of small countries. The better and the more healthy the economy, the greater the possibility of there being a better political régime.
    The fact is that exports of port have gone down very severely and the trade has been lost, to a great extent, to the sherry trade. I am told, though I cannot vouch for it, obviously, that the Government feel that they could not reduce the duty on port because they would, more or less, be compelled to reduce the duty on sherry. I have always found the drinking of sherry to be one of the more tiresome characteristics of middle-class society and, therefore, I should not be sorry to see it discouraged. If we could stimulate the consumption of port at the expense of sherry, I should be very pleased.
    I was, quite by chance, in Lisbon the other day, and a very distinguished Englishman told me there that the port producers had now succeeded in developing an apéritif port, which will, they hope, appeal to the English people, and possibly reduce this inordinate and deplorable consumption of sherry. Although I do not myself go in for much apéritif drinking—I think that it usually spoils a good meal—nevertheless, I think that we may take it that the Portuguese producers are trying to do their duty in producing an alternative to the other drink. In short, there is a strong case for regarding port as a good drink which is deserving of encouragement by the Government.
    Dr. Reginald Bennett: I beg to second the Motion.
    I apologise for not being in my place to move the Motion. Perhaps I may add that I was not consuming the product which is the subject of the new Clause.
    The main argument on this matter, which I adduced in an Adjournment debate some time ago, is that the trade between this country and Portugal has
    1024
    been very largely damaged by the fact that we have imposed a specific duty on a wine which comes from Portugal, of which this country is almost the only consumer. There is more to it than that. We are damaging a good deal of our trade with the Dominions by continuing to tax fortified wines at this sort of rate, because the tax on fortified wines has gone up to a degree absolutely disproportionate to the increase in tax on ordinary light wines or table wines since the war. The addition on fortified wines has been an extra 525 per cent. for foreign wines and no less than an extra 900 per cent. for Dominion or Commonwealth wines. This has been enough to break the whole trade and to ruin anybody who was attempting to produce these wines for export to this country.
    10.15 p.m.
    The difficulty lies in the fact that the increased duty on light wines was found to be excessive in 1949, and the late Sir Stafford Cripps then reduced the duty because he found that he was destroying the consumption of wines in this country; but the duty on heavy wines remained at the same level, out of all proportion to any reasonable rate. As a result, a racket has arisen which I hope my right hon. Friends will not support. That is the importation of certain kinds of light wines, which are then spiced with heavier products, heavy wines or spirits, and sold as heavy wines, although in fact they are not but are only blends or amalgams.
    The duty paid on such wines to the Treasury is only 20s. per gallon, whereas the duty paid on the genuine port or sherry is 50s. a gallon. The duty on these apéritifs, or whatever they may be called, these "phoney" concoctions, is only two-fifths of the rate on heavy wines although they have the same alcoholic content. They are not good products whereas, I suggest to the Committee, port and sherry and Empire port and Empire sherry are good and truthful products. That is why I am asking that the duty on heavy wines should be reduced to a reasonable level and a reasonable proportion to that on light wines.
    Mr. Godfrey Nicholson: I must declare my interest, for I am a distiller and a wine and spirit merchant and I suppose I have some interest in the subject under discussion.

    1025
    I do not want to weary the Committee with technicalities about the different rates of duty, for the situation can be stated perfectly simply. Owing to the fiscal policy of the Government and to taxation, the port industry has suffered very heavy blows and is declining. That industry is based on British firms, many of which have been in Portugal for upwards of 200 years.
    It is the oldest British industrial outpost, and through no fault of these firms but simply and solely due to the fiscal policy of successive Governments, that historic British industrial outpost, if I may so describe it, is in danger of almost complete extinction. It seems to me that there is something wrong when an honest industry, a most historic industry, a well-conducted industry is squeezed out of existence because of fiscal policy. I cannot believe that that is the intention of this or any previous Government, but it is happening.
    I can guess the reply which the Economic Secretary will give. I expect that he will say that the consumption of sherry is increasing and that it is just too bad that public taste has veered away from port. That is not quite an accurate picture. The point is that sweet red wines, heavy red wines, can be made in this country and, owing to the penal rate of taxation—I think I can quite legitimately call it penal—people have been seduced away from the genuine article by these cheap substitutes. I am not running down or abusing these cheap substitutes, which offer very good value for money, but they have been able to eat into the public taste in port only because of the penal rate of taxation.
    The port trade flourished, and it was not vintage port drunk by gouty old colonels but good port drunk in public houses. It was not the beverage of the rich but of the ordinary common or garden citizens of the country who go into public houses, as we all do. Whatever arguments the Economic Secretary may use, he cannot get away from the fact that the main cause of the decline in the port industry and trade is the rate of taxation. As my hon. Friend the Member for Gosport and Fareham (Dr. Bennett) has said, relief was given to the light table wines. It was always understood in the past that the variation in the rates of duty between light and heavy
    1026
    wines should be as two to one, but now it is as four to one.
    The Government are acting foolishly from the economic point of view in stamping out this ancient and historic industrial outpost. I may be a sentimentalist but it is tragic that such an historic link should be broken. It is bad for our trade and for our relationship with Portugal, our oldest ally, with whom we have a considerable trade. It is bad that fiscal policy should stamp out this trade. I hope that that argument will weigh with a materialist House of Commons in a materialist age. I hope also that the argument will weigh that an injustice has been done to an honourable branch of British trade. From the point of view of economic advantage, even more than from the point of view of plain fiscal justice, I hope that my right hon. Friend—if he cannot grant some concession this year—will show that the Government have not completely closed their mind on the subject. The present position is wrong and ought to be brought to an end.
    Sir Victor Raikes: I support the new Clause, perhaps from an aspect slightly different from that of my hon. Friend the Member for Farnham (Mr. Godfrey Nicholson). I do not support it so much for sentimental reasons. I am fond of port, for one thing, and although port is a cool-weather drink I propose to have a glass of it when this discussion is over. It has the advantage that though it may send people to sleep, at least they do not fight after drinking it. I am aware that my hon. Friend the Member for Farnham has an interest in the gin trade.
    The Economic Secretary may very well start to quote a number of statistics, but I warn him to be careful, because statistics are almost invariably wrong. It may be that the Committee will be told that habits of drinking have changed today and that in spite of the fact that the pre-war duty on light wines has been doubled, the drinking of port has diminished whilst the drinking of sherry, nevertheless, has kept up—and I am inclined to agree with the hon. Member for Lichfield and Tamworth (Mr. Snow) about sherry. Quite apart from that, the-Economic Secretary will find that although sherry drinking has been maintained, the people who drink sherry are

    1027
    not the people in the pubs. Sherry is very popular at a certain form of cocktail party where the person who gives the party thinks that it will be cheaper to give sherry than to give gin—and people drink a great deal more gin than sherry at cocktail parties if both are on offer.
    Anyhow, it is not at all a bad thing for what might be described as a private cocktail party, because it is much better for the girls at six o'clock than spirits are. Nevertheless, I challenge the Economic Secretary, if he produces any figures, to prove that sherry drinking in the ordinary public house has kept up since the increase of duty. It is drunk much more in other forms of society, particularly at vicars' parties. I have noticed it on a number of occasions—[An HON. MEMBER: "Does the hon. Gentleman attend them?"] Yes, I attend vicars' parties and bishops' parties sometimes. At one time 90 per cent. of port used to be drunk in the public houses. It was very good. A large glass could be bought for about 9d. Today it would cost 3s. 6d. to 4s., which is a fantastic price.
    The ordinary person in the pub does not rush in and say, "I will drink sherry at the same price." Not a bit of it. More spirits are drunk in pubs late at night. It does not affect beer drinking. If people stuck to beer and to port there would be less trouble in the country. If we continue this heavy duty, still more spirits will be drunk late at night, which is not good, particularly for young people. The consumption of port will continue to go down, which will be a pity.
    If there were an alternative to spirits in the ordinary "pub," if the price of a dock glass were reduced to ls. 6d. or 2s., a good deal of port would be drunk. It is a perfect drink except at this time of the year. What a pity it is that on such an unusual kind of evening we should be discussing the question of port. If it were a cold night, I should receive far more sympathy from my right hon. Friend, although I rather doubt whether he is a judge of port. Perhaps he will tell us. That would be one of those human touches which would undoubtedly enliven the debate.
    Finally, I re-emphasise that it cannot be said that the consumption of sherry has gone up. Tastes have changed, and
    1028
    unless the figures of consumption are divided between the high income groups—a phrase I particularly dislike—
    Lieutenant-Colonel W. H. Bromley-Davenport rose—
    Hon. Members: Order.
    Sir V. Raikes: Did my hon. and gallant Friend think I had finished? I have almost finished. I challenge the Economic Secretary to say that sherry is being drunk to a greater extent than port in the public houses. I do not believe that is the case. I ask him to show humanity towards the heavier wine and to give an opportunity for the man who enjoys ordinary light port in the evenings to have it at a reasonable price. Justice is overdue.
    Lieut - Colonel Bromley - Davenport: Little did I think, Sir William, that I should be fortunate enough to catch your eye on this occasion. These few notes, hastily scribbled, which I hold in my hand are the terms of my short speech, which must be short because, otherwise, I shall incur the displeasure of the Whips.
    10.30 p.m.
    I congratulate the hon. Member for Lichfield and Tamworth (Mr. Snow) on a first-class speech, with the terms of which we are delighted. I want to take up a most important point which the hon. Gentleman made, which is that in the old days port was one of the most popular drinks of the poorer classes and there was a heavy consumption of it in this country. They drink hardly any of it now for the simple reason that they cannot afford to do so as taxes are so heavy.
    We very often spoil our case when we put forward a proposal like this to the Chancellor because we treat it rather lightly and everybody laughs, and then the Chancellor gets up and, before one can say "Bob's your uncle", he turns the whole thing down. However, I should like to ask my right hon. Friend if he can tell me the object of the exercise if he is not going to grant our request. Is the object, first, to stop the public drinking what they want; secondly, is it that he thinks it is bad for them; or, thirdly, is it because my right hon. Friend does not require the revenue? He is certainly not getting the revenue from port drinking now because it is too expensive for people to drink.

    1029
    My penultimate point is that it is grossly unfair and unjust that this one wine should be singled out to be penalized, and my final point is that it is grossly unfair that port should be treated today as a rich man's drink.
    Mr. Birch: It is very fortunate that the hon. Member for Lichfield and Tamworth (Mr. Snow) was in his place at the critical moment, because we might otherwise have missed this very remarkable debate. I thought he cast considerable doubts on the social qualities of sherry. He is right in saying that to this day 85 to 90 per cent. of the port drunk in this country is still drunk in public houses.
    In approaching this subject one has to look at what the Treasury's attitude is bound to be. It is very nice to talk about the bouquet of port, and its colour, and the excellent vintage port which my hon. Friend the Member for Garston (Sir V. Raikes) once offered me—the true worth of which I hope I appreciated—and to think of those things, but necessarily, from the Treasury's point of view, wine is interesting only in relation to its alcoholic content. One cannot very well measure wine according to its qualities or social assets; it has to be measured according to its alcoholic content, and the only difference in this respect is in the case of the preference on Commonwealth wines.
    I think that is recognised in the proposed Clause, because it does not seek to discriminate in favour of port but is designed to reduce the tax on all heavy wines. I think the hon. Member for Lichfield and Tamworth recognised that it would be impracticable to draw a distinction between the two, even though we should all on general principles like to do so because Portugal is our oldest ally and port is a very distinguished and noble wine.
    There has certainly been a considerable reduction in the consumption of heavy wines since before the war. In 1938–39 11·6 million gallons of heavy wine were drunk in this country. In 1948–49 the figure had been reduced to 5·72 million gallons, but since then it has risen, and in 1955–56 the consumption was 6·76 million gallons. In fact, after a considerable reduction during the war, the consumption of heavy wines is tending to increase substantially, price or no price.
    1030
    As hon. Members have recognised, there is a very considerable difference between the consumption of sherry, that is to say, sherry coming from Spain and South Africa, and the consumption of port, that is to say, port coming from Portugal and port type wines coming from Australia. The figures show that 6·6 million gallons of port and port type wines were drunk in 1938–39, falling to less than 2 million gallons in 1955–56—certainly a very big reduction; whereas in the same years the change in consumption of sherry was very small, from slightly more than 4 million gallons before the war, to slightly less than 4 million gallons last year.
    On the question of who drinks the sherry, I think there must be some doubt whether all the 4 million gallons can go down the throats of the vicars whom my hon. Friend the Member for Garston, patronises. I should have thought that sherry was a widely consumed drink and was not confined to the middle classes, but drunk by the upper, middle and lower classes.
    Another significant point which should not be left out of account in discussing who can afford to drink what is the enormous rise in the consumption of gin and gin mixture drinks. In 1938–39, 1·8 million gallons of gin were consumed and in the last accounting year the figure was 4·2 million gallons. There has been an enormous increase in the consumption of gin, despite the fact that it is far more heavily taxed than heavy wines. Again, I very much doubt whether all the 4·2 million gallons of gin were drunk either by the clergy or by the upper classes. There is no doubt that the consumption of spirits in this country has very much increased as opposed to the consumption of port.
    It may well be true that these developments are regrettable and certainly for our ally Portugal they are highly regrettable. Consumption of port has declined, but the Treasury cannot distinguish for taxation purposes between types of wine. The matter has to he decided on the alcoholic content. Accepting the new Clause would cost a considerable sum, £6·5 million. We are not convinced that the elasticity of demand is such that we should catch that up.
    When the duty on light wines was reduced, consumption of light wines was suffering a very sharp fall. At present,

    1031
    the consumption of heavy wines is tending to increase and we do not believe that the revenue would be recouped if the tax were lowered. I am afraid that for this year's Budget we must refuse to accept the new Clause. What may happen in future years I cannot say. It depends on our position and what taxation we can afford to remit. For this year, I am afraid that the Government cannot do as hon. Members have asked.
    Mr. G. A. Pargiter: It is unfair to take the figures for 1946. Restrictions on what could be imported were then in force and it was virtually impossible to get heavy wines, because there were so many other things which it was essential to import that things like heavy wines were not imported. The Economic Secretary should compare 1955 not with 1946, but with the pre-war years. If he does that, he will see that, for the producers, the fall in consumption has been catastrophic.
    I am not arguing the case for or against consumption, but I should have thought that the obvious thing for the Treasury to try, as between one form of alcohol and another—in this case between light and heavy wines—is to maintain a balance and proportion, so that those who prefer to drink heavy instead of light wines can do so without suffering from the penal taxation which the Treasury now imposes upon them.
    Mr. Nicholson: I would remind my right hon. Friend that he is quite off the beam when mentioning spirit drinking and failing to mention whisky. As a result of this policy, which I can only describe as rather mean on the part of the Treasury, an honest branch of British traders is being squeezed out of existence. I suppose it is inevitable that this debate should be treated with a certain degree of levity. There is always something funny about people being squeezed out of business, I suppose—but I feel that it is a tragedy, and that it is very wrong. It is not merely a big joke about red noses and sherry parties; it is something serious for an honest group of British traders, and I hope that the Treasury will take note of that fact.
    Mr. W. A. Wilkins: As one who is more or less disinterested in the consumption of any of these wines
    1032
    or spirits, I believe that all hon. Members who have spoken have missed the boat. The truth is that the public has become more discerning in its taste, and now appreciates the virtue—if any—of such drinks as Bristol Milk and Bristol Cream.
    Question put and negatived.

    New Clause.—(DEDUCTION OF EXPENSES UNDER SCHEDULE E.)
    Paragraph 7 of the Ninth Schedule to the Income Tax Act, 1952 (which defines the expenses allowable to the holder of an office or employment of profit assessable under Schedule E) shall have effect as if there were substituted for the said paragraph as at present enacted, the following—
    "7. The holder of an office or employment of profit shall be entitled to deduct from the emoluments to be assessed in respect thereof all expenses reasonably incurred by him for the appropriate performance of his duties of that office or employment"—[Sir H. Butcher.]
    Brought up, and read the First time.
    Sir H. Butcher: I beg to move, That the Clause be read a Second time.
    The Clause is designed to revise a rule in the Schedule to the Finance Bill, which rule goes back to the year 1842, when Income Tax was almost negligible in its incidence. The rule is so archaic that the only means of transport to which it refers is the horse. The rule has been the subject of adverse comment in the High Court, the Court of Appeal and in the House of Lords on many occasions.
    In paragraph 129 the Royal Commission on the Taxation of Income and Profits says:
    "There can have been no part of the income tax code which has been so regularly the subject of unfavourable notice."
    This adverse comment is marshalled in paragraph 130 of the Report, and it is a majority recommendation that the old and worn-out words should be replaced by words which are identical with those in the Clause. In this connection I refer to paragraph 140 of that Report.
    I hope that my right hon. Friend will not suggest that this will open the flood gates to excessive claims in respect of expenses. Indeed, he could hardly do so in view of the close reasoning of paragraphs 129 to 143, inclusive. Instead, I invite him to examine the lists of law cases which are referred to as footnotes on page 44, and to go through them one by one. The first case, Ricketts v.

    1033
    Colquhoun, is that of a barrister who incurred expenses in discharging his duties as Recorder of Portsmouth. Mr. Justice Rowlatt, who first tried the case, used the following words:
    "This case raises a question of hardship; I may go further and say the position really is unreasonable."
    In giving judgment in the House of Lords, Lord Blanesburgh, in the same case, said:
    "I regret this decision, but as the law stands it is inevitable."
    The next case is Blackwell v. Mills, heard in the High Court on 29th October, 1945. Do not let us think that this was a case of a prosperous business man trying to work an expenses racket; it was the case of a student engaged in a research laboratory, who was required to attend classes for a university degree. The learned judge said that the deductions that could be made were extremely limited.
    Another case was Roskams v. Bennett in 1950. He was a district manager of an insurance company. Mr. Justice Danckwerts referred to the rule as
    "A very narrow and strict rule, and it is one which undoubtedly causes a considerable amount of hardship when applied to particular cases. Judges dealing with particular cases have said so again and again."
    10.45 p.m.
    I should like the Committee to look as the case of Griffiths v. Mockler, in 1953, in which an Army officer was concerned and where the amount involved was only £11 7s. Mr. Justice Vaisey said:
    "The words of the Statute are notoriously narrow in their application."
    A little later on in the same year was the case of Lomax v. Newton, which concerned a Territorial officer. Mr. Justice Vaisey, who also heard this case, referred to the rule in the following terms:
    "Notoriously rigid, narrow and restricted in its operation. The words are indeed stringent and exacting, compliance with each and every one of them is obligatory if the benefit of the rule is to be claimed successfully. They are, to my mind, deceptive words in the sense that when examined they are found to come to nothing at all."
    The next case referred to, Collins v. Hore, in 1949, was that of a temporary civil servant, namely, an assistant technical engineer employed by the
    1034
    Admiralty. Mr. Justice Croom-Johnson then referred to
    "The very strict words laid down in Rule 9."
    The same learned judge also came to the decision in the next case quoted, namely, Bolam v. Barlow, 1949. Again, this was no case of a wealthy business man, but of a humble employee of a water board. Mr. Justice Croom-Johnson then used the following words:
    "I would like to repeat and emphasise what was said by Mr. Justice Rowlatt in Ricketts v. Colquhoun, namely, that this case raises a question of hardship. I may go further and say the position really is unreasonable."
    Mr. Justice Croom-Johnson went on to say:
    "A great number of these cases have produced, in my judgment, extremely hard results."
    The next case of Newsom v. Robertson in 1952 was heard by Mr. Justice Danckwerts who categorically stated:
    "The Rule is much more limited and severe as regards allowances of expenses than the rules in Schedule D assessments."
    With the closely reasoned arguments of the Majority Report of the Royal Commission and the comments of Her Majesty's judges extending over thirty-two years, it really should be unnecessary to bring forward further advocates for a revision, but there is a reference to one which I really feel I must not omit from my observations.
    My right hon. Friend will be aware that there is a body known as the Association of H.M. Inspectors of Taxes which produces, for the better performance of their duties and to further the interests of their Association, a quarterly record. In this connection I would invite my right hon. Friend to refer to the issue of April, 1956. On pages 147–151 are some comments from an inspector of taxes who by some irony of fate was himself a victim of the arbitrary Rule 7. In the fifth line of his letter to his own professional journal he says:
    "I have indeed myself, like Durbridge, run into the brick wall of paragraph 7, Schedule E, as I will explain later. The essence of my protest, however, is that its rigidity is only reserved for some, while to others it shows a positive elasticity."
    He then cites the case of his own daughter. He says:
    "Another example of Schedule E arbitrary inequity. My daughter will shortly be leaving school to undertake a period of training

    1035
    on a farm before going to an agricultural college. Many of her school friends will at the same time start their nursing training. Both will have their pay expressed in terms of a gross figure from which a deduction will be made for board. Both will receive roughly the same cash amount. But my daughter, as an agricultural worker, will only be treated as receiving the net amount for tax purposes, while her friends the nurses will be assessed on the gross amount and pay tax."
    Let me conclude with the observations of this inspector, who produces in his letter one from his own tax office at Leeds of 12th March, 1953. He then says that this shows that the Special Commissioners are well aware that the Board of Inland Revenue is indulgent to some taxpayers while keeping to the strict letter of the law for others. In this connection he makes the following point:
    "The Board knows it is in a position of enormous strength whenever it chooses to exercise it."
    To local government employees, civil servants, nurses and Ministers paragraph 7 is still paragraph 7 in all its strength. I believe the conclusion to be drawn from the examples I have given is that whether a taxpayer suffers assessment or not depends upon arbitrary Board decisions which themselves are based on expediency and not upon justice. As long as Schedule E rules were applied with unwavering legal rectitude, no moral issue was raised and no question of justice or injustice could arise; but the element of concession has now been introduced and now that equity is the determining factor it should be applied with all-round fairness.
    The point I wish to make is this: under this rule the taxpayer is completely at the mercy of the Board of Inland Revenue, and the Treasury never lifts a finger to aid or assist him to secure his rights; although the Treasury knows, and has known for a long time, and every accountant knows and every inspector of taxes knows that this rule bears much more hardly on some than it does on others. The Board of Inland Revenue knows that as a result of the decision in Ricketts v. Colquhoun it is in an impregnable position and it is reluctant to see that position whittled away.
    I ask the Committee to think of the speed with which the Treasury rushes to put right anything it thinks might be wrong with the tax law. Examine for
    1036
    a moment the speed with which it moved last year in the case of the Heelex Company and Universal Grinding Wheels. Yet this rule which I am endeavouring to replace by my Clause has been the subject matter of complaint through the course of many weary years.
    I am not pleading on behalf of the wealthy man. Usually he makes his own arrangements and has his own experts to guide and advise him. Often he has his expenses chargeable through a company which pays tax under Schedule D which is much easier and much lighter. I am pleading on behalf of the man who wears out his overalls and his tools or who incurs expenses of a similar character in the discharge of his ordinary work.
    It may be urged that by concession and after some discussion with the trade unions there may be a lump sum granted to workmen in industry, but that is a concession and could not be supported on the strict and narrow interpretation of the Rule.
    This is not the first time that a plea on these lines has been made in this Committee. In 1948 the present Lord Waverley, himself a former Chancellor of the Exchequer and President of the Board of Inland Revenue, made an almost similar request. The time has come when we should correct the position of the ordinary taxpayer so that he may have the benefit of the recommendations of the Royal Commission, now two years old, namely, that there should be steps taken to bring the rule under which he suffers into line with the expenses rule applicable to a taxpayer who pays under Schedule D. I believe that to be the right and just course. If it is possible to use the words applicable under Schedule D, equally it should be possible to use them under Schedule E.
    Mr. Stevens: I beg to second the Motion.
    In doing so, I should like to lend the very strongest possible support to the plea which has just been made by my hon. Friend the Member for Holland with Boston (Sir H. Butcher). It seems to me to be not only intolerable but illogical and entirely unjust that there should be this great differentiation in the treatment of expenses under Schedule D and those under Schedule E. When the hon. Member for Sowerby (Mr. Houghton) earlier

    1037
    submitted a new Clause providing that professional subscriptions should, in all cases, be allowable for tax purposes, I think the Committee showed itself at its best, in the sense that the two sides came together. I was very pleased, as a Conservative, to add my name to the Labour Amendment, because it seemed to me to be reasonable and just.
    My hon. Friend's new Clause, being the greater, includes, of course, the less, and perhaps I may give an indication of the absurdity which now arises. A solicitor who is in practice and who pays his subscription to tthe Law Society can charge that subscription for tax purposes. If the same solicitor is employed as a town clerk by a local authority he is assessed to tax under Schedule E and has to pay the whole of that subscription out of his taxed income. That seems to be an entirely indefensible anomaly.
    I suppose the most notorious case of this kind is one which went to the Court of Appeal. It was that of a vicar who invited his bishop to preach in his church on a Sunday. After the service, he fed his bishop at the rectory with a glass—or perhaps two glasses—of sherry, and a bun. He sought to charge the cost of that sherry and that bun against his stipend, but his stipend, again, was assessed under Schedule E, not Schedule D, and the expenses were disallowed. Yet a business man who takes a customer, or a possible customer to the Savoy for lunch can charge the whole cost of that lunch—in my view, very properly—against expenses.
    As my hon. Friend has said, at the moment it is not the employee who is benefited, but the employer. With the wider definition under Schedule E of expenses which are properly chargeable, it is the employee who is suffering, and the new Clause aims at putting right an anomaly, and bringing justice to a large number of people.
    So often in this Committee, Amendments or new Clauses are put forward which might cause the Front Bench a considerable amount of worry and which would be very expensive, but I believe that the total cost of implementing the unanimous recommendation of the Royal Commission would be the sum of £4 million. It is true that £4 million is a considerable sum of money but, having regard—
    Mr. Jay: Is the hon. Gentleman quite sure that these recommendations were unanimous? I thought that there was a different minority recommendation.
    Mr. Stevens: I spoke without the book—I have it outside but not with me—but my strong impression is that that particular recommendation was unanimous, but I will accept correction—
    Mr. Houghton: Paragraph 122, in page 393 of the Report says:
    "In our view if the Schedule E expenses rule were relaxed the same problems which now beset Schedule D assessment would be reproduced in the case of Schedule E …"
    This was the minority Report, expressing dissent from the majority recommendation.
    Mr. Stevens: I am always very happy to co-operate with the hon. Member, and I am very grateful to him for his advice now. Nevertheless, I would have thought that it would be generally accepted that it is entirely wrong to have one rule for Schedule E expenses and another for Schedule D expenses—although I agree that there is room for argument whether the gap should be narrowed by being more generous with the Schedule E definition or more severe with the definition under Schedule D. The cost of implementing the recommendation, which I think will appeal to the vast majority of fair-minded people, would not be very large. It would bring justice to a great many people who feel very bitter about this. I hope that my hon. Friend will accept the new Clause.
    11.0 p.m.
    Mr. Cronin: The hon. Member for Holland with Boston (Sir H. Butcher) served a very useful purpose in submitting the new Clause, as did the hon. Member for Portsmouth, Langstone (Mr. Stevens) in supporting it. There can be no doubt that there are numerous anomalies which have a very unfair effect. One has been told about them so frequently that there is no doubt that something should be done.
    As the hon. Member for Langstone pointed out, there is a new Clause on the Order Paper which says that if membership of a specified professional organisation was one of the conditions of employment, the annual subscription for that professional organisation should he deducted from the emoluments to be assessed for tax. That stands in the name

    1039
    of my hon. Friend the Member for Sowerby (Mr. Houghton), my name and the names of other hon. Members on both sides of the Committee. But it is very specific; the effect of it is clear-cut.
    The new Clause moved by the hon. Member for Holland with Boston, on the other hand, would have a very wide and revolutionary effect on the whole of tax law. One has seriously to consider how extensive is the injustice involved to merit such radical treatment. Admittedly these cases are numerous, but are they numerous in comparison with the millions of people who pay tax? The hon. Member quoted several court cases, but these are all isolated cases which for various reasons have been argued in the courts. Is there any evidence that this injustice affects a substantial proportion of the total number of people who pay tax? There may be, but it does not seem to me that the case has been made out.
    The hon. Member said that the taxpayer who is assessed under Schedule E is put at the mercy of the Board of Inland Revenue. I know that the officials of the Department of Inland Revenue have bad public relations; they are often regarded as rapacious, merciless people, but in practice the vast majority are very humane and sensible officials who try to be as helpful as possible.
    Sir H. Butcher: I went out of my way to indicate that the officers of the Department were showing more leniency to the taxpayer than they should if they were strictly interpreting the case law laid down for them.
    Mr. Cronin: I am glad that the hon. Member intervened, because it indicates that we are agreed that the officials of the Inland Revenue Department are very helpful people.
    This injustice can be overcome, for instance, very simply by the employer paying the expenses necessarily incurred. It may be said that there is no reason why an employer should do this if he can get somebody else to do it, but the majority of professional people belong to an organisation which negotiates conditions for them, and where trade unions are involved, too, these matters can be negotiated. In the vast majority of cases these matters can be dealt with by the employer paying the expenses.
    1040
    The hon. Member made a very strong point when he said that the Royal Commission on the Taxation of Profits and Income had recommended this step. In fact, his new Clause is couched in very nearly the same words as those used by the Royal Commission, but, as my hon. Friend, the Member for Battersea, North (Mr. Douglas Jay), pointed out, there is a very strong minority who are completely opposed to the views of the Royal Commission, and who compiled a memorandum of dissent. They are Messrs. Woodcock, Bullock and Kaldor—all people familiar with economics and trade union matters. The Royal Commission itself stated in its Report that the Board of Inland Revenue submitted evidence that the existing Rule is a fair one, as far as a general rule can be fair rule.
    The only difference between the new Clause as drafted and the present law is the substitution of the word "reasonably" for "necessarily." The comparatively unfortunate taxpayers who are assessed under Schedule E have to prove that expenses proposed to be deducted are "wholly, necessarily and exclusively" expenses for their employment, whereas the people who are taxed under Schedule D have to prove only that they are "wholly and exclusively" incurred.
    Will this substitution of the adverb "reasonably" really clarify the matter? "Necessarily" is an adverb which has a fairly clear-cut connotation, but "reasonably" is an adverb which varies enormously in its construction. There must be vast differences among members of the Committee here tonight on what constitutes something which is reasonable. How enormous would be the variations of judgment in the use of the words "reasonable" or "reasonably" if these cases came before the court. One can visualise a very large extension of the category of expenses allowed under Schedule E if the new Clause were accepted. There is already an enormous increase in the category of expenses under Schedule D, and with the case law which would multiply, this situation would become quite out of hand.
    All of us know that under Schedule D there are some very wide anomalies. For example, it is apparently permissible for an industrialist to have a car which costs £8,000, and which conveys him very short distances, or it is permissible for an actress to buy a mink coat and to say it

    1041
    is a deductible expense, because she has to have one to maintain her prestige. There are these quite absurd anomalies already in Schedule D expense rules, and this new Clause would have the effect of grafting these on to Schedule E.
    The hon. Member for Holland with Boston quoted numerous cases, even quoting Mr. Justice Rowlatt. I think Mr. Justice Rowlatt summed up the matter very succinctly when giving a judgment on the case in which expenses were claimed under Schedule E. He said that if such expenses were allowed "there would be no end to it"—and that sums up the situation.
    I think the hon. Member has made a definite case here, and the whole crux of the matter is the different treatment of taxpayers who are assessed under Schedule D from those assessed under Schedule E. It would be more reasonable to attempt to modify the rules under which Schedule D is assessed, rather than those for Schedule E. These numerous anomalies are tolerated only because it is necessary that the industries of this country should be competitive with the industries of other countries where very similar rules are used. There seems to be quite a case for trying to arrange some international understanding to standardise expenses allowed under Schedule D.
    I quote to the hon. Gentleman paragraph 143 of the Royal Commission's Report:
    "In the course of our study of this very difficult problem we formed the impression that some part of the complaints about the unfairness of the Schedule E rule in relation to that of Schedule D was due to nothing more than a lack of liaison between those responsible for dealing with the respective sets of claims."
    The Royal Commission went on to say it would recommend that some sort of liaison unit should be set up by the Board of Inland Revenue in various parts of the country. I think that that would probably be a helpful preliminary step to meeting the hon. Gentleman's objections.
    This new Clause is admirable in its intention, but it adds to the inequities and anomalies and economic distortions of the Schedule D rules for expenses, and I think that it would be detrimental to our economy, and would decrease the tax yield, and I think it is very doubtful whether it would substantially serve the cause of justice.
    Sir Hugh Linstead: At this late hour I shall be very brief. It would probably be sufficient to say that the whole of the arguments in favour of the new Clause of my hon. Friend the Member for Holland with Boston (Sir H. Butcher) are contained in Chapter 5 of the Royal Commission's Report, and then sit down. However, I feel I ought to go a little beyond that.
    The hon. Gentleman the Member for Sowerby (Mr. Houghton) and the right hon. Gentleman the Member for Battersea, North (Mr. Jay) drew attention to the Minority Report of the Royal Commission. It is worth drawing attention to the fact that what the Minority Report said in paragraph 122 was that the change recommended by the Majority Report, which is the change sought by the new Clause, does not go nearly far enough to remove the difference between the two conceptions of income. In other words, even the Minority Report recognised the existence of the inequality between the assessment under Schedule D and the assessment under Schedule E, which this new Clause seeks to remedy.
    I thought the hon. Gentleman the Member for Loughborough (Mr. Cronin) put an important question to the Committee when he asked whether those who today are assessed under Schedule E represent a really substantial proportion of those who are subject to the inequality between the two assessments? I am quite certain that the answer to that question is, "Yes" and that more and more today professional men such as architects, surveyors, engineers, let us say, are passing from the independent practitioner status into the employer status through employment by Government Departments and by the nationalised industries. Therefore, more and more are finding themselves subject to an assessment under Schedule E instead of, as independent practitioners, under Schedule D.
    The main justification of the new Cause I am certain is to be found in various paragraphs of Chapter 5 of the Majority Report of the Royal Commission. For example, I quote paragraph 137 on page 46 of that Report:
    "Yet, under the present rule, the Revenue is forced into taking what seems to us rather unreal distinctions between what an employer insists upon and what he does not. between what a person is obliged to do in the performance of his duty and what it is desirable

    1043
    that he should do in order to be able to perform his duty: and between current expenses of maintaining knowledge or skill for one post and capital expenses of acquiring improved knowledge or skill to quality for another post."
    11.15 p.m.
    In other words, at the moment the distinction largely rests upon what a man feels in his own bones is essential expenditure, in order that he may maintain his position and his knowledge as a professional man, and the much narrower conception of what his employer may lay down as a condition of employment. I should have thought that in a set of circumstances in which it is manifestly to the advantage of the country that in scientific and technical professions everybody should be encouraged to keep themselves at the top of professional knowledge, we should not go out of our way to prevent the employed professional man from taking every possible opportunity to keep himself in touch with advances in his science, by membership of professional associations, the purchase of the latest books and by subscribing to the latest periodicals. All this at the moment is prevented or discouraged by the present differentiation between assessments under the two Schedules.
    This is not a new matter. It is felt strongly as an inequality by professional men. I remember taking a deputation to the Financial Secretary to the Treasury—not the hon. Member for Battersea, North—between 1945 and 1950. The Ministerial reply to that deputation began by saying that the whole of the Income Tax law is founded on inequality. That seems a very cheerful and happy principle on which to base taxation!
    Without quoting any further from Chapter 5 of the Royal Commission's Report, which I am sure the Financial Secretary and the Economic Secretary know only too well, I suggest that there is an analogy here with the situation of the ministers of churches, which has already been discussed in the Committee. There is real need for examination by the Treasury of whether we cannot do something better than what we are doing at the moment to iron out this differentiation between the two Schedules. I very much hope that whoever replies for the Treasury will be able to say that the Government are really conscious of this
    1044
    inequality between employed men and independent professional men and that they will do their utmost, if not in this Bill then in the next Finance Bill, to find ways and means of ironing out these differences.
    Mr. Powell: No one who has studied this problem of the allowance of expenses for tax in assessments under Schedules D and E can have failed to recognise the essential difference in the circumstances of an office or employment on the one hand, and a trade or profession on the other hand, which must have its effect upon the allowance of expenses. Certainly the Royal Commission quite plainly recognised that difference. The Commission referred to the fact that
    "… there is an inherent difference between income from employment and income from the activity of the self-employed. In judging what is reasonably done in the appropriate performance of the duties of an employment it must always be of major importance to know what the employer requires by the contract, what is the prevailing practice in comparable employments and what provision the employer may himself make at his own expense for the employee's use."
    On the other hand, a person who is engaged in a trade is directing his own income-earning activities and is of necessity forced into the position of judging whether the expenditure is of advantage for his business. No one else can be qualified by similar knowledge of the actual facts and of the hazards of the particular enterprise.
    Therefore, the Royal Commission did not disagree—and it says this quite frankly in paragraph 135 of the Report—with the Revenue's presentation of the problem in regard to expenses under the Schedule E rule, and I think it must be recognised that in the vast majority of the 18 million—or thereabouts—assessments made under Schedule E, the circumstances of the office or employment are not such that any difficulties arise, nor I think is there any hardship caused, by the operation of the Schedule E rule.
    Where the difficulty does arise, and the Royal Commission pinpointed this very clearly, is because, as they stated in paragraph 135,
    "… there are many offices and employments, the true obligations of which are not capable of being precisely defined."
    They went on to illustrate that, first by the case with which we have already become familiar during our discussions this

    1045
    week, namely, the minister of religion; and they then observed generally, what this debate also has brought out very clearly, that it is in the case of professional employments, or offices of a professional nature, that the difficulty arises. It was to that difficulty that the Royal Commission specifically directed its attention and its criticism.
    So, we are here dealing with a comparatively small, but very important, sector of the assessments made under Schedule E; that sector where, if I may so describe it, the employment is of a professional nature.
    The Royal Commission proposed a formula to meet that difficulty, or to attempt to meet it; it is the one which my hon. Friends have written into their proposed new Clause. But, even judged by the Royal Commission's own test, this formula would fail if it should become part of our tax law. Let me apply the Royal Commissions own test. They put the test in the form of a series of questions, which they posed for answer. Those answers ought to be given correctly with the aid of the formula, if it is satisfactory. The questions were these:—
    "Are personal tools to be allowed for, if used in preference to those provided by the employer?
    "Books additional to those so, provided?
    "Overalls where their use is optional?
    "A private car where alternative traveling facilities are provided free?
    "Wife's or secretary's wages where the terms of employment do not require their assistance?"
    These are the sort of questions which require to be answered by the aid of whatever formula is adopted. They are the sort of questions to which the Royal Commission requires an answer, and in its opinion, the proper answer to most, if not all, of those questions should be "No". But, if addressed to the formula proposed in this new Clause tonight, the answer in most, if not all, cases, would inevitably be "Yes". Therefore, on the test proposed by the Royal Commission itself, this Clause is far too wide. It would inevitably let in much which they themselves thought it right and proper to exclude.
    The formula purports to assimilate the Schedule E rule to that for Schedule D. Yet in the rules for assessment under Schedule D, in Section 137 of the Income
    1046
    Tax Act, 1952, there is a whole list, lettered from (a) to (n), of specific exceptions. Not one of these has been imported into the new formula.
    Finally, there is the point which the hon. Member for Loughborough (Mr. Cronin) made, namely, that this formula contains two purely subjective criteria; the words "reasonably" and "appropriate". The wording is:
    "all expenses reasonably incurred for the appropriate performance of the duties of the office or employment".
    Such a formula would impose on the Revenue, whenever there was a claim, the administratively hopeless duty of arriving at a subjective judgment upon the applicability of those two terms.
    I do not, therefore, believe that the Royal Commission although it correctly pin-pointed the area of difficulty and the nature of the difficulty, succeeded in formulating the solution. My right hon. Friend recognises, as I think in inevitable, not only that the present formula in the existing law has been widely criticised but that in some respects and in some professions it gives rise to what is anomalous. On the other hand, he has to face the fact, which I hope I have demonstrated on the basis of the wording before us, that so far no alternative formula has been devised which would not have results which no one would be prepared to defend.
    My right hon. Friend's intention, therefore. is during the year to seek discussions with interested bodies and those representative of the types of profession which are particularly involved, as the debate has shown, in the problem, to see if there can be ascertained by that means any scope for amelioration of the present difficulties. In view of that assurance and that task which my right hon. Friend has set himself, I hope that my hon. Friend will feel that at this stage the proposed new Clause should be withdrawn.
    Mr. Houghton: I am sure the Committee will welcome the Financial Secretary's statement. The Chancellor seems to be adding to his burden of consideration in the coming year, and we sincerely hope that he will get through it all. We shall look forward with interest to the result of his further reflections on this difficult problem in conjunction with the others which he has already undertaken to consider.

    1047
    There is no doubt that there is a problem here, but I think that my hon. Friends and I would agree with the Financial Secretary that the Royal Commission has not found the answer. One wonders who can find the answer if it could not, but, still, the Chancellor is nothing if not optimistic and I have no doubt that he is setting out on this task with the buoyant hope that he will find a solution where others have failed.
    There is no doubt that from the administrative point of view to have to apply a formula which refers to expenses reasonably incurred for the appropriate performance of the duties of the office is to open up a limitless range of argument and difficulty. One of the virtues of the rules under both Schedule E and Schedule D at present is that they require the expenditure to be wholly and exclusively incurred in something, one in the course of trade and the other in the performance of an office. To say that expenditure shall be admitted if reasonably incurred in the appropriate performance of an office seems to me to add to the difficulties of interpretation and application rather than to lessen them.
    We agree that an attempt should be made to bring the Schedule D rule and the Schedule E rule more in harmony, though I think it is doubtful whether there can be, or even should be, an exact equation between the rules for expenditure incurred in trade and the rules for expenditure incurred in the performance of duties for an employer, for the reasons which the Financial Secretary quoted from the Royal Commission's Report. Cases of hardship have been settled in the courts. It is impossible to say how widespread the harmful effects of those judgments have been. Some of them were unusual and could not have very wide repercussions on Schedule E assessments generally.
    11.30 p.m.
    We must not, however, lose sight of the fact that when a person is working for an employer and incurring expenditure in the course of doing that job, whether wholly and exclusively or only reasonably, the employer has a responsibility towards the employee to cover expenditure properly incurred in the performance of his office. In many cases that is something which can be agreed
    1048
    between the employer and the employee as part of the conditions of service.
    As the Financial Secretary said, many of the difficulties arise in connection with professional men in private practice, although I do not agree with the hon. Member for Putney (Sir H. Linstead) that nationalisation is necessarily transferring many people from Schedule D status to the provisions of Schedule E. After all, a professional man employed by a colliery company was assessed under Schedule E before nationalisation and has not changed the classification of his Income Tax assessment since. It is only when one goes from being in business on one's own account to an employment that the change from Schedule D to Schedule E takes place. However, the hour is late and this is a very complex subject offering a very wide area of discussion and possibly difference of opinion and the Financial Secretary has reported to the Committee the only reasonable decision appropriate to the hour and circumstances.
    Sir L. Joynson-Hicks: As one of those who put his name to the new Clause, I want to express my appreciation to my right hon. Friend and my hon. Friend for the attitude they have adopted towards this problem. It is a very difficult problem and it is something for us to be able to appreciate that they recognise that there is a very unsatisfactory situation. I know that many professional bodies are exceedingly worried about it. My own organisation, the Law Society, is very worried indeed. I know that my hon. Friends can be assured that in the consultations they will seek, they will have the fullest co-operation from those bodies.
    Sir E. Errington: At this hour of the night, I hesitate to spend very much time on this matter, but at the same time it affects a constituent of mine in the most frightening way and I ought to mention the case very shortly. The constituent I have in mind was blinded at the rocket range at Woomera and is now employed by the Royal Aeronautical Establishment at Farnborough. For his duties he requires a guide dog.
    He considers that the guide dog, which is necessary for him to get about from one part of the big establishment to another, costs £50. If he happened to be assessed under Schedule D, the position would be that he would be entitled to an

    1049
    allowance in respect of that cost, but because he happens to be assessed under Schedule E, he is unable to get any allowance. I wrote about this matter to the Chancellor and I received a reply which obviously showed that the position had not been appreciated. The reason I call attention to this case is that it seems clearly to exemplify the problem that arises. I put down an Amendment dealing with the question of disablement, but I feel that, in the light of what has been said by the Financial Secretary, as the whole matter is to be reconsidered he will have regard to what I have said, as an example of the sort of problem that arises because of the difference between Schedules D and E.
    Sir H. Butcher: In view of the extremely helpful reply given by my hon. Friend, I beg to ask leave to withdraw the Motion.
    Motion, and Clause, by leave, withdrawn.

    New Clause.—(REMISSION OF PURCHASE TAX FOR THE HOTEL AND CATERING INDUSTRY.)
    Where the Commissioners of Customs and Excise are satisfied by an auditor's certificate, or in such other manner as they may direct, that articles chargeable to purchase tax have been purchased solely for use in a hotel or catering establishment, they may, subject to such conditions as they may impose for the protection of the revenue, remit purchase tax chargeable in respect of such articles.—[Sir C. Taylor.]
    Brought up, and read the First time.
    Sir Charles Taylor: I beg to move, That the Clause be read a Second time.
    During the debate on the Clause concerning building societies there was much declaring of interests; in fact, the Financial Secretary himself declared an interest. I suppose that I should, therefore, also begin by saying that I have two interests in the Clause: first, that the main business of my constituency is the hotel trade; and, secondly, I have the honour to be the chairman of a hotel in London.
    I want to talk about one of the industries which are vital to our export trade. The tourist trade is the No. 1 export industry for this country, not only because of the people who stay in the hotels but because of all the ancillary connections—the spending of money in shops and restaurants and the travelling
    1050
    by the people who come here. I have no hesitation in claiming that the tourist trade is probably our biggest dollar earner.
    The British Travel and Hotels Association—which is largely supported by the Government—and the Board of Trade have repeatedly said that they want to see more hotel accommodation in London and in some of the great tourist centres throughout Britain, although I should make it quite clear that if there is any shortage of accommodation at the moment it is a seasonal one, and not an all-the-year-round one, and I would suggest that the same thing applies to every city in the world which caters for tourist traffic.
    Many people would like to build new hotels in London, or in some of our great cities, if they could do so profitably. It has been proved time and time again, however, that it just is not possible to build a new hotel, with present-day site values and building costs, and run it at a profit. Therefore, for the time being, at any rate, we shall have to rely, in the main, upon extensions and improvements to existing hotels, so that extra and improved accommodation is made available for all the visitors whom we hope to attract.
    The Americans take the view that within a very short time we shall have vast numbers of jet aircraft flying visitors from Canada and the United States to this country at very cheap rates. In that case, if we are not able, because of the cost, to provide hotel accommodation in our great tourist centres we shall miss a great deal of trade. They will go to Europe, to the hotels that have been built with the help of Marshall Aid. They will go to other places where building costs are not so high.
    The Deputy-Chairman (Sir Gordon Touche): I am sorry to interrupt the hon. Member, but this new Clause applies to Purchase Tax.
    Sir C. Taylor: I had to give that background. Sir Gordon, and I make no apology for keeping the Committee at this time of night. I did not myself fix the time of debate. This is a very important subject. I wanted to give the background of the case for the relief of Purchase Tax on the tools of our trade. We hon. Members who represent tourist and holiday resorts and such places protest against a first line export industry being

    1051
    taxed on the tools of its trade because no other industry in the country is so taxed.
    Mr. W. R. Rees-Davies: I think that I ought perhaps to correct my hon. Friend on that point. His case is in direct line, is it not, with the case of the chassis of commercial vehicles? Users of lorries are being taxed on the tools of their trade, and these are the only two examples where the tools of trade are taxable.
    Sir C. Taylor: I thank my hon. Friend very much for his intervention. I should have been aware of that. Nevertheless, as I explained earlier, this is the No. 1 export dollar earner of the country and it is—
    Mr. H. Wilson: If the hon. Gentleman will permit me, his claim to a monopoly in this respect has already been turned into a duopoly by his hon. Friend the Member for the Isle of Thanet (Mr. Rees-Davies), and if I may mention another example it is the anomalous, and I should have thought indefensible, tax on export forms and other documents used by export merchants. No doubt hon. Gentlemen could think of others, but would the hon. Gentleman not take up the time of the Committee by inviting us to find other examples of a monopoly?
    Sir C. Taylor: I did not ask the right hon. Gentleman to give another example. I thought, in good faith, that the industry for which I am pleading was the only industry which had to pay tax upon the tools of its trade, but that does not really alter the argument that I want to put forward tonight. I say it is wrong that the majority of industries should be exempt from Purchase Tax on the tools of their trade while certain other industries should be affected in this way.
    We may hear from the Treasury, which has, at any rate, once tonight been put in its place by the Committee regarding building societies—I hope the same will happen again over this matter—that there are administrative difficulties about running such a scheme as I am suggesting. There may be wangles. People will somehow find loopholes in laws and might do so to get linen, glass, or china the tourist industry and gave it some of for their own use without paying Purchase Tax. That might be so. There are wangles in every sort of tax law if one
    1052
    cares to look for them, but that does not detract from the serious and legitimate argument that I am putting forward that it is wrong to charge an industry with tax on these things.
    I now want to deal for a few moments with the tax on hotel improvements. All expenditure on the building and equipment of hotels and restaurants which is not for specific replacements of existing assets is treated as a capital item. Therefore, with very few exceptions all modernisation of hotel and restaurant premises must be met out of taxed profits. In addition, I should point out that the Tucker Committee recommended that capital allowances should be granted for commercial buildings and, I ask, why should not the same thing apply to hotels?
    11.45 p.m.
    I consider that we have a first-class case for asking that all the linen, glass, china and other equipment of the hotel keeper should be free from tax. The tourist resorts are particularly affected. They have to compete with European tourist resorts, and with places that may have casinos. They may have to compete with countries where the licensing laws are a little less stringent than in this country. Our resorts have to compete perhaps against better climates. Surely it is desirable that we should try to persuade not only visitors from abroad to spend their holidays in this country, but also our own people, thereby saving foreign currency.
    For many years the Government have spent a lot of money on propaganda through the British Travel and Holidays Association to bring people to this country and to increase our earnings of dollars and other foreign currency. They have paid lip-service to the needs and importance of the tourist industry. They have asked that hotels, particularly those in London, should accommodate V.I.P.s. At present, the majority of the Commonwealth Prime Ministers visiting this country are accommodated in London. But, despite all this, there has been little practical support for this great industry and I think it time that the Government paid more than lip-service to the concessions which are given to other industries.
    Mr. John Eden: I wish to support the Motion and, as a representative of the principal holiday

    1053
    resort in this country—[HON. MEMBERS: "Oh."]—I am anxious to speak on behalf of the hotel industry. It is necessary to emphasise that it is an industry and not a collection of individuals, and that it is of extreme importance to the country. The Treasury has already done extremely well out of this industry. It gets a lot from the influx of visitors and, obviously, they would not come here unless there was adequate hotel accommodation. I contend that the Treasury should try to make the position easier for this industry to modernise its plant and equipment and provide greater attractions for the potential customers who come to Britain.
    I think that it is the responsibility of my right hon. Friend to see that things are made easier for this important industry. It has to try to modernise the furnishings and equipment that it has available. It has to buy such new equipment as carpets. cutlery, glass, furniture, television sets, and all the other amenities and appurtenances which are so much required—indeed, expected—by all tourists today.
    To believe that we can continue to maintain a high rate of tourist traffic into this country, particularly from the United States of America and other dollar areas, without being able to improve upon our standards of accommodation is a complete myth. I would, therefore, urge upon my right hon. Friend that he give very serious consideration to this new Clause, and to an industry which is already extremely hard-pressed, and which now has many out-of-date hotels that cannot possibly compete with those new hotels appearing in other European capitals such as Rome, Paris, and even Berlin.
    It is high time that we did our very best to modernise what we have available. After all, this is a most important shop window for the customers who come from overseas, and this Purchase Tax concession would be a very great help to achieving that end. I hope that my right hon. Friend will do something about it.
    Mr. G. R. Howard: I support the new Clause because the hotels in my part of the country have various things to contend with. There is, first, their distance from the larger centres of population, and the cost of railway travel which will, no doubt—
    The Deputy-Chairman (Sir Gordon Touche): This new Clause is concerned only with Purchase Tax.
    Mr. Howard: I am coming to that. The distances that people have to travel to those places makes that expense of a holiday a very material factor, and anything that we can do to help the hotel industry to bring down prices by concessions like this will be extremely useful.
    Mr. Birch: My hon. Friend the Member for Eastbourne (Sir C. Taylor) said that he had an interest to declare because he represents a seaside resort, so perhaps I might say that I have an interest, also—I represent two seaside resorts.
    The debate has ranged fairly wide. I myself received a delegation before Budget day from the Hotels and Boarding Houses Association, which put their difficulties and troubles to me. Listening to them then it struck me that Purchase Tax was quite a small part of the things they had in mind.
    It is very right that my hon. Friends should raise this, and say that the hotel industry is of great importance and a very great dollar earner, but I think that there are considerable objections to the proposal contained in the new Clause. Administrative difficulty has been mentioned. There is administrative difficulty, but what is, I think, rather more important is the question of principle. Once we start saying that we will exempt taxable articles according to the status of the person who buys the articles we are getting into rather deep water. That point was made by the present Home Secretary to the Hotels and Boarding Houses Association as long ago as 1954. I think that the principle is one that we should stick to.
    We had the tools-of-the-trade argument again. Everyone thought of a few more tools of the trade. It is not only a matter of haulage vehicles. Stationery is another obvious example—and there are also car-hire firms. It is not at all an unknown thing for tools of the trade to be used. On the administrative side, I think that perhaps the main difficulty might lie in drawing the line exactly between what was and what was not an hotel or a boarding house. For instance, would a suburban villa whose occupants took in a lodger be a boarding house, or not? It would not be a simple thing to define or to administer.

    1055
    It is wrong to speak as if nothing had been done about Purchase Tax. In 1955, what are described as soft furnishings were exempted, and these included sheets, which my hon. Friend mentioned as one of the articles which he would like to have exempted. They were exempted as long ago as 1955. My hon. Friend will have noticed the reductions in Purchase Tax in this Budget on pots, pans and carpets. All the reductions in Purchase Tax are of direct benefit to the hotel industry. We have, therefore, done something for the industry both in 1955 and this year.
    Mr. H. Wilson: The right hon. Gentleman is misleading the Committee. If he mentions 1955, he must admit that it was this Government which, in 1955, imposed the tax on pots and pans, which they have only halved in this Budget.
    Mr. Birch: I said that soft furnishings were exempted in 1955. Whereas the tax on pots and pans may have risen then, in this Budget it has been reduced. Something has been done.
    I do not think that my right hon. Friend can see his way to doing more in this Budget. What may happen in future years we do not know; it depends on how we get on and on the state of our finances. I agree that this is an important industry, but I do not think that anything we did under this proposal would be right as a taxation principle and I think that the assistance which it would give to the hotel industry would be very marginal.
    Mr. Wilson: While the last thing I want to do is to encourage any hon. Members opposite to take us on a yet further tour around the Tory holiday resorts of the country, I must say that I was very disappointed that in his brief speech the hon. Member for St. Ives (Mr. G. R. Howard) confined himself to the mainland side of his constituency. I share with him and certain others a great delight in the other part of his constituency, across the water. He did not refer to that.
    While not wanting to encourage any other hon. Member to enter into the debate, I must confess that I was very disappointed at the Economic Secretary's speech. This must surely be a precedent in discussing the new Clauses in this year's Finance Bill, because he did
    1056
    not even say that the Chancellor would consider it between now and next year. It is the only new Clause which has not been greeted in that fashion.
    Dame Irene Ward: Why should the right hon. Gentleman want to discourage other hon. Members from speaking? As a Privy Councillor, he has the right to speak, so why should we not speak in the debate if we wish to do so?
    Mr. Wilson: As far as I am aware, every hon. Member of the Committee has a right to speak, Privy Councillor or not. No impediment has been placed on any hon. Member during the Committee stage. I was only pointing out that, having done what we can to facilitate the passage of the Bill, during the debate on the new Clauses only two have been moved from the Labour benches and 10 from the Conservative and Liberal benches, so that I do not think it can be claimed that we have hogged the time of the Committee.
    Dame Irene Ward: Hon. Members opposite talked longer.
    Sir C. Taylor: This is an all-party new Clause, supported by some of the right hon. Gentleman's hon. Friends.
    Mr. Wilson: I have no doubt about that. I was merely saying that at this late hour I should like to hear a little more from the Economic Secretary rather than a further repetition of the argument put at great length and with considerable ability by the hon. Member for Eastbourne (Sir C. Taylor). There are reasons why I want to press this matter with the Economic Secretary. Will the Chancellor consider this matter between now and next year, or is he singling out in an invidious fashion this new Clause as one on which he cannot make that promise?
    When the Economic Secretary refers to what the Government have done for the hotel industry in terms of Purchase Tax reliefs from 1955 to 1957, he must take the whole record of 1955, 1956 and 1957 together, when he will find that the hotel industry has suffered more than it has gained in respect of Purchase Tax. I agree with him that there were reductions in the tax on soft furnishings and sheets in the Election Budget of 1955. That was done after very considerable pressure from this side of the Committee, supported by one or two hon. Members opposite, and after the Chancellor had said that it would be monstrous to remove

    1057
    Purchase Tax from these items. He said that in the course of the Budget debates of April, 1955, but under strong pressure, and fearing to lose one or two Lancashire seats, he gave way, and did the one thing he had said would be dishonest to do three days earlier.
    12 midnight.
    But if one adds all the additions to Purchase Tax introduced for the hotel industry in October, 1955, and then subtracts the partial remissions made in this Bill, taking into account the soft furnishings, the net result is that the industry is paying much more in Purchase Tax today than it was before 1955. So the right hon. Gentleman was really misleading his hon. Friends in trying to persuade them that the Government had done something for the hotel industry in the past three years.
    The other point where the right hon. Gentleman was rather perfunctory was that he did not even attempt to deal with the administrative problems involved. I agree with his own view that this is a very difficult thing to do administratively—to remit Purchase Tax in terms of the user—but he might have given the Committee an indication of the experience of the Board of Customs and Excise in operating a scheme that was designed to deal with the point made by the right hon. Gentleman—a very complicated scheme.
    This was the scheme introduced by Sir Stafford Cripps, under which, as a result of the representations made to him by the British Tourist and Holidays Board, and by the hotels and restaurants trade, it was provided that there should be a total remission of Purchase Tax on the tools of trade of the hotel industry, in respect of well-thought-out schemes of re-equipment, proportionate to the number of dollar visitors entertained by these hotels.
    That was dropped in the lifetime of the present Government. But the right hon. Gentleman could hardly feel he was doing justice to this subject without saying something of the administrative experience of that scheme. Just to talk about the administrative difficulties, without drawing on that experience was not, even at this time of night, treating the Committee, or this Clause, with the courtesy that was required.
    Sir C. Taylor: I am very disappointed at the reply I have had from the
    1058
    Economic Secretary to the Treasury. I feel that this is not a new point, and as the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) said, there was some sort of scheme several years ago, for a specific period of years, and I gather that it worked extremely well. I should have liked to hear something about the administrative difficulties, of which we have not heard anything. But I do not want to press the case further this year, and on the assurance that the matter will receive consideration before next year's Budget, I beg to ask leave to withdraw the Motion.
    Motion and Clause, by leave, withdrawn.
    Motion made, and Question proposed, That the Chairman do report Progress, and ask leave to sit again.—[Mr. Birch.]
    Mr. H. Wilson: While not dissenting from the Motion, which is the best speech that the right hon. Gentleman has made all day, I think that something should be said about the timetable for the rest of the Bill. I hope that the Patronage Secretary, who is very much involved, will take into account what I have to say at this point. As he and the Economic Secretary know, we on this side of the Committee have done our best to facilitate the passage of this Bill, particularly to work to a timetable announced by the Lord Privy Seal last Thursday, when it was said that it was hoped to end the Committee stage at the time when you, Sir Gordon, as Acting Chairman of Ways and Means, intervene at 7 p.m. tomorrow, for the purpose of discussing an important Private Bill.
    We had every hope that we should have been through the Committee stage by that time, but a large number of new Clauses have been tabled by hon. Members in all parts of the Chamber, and, despite our hope to have made more progress, I think that we have had, last night and today, debates on only 12 of the new Clauses to be selected by the Chair, and I understand that another 10 are likely to be selected—although that is entirely within your control, Sir Gordon. I do not see, however, that with the best will in the world, and with the best possible co-operation, at any rate on this side of the Committee, the only side which seems to be co-operating with the Government in the timetable—
    Major H. Legge-Bourke: By going away altogether.
    Mr. Wilson: I shall have a word to say about that in a moment.
    I do not see how, with the best will in the world, we can finish by seven o'clock tomorrow night if the other new Clauses are to be debated adequately.
    I would be the last person to want to go back on any understanding, however informal, about the timing of the proceeding of the Committee on an important Bill like this, but I am sure that the Patronage Secretary will be the first to agree that it has not been this side of the Committee which has delayed the Committee.
    I take the point made by the hon. Lady the Member for Tynemouth (Dame Irene Ward) earlier, that it is the right of all hon. Members in Committee, especially on the Finance Bill, to criticise the legislation and to seek to amend it, and to seek to control the Executive, but the Patronage Secretary will agree that it is extremely difficult for us to ask hon. Members on this side to restrain themselves, to withdraw new Clauses put down, to speak with brevity—
    Mrs. Patricia McLaughlin: They are not here.
    Mr. Wilson: They are not here at this moment because some of us have become extremely "browned off" by listening to so many Tory arguments for so many Tory new Clauses that certain Labour ones have not been reached. They have not been reached partly because of the large number of Conservative new Clauses moved, and partly because of the ineptitude of the Government
    Dame Irene Ward: We have the majority, so we have more new Clauses to move.
    Mr. Wilson: I had thought that the Conservative back benchers—I am not, of course, now referring to the Independent Conservatives—were so thrilled with the Government and with this Bill that they thought it incapable of further amendment, but for all parts of the Bill, certainly for Part IV, there have been more Conservative Amendments than Labour Amendments, which suggests that the Conservatives are not exactly happy with the Bill after all.
    1060
    We could have got on faster had we reached earlier the new Clauses affecting the Purchase Tax. Now we shall take them tomorrow. I think that we could have considered them today had there not been so long a debate on building societies. Had the Financial Secretary, when he spoke, spoken in the same terms as the Chancellor was driven into using we could have ended that debate a great deal earlier. Then we should have made much more progress.
    I ask the Patronage Secretary to agree that whatever we do tomorrow, even if he is more successful than he has been in controlling his own back benchers, there is now little hope of finishing the Committee stage by seven o'clock. We on this side shall do our best. We certainly cannot be accused of having filibustered or delayed the proceedings on the Bill since we entered into Committee on it. I hope that it will be agreed that, after the debate on that important Private Bill tomorrow, on which a number of hon. Members, I know, what to make speeches, it may be necessary to return to the Committee on the Finance Bill. We would hope to make progress with the more interesting, important and controversial new Clauses so that we shall not need to detain more hon. Members than those who feel a close interest in the Finance Bill as a whole.
    But, any rate, I hope that the Patronage Secretary will agree that there will have been no breach of faith, and that no accusations can be made of that against us on this side of the Committee, if we do fail to get through the Committee stage by seven o'clock. We shall have, I think, to return to it after ten o'clock. I should not like to make any forecast about the hour at which we shall then rise.
    Mr. Birch: I am much obliged to the right hon. Gentleman. I agree there has been no breach of faith, even if we do not finish by seven o'clock tomorrow night, but I do not think that it is at all impossible that we shall do so. If we do not, it will still be necessary to finish the Committee consideration of the Bill tomorrow night, as he says.
    Question put and agreed to.
    Committee report Progress; to sit again this day.

PRICES (STABILITY)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Barber.]
12.11 a.m.
Mrs. Jean Mann: I am not surprised to see most hon. Members of the opposite sex leaving the Chamber at this juncture. If the House had been composed of 600 women Members it might have filled up now instead of emptying. The subject of price stability which I wish to raise now is one of the utmost importance, particularly to women. One finds in the House that if the subject of debate is one of importance to the housewife the men think that it is of no consequence to them. On the contrary, the subject of price stability is of the utmost importance not only to men but to the country and its export trade and general economic stability.
I find that there is at present a price instability which baffles even those who are responsible for compiling the index figure of the cost of living. It is something that floats above and below and round about the cost-of-living index figure, but cannot be caught and dealt with. It will never be caught and dealt with until the recommendations of Cmd. 8219, the Report of the Committee on Weights and Measures Legislation—the Hodgson Report—are put into operation.
I am perfectly well aware that on the Adjournment I cannot ask for measures that would entail legislation, and for that reason I intend to make other proposals. Something ought to be done while we are awaiting legislation, because our trade unions are being asked for a standstill agreement on wages. If there is to be such a standstill agreement for one year, the unions ought to have an assurance that the Government will give them some guarantee of price stability.
The Hodgson Report contains a list of unstable, fluctuating weights of packaged goods, fluctuating sizes of packages, fluctuating contents of boxes and of celophane packages, and of tinned fruits that are nearly all water and very little food. There is a list not as long as my arm, but as long as Nelson's Column in Trafalgar Square. The Report recommends that sugar confectionery should be sold by weight. I produce to the House a sample from the Tea Room. It will be noticed that the package could quite well contain three more items. In
1062
fact, when I last bought a similar packet, it did. It then contained 18, but tonight's packet contains only 15. I do not know who is responsible. Is someone "fiddling" between the wholesaler and the counter? It is impossible to trace the fault, but if the number or the weight had been clearly marked we should have known where we were.
Here is another item, which is dealt within the Report. This is polish, and at first glance it would appear to be a full tin; but if one turns it upside down, it will be seen that there is an indentation of more than an eighth of an inch. It is not at all what it appears to be. Last week, I bought a packet of envelopes; and, here again, the Report refers to the fluctuating size of packets and to the number of envelopes in the packets. Last week, the number of envelopes in the packet was 12. but when I bought what appeared to be an identical packet this week the number was 11.
I find reference to packets of nails. The Report states that they should be sold by the number in the box where they cannot be sold by weight, and that the number should be stated. What I have weighs less than an ounce, and there is no guarantee as to what the weight is, or whether, if I bought a similar packet next week, the quantity would not be reduced an eighth of an ounce, or even a quarter.
Then we come to something which has been referred to time and again in the newspapers. Never has there been so much money spent in advertising as for detergents; but the advertising never seems to reduce the price. The manufacturers give prizes or refunds of 4d. if one presents a coupon, or of towels, or penknives; they advertise "large" sizes, and now "magnum" sizes, so I bought a "magnum" size packet. No weight is stated on the packet of either size, and I cannot see any difference between the two. The Report states that the weight should be clearly stated.
The housewife suffers because of soap which is sold by weight. Here are two packets, almost identical. The firm making it recently advertised a reduction in price, but if one weighs the two packets it will be found that there is also a reduction in weight. That is what I object to, and that is what is baffling the housewife. It is not merely that the £ is not going so far, but also that the contents

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of almost every packet she buys seem to to be smaller or fewer.
I was expecting visitors last Sunday, and on Saturday night I found I was short of spice for a cake which I wished to make. I went out and bought the spice; but when I got out the ingredients, and began to mix the spice with the flour I found that I had only half the quantity that I needed. I should have gone along to the shop and bought another packet but, unfortunately, it was shut. This brought home to me what is happening, whether it is with a little tin of spice or a large packet of detergent.
I arrived home one Friday and my husband said, "You might have left enough corn flakes for the week." I said, "I did. I bought a magnum packet." My husband said, "Did you think we were interested in cutting out the figures on the packet, because it seems to be largely a matter of cutting out little Bobo or the British Grenadier and sticking them together?" My son said, "We have no time for that in the morning when we are rushing to catch a train. It is corn flakes we want, not little Bobo on the packet." The packet could easily have lasted a week if it had been anything like filled.
I am sure that the Parliamentary Secretary knows of the approaches which have been made by women's organisations to his Department to have this remedied. I am sure that the trade unions know that the housewives say to their husbands. "We just cannot manage." The housewives do not know what is hitting them. It is subtle. It is insidious. It is a more deadly thing than telling them that a subsidy is being withdrawn—that is, at least honest, though we may disagree with it—that eggs are going up by ld. a dozen or that sugar is going up by 2d. per lb. What is happening is dishonest and baffling and may be the cause of women urging their husbands to seek pay increases and of workers and trade unions being loth to accept a standstill on wages.
An evening newspaper tonight informs us that the grocers state that weights should be shown on packets and that they are pressing for a ban on deceptive packets and odd weights. It says that grocers want the net weight of groceries to be marked prominently and that they
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are urging the President of the Board of Trade to prohibit the use of ambiguous terms in describing packet sizes. A report in a grocery trade publication recently said that it had been hoped that these matters could be dealt with by way of a statutory instruction issued under existing legislation—that is what I am trying to probe tonight—but official opinion was that they would best be left to be dealt with in connection with the new weights and measures legislation.
I wonder whether they can be dealt with without waiting for the legislation. In paragraph 256 of Command Paper 8219 I read:
" An important provision of the 1926 Act is that the Board of Trade is empowered, after consultation with the interests concerned, to add articles to or remove them from the First Schedule by Order."
I should like the Parliamentary Secretary to consider, if not tonight, whether he can help the situation without resort to legislation or at least whether he can persuade a standstill.
The Committee recommended definite weights for marmalade, jelly preserve, honey, syrup, treacle, gelatine, salt, pepper, mustard powder, mustard powder compounds, spices, cream of tartar. dried herbs, curry powder, potato crisps, Christmas puddings and custard, blancmange and junket powders, nut butter, flour of potato, oat flakes—the list goes on and on and is exceedingly complicated. It is only fully appreciated if one has worked in a kitchen.
The Committee goes on to say:
" It has been further recommended, particularly by the women's associations, that a wide range of non-food commodities which are in common household use should also be subject to these requirements."
The requirements are stated weight, stated measurement, or stated number on the box or packet. The Committee recommends that liquid soap, synthetic detergents, all polishes and dressings, animal and bird food in biscuit or cake form, disinfectants, germicides, insecticides, ammonia, turpentine, paraffin, lubricating oils, writing, artists' and printing inks, household candles, seeds, nails, and decorators' sundries, such as petrifying liquid, fillers, pastes and wood preservatives, should be sold by net weight or measure only.
We are told on the patterns that it will take 12 oz. of wool to knit a cardigan, but we find that it takes 14 oz. If we look closely, we find that the weight of wool

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in each skein is only approximately 1 oz. I am glad to say that I always knit with wool produced by reputable firms and always get a net weight of 1 oz. The law is not for honest people, however. We do not know how long thread is. It may be 50, 100 or 300 yards. The Committee recommends that knitting wool and thread should be sold by weight.
Strawberries used to be sold in ½Jb. punnets or 1 lb. punnets or 4 lb. baskets. The Report says that a purchaser has no protection from an unscrupulous dealer who, while offering a 1 lb. punnet for sale, will remove some of the contents so as to make up seven punnets out of six as originally packed.
Some weight ought to he attached to items such as cakes, and especially to flour and sugar confectionery. Tobacco is not always sold by weight. Alcoholic liquor is often sold by the nip. In Glasgow, it is four to the gill, but in other places it is five and in some six. I hope that no one will think that I am a "pub crawler." All these things come into the cost of living.
The Minister of Labour apparently sends postcards to firms asking whether they have made any changes. He is quite content with postcards. I do not blame the Minister. It would be impossible, without a more stringent control and an army of civil servants, to follow up the long list, which is subject to constant fluctuations. The simple way is to carry out the recommendations of the Hodgson Report. In the meantime, I would ask the Parliamentary Secretary to pursue the question whether he can act by way of an order. If he cannot, I hope that he will make a very strong plea to those concerned to agree to a standstill in weights and measures.
12.31 a.m.
The Parliamentary Secretary to the Board of Trade (Mr. F. J. Erroll): The hon. Lady the Member for Coatbridge and Airdrie (Mrs. Mann) has raised a most important subject, touching upon the lives of every one of us. She has done it in her characteristic way, by combining example with humour, with the great sincerity for which she is well known by all hon. Members. In her opening remarks the hon. Lady rather twitted some of the male Members for their somewhat precipitate departure, but I would point out to her that there are a number of my hon. Friends, and
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not only males but ladies who, I am sure, if time had permitted, would have liked to speak on this important subject. The hon. Lady, understandably, quoted goods which mainly affect housewives, but there are plenty of things which affect male shoppers, particularly razor blades and shaving soap, where we have had similar experiences to hers. We can, therefore, understand some of her points.
Before dealing with the matters of detail which the hon. Lady raised, I must point out that I do not agree that the picture is nearly so gloomy as she has tried to make out. First, the Index of Retail Prices has increased by only two points in the year starting May, 1956; in fact, the index of food prices has fallen a little. Here, I would make a particular point in connection with the changing size and contents of packets. The indices are adjusted for changes in the contents of packets where packaged articles and foods are included in the index, so that the index figure records all such changes, up or down, which she outlined.
I will not attempt to deal with the broader questions upon which the hon. Lady touched in connection with price stability, except to say that the Government are greatly concerned to try to keep prices as stable as possible. The Board of Trade is particularly aware of the crucial importance of our price levels being kept in line, so that we can maintain our ability to compete in overseas markets.
We cannot think of money prices in isolation. What affects the consumer both at home and abroad is the money price in relation to the quantity of goods ordered, their quality and the kind of service which goes with them. The object of the existing weights and measures legislation is to ensure that the quantities sold are what they purport to be. It enables consumers to obtain one of the facts which they require in order to take a realistic view of the price at which goods are being offered.
The hon. Lady referred at great length to the Hodgson Report, and quoted extensively from that very important and valuable document. With her customary skill, she avoided referring to future legislation, which would have been out of order, and confined her remarks to some of the more spectacular and important points in that Report. The hon. Lady asked particularly if we could not

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proceed by regulation in regard to certain matters contained therein. While I must admit that it would be theoretically possible to proceed by regulation, I do not think that it would be advisable.
In the first place, we could only do so in the case of foodstuffs and to proceed by regulation would be a laborious procedure. It would be much better dealt with, even at the cost of some delay, by comprehensive and up-to-date legislation. Of course, any discussion of such legislation would be out of order in an Adjournment debate. I feel, however, that it might perhaps be of some assistance to the hon. Lady if I were just to outline the scope of the existing legislation which, in fact, provides a substantial degree of protection for the consumer today.
First, there are certain articles which may be sold only in specified weights or measure when prepacked. These are mainly foods such as tea, coffee, cocoa, potatoes; butter and cooking fat; dried fruits; and a range of farinaceous products such as flour, rice, sago and tapioca. Additionally, bread may only be sold in specified weights and milk in specified measure, whether prepacked or not.
Secondly, there is a very wide range of articles, comprising most foods, which when prepacked must be marked with the minimum net weight, measure or number. These articles do not have to be packed in specified weights, but the actual minimum weight must be marked on the packet, and it is an offence—and this is the important point—to sell such an article if the weight is less than that specified.
It is quite legal for a manufacturer of biscuits to sell packets of biscuits of any net weight he chooses.
Mrs. Mann: Is the right hon. Gentleman aware that all these packets are marked, "Approximate weight 8 ozs."? I find that they also state, "Net weight 6½ ozs.".
Mr. Erroll: I would like to correct the hon. Lady on that point. The normal marking is 7½ ozs. minimum net weight—that is, the guaranteed weight—and the average weight is 8 ozs. There are slight manufacturing variations which make it appropriate for the manufacturer to specify a minimum net weight of 7½ ozs.
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and an average weight of 8 ozs., but the important thing is that the housewife is certain of the minimum net weight of 7½ ozs.
I would just like to mention that there is a third group of articles which may only be sold by weight or measure. They are principally butchers' meat, coal and certain other commodities. Then there is the remaining vast range of articles which are not required to be sold by weight or measure, but if they are so sold and the weight or measure is stated in writing, then short weight or measure is an offence under the Merchandise Marks Acts. For food the requirements are even more stringent. It is an offence to give short weight or measure in the sale of any kind of food.
The hon. Lady will appreciate from what I have said that the public is reasonably well protected today. Nevertheless, the success of these protective measures must depend, in the last resort, upon the vigilance of the purchaser, and rightly so. It is for the purchaser to see that he or she gets the weight or measure charged for and to make vigorous complaints if satisfaction is not given. I do not share the gloomy view of the hon. Lady about the capacity of the housewife to shop effectively. There is now keen competition between rival manufacturers over almost the whole field of the housewife's daily purchases. There is similar competition between retailers.
If the housewife does not like one product because she suspects the quantity offered is being reduced or the price raised, or both, she is free to buy a competitor's product. Similarly, if the method of one retailer displeases her she will find her custom eagerly sought after by a rival retailer in the same neighbourhood. I remain convinced that although the housewife of today has lived through years of shortage, rationing and standardisation, she has still retained that most valuable of her many arts, the ability to make her money go as far as it possibly will. That ability is making today an important contribution towards price stability.
The Question having been proposed after Ten o'clock, and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at nineteen minutes to One o'clock.