FINANCE BILL

HC Deb 19 July 1957 vol 573 cc1523-80

Order for Third Reading read.

11.5 a.m.

The Financial Secretary to the Treasury (Mr. J. Enoch Powell)

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

This Bill is longer by three short Clauses and a few pages than the Bill of which I moved the Second Reading over two months ago. In some respects it is certainly a more efficient and correct Bill for the purposes for which it is designed, thanks to the co-operation of hon. Members on both sides of the House during the course of 12 sittings, but its financial basis and pattern is unchanged.

My right hon. Friend has been as good as his word that he could not go beyond the compass of about £100 million of tax relief which he set for himself in the Budget. Indeed, the alterations which have been made to the Bill have added no more than about £100,000 to the £97.6 million of estimated tax relief in the current year, and about £130 million of tax relief in a full year, which my right hon. Friend offered in his Budget statement.

Today, few would be inclined to question the wisdom of my right hon. Friend in leaving no more of total Government expenditure in the current year to be met by borrowing, a figure of about £127 million, than can be met by National Savings alone. The House will be glad to notice the successful progress of National Savings so far in the financial year. Already in the first 14 weeks—and the beginning of the financial year is not traditionally the best period for savings—the amount invested totals about £32 million towards this figure of £127 million, and so far this year savings are far beyond last year's record for the corresponding period; in fact, they are £51 million better.

I wish to step back a little from many of the details contained in the Bill and see it in its place in that annual series of Measures by which, politics apart, our tax system is gradually, over the years, moulded and remoulded, and consider from the viewpoint of this slow process and change what will be seen in retrospect to be its main features. I am sure that the outstanding one will be the change in our taxation system made by Part IV of the Bill, the overseas trade corporation provisions, which are based on, though they do not slavishly follow, the recommendations of the Royal Commission; and which certainly would have been impossible, but for the immense amount of study devoted to this subject by the Royal Commission. Hon. Members on both sides of the House have co-operated in improving the details of that part of the Bill though undoubtedly, as the years go on, experience of its application will suggest many further modifications and improvements.

If I may once again sum it up in one or two sentences, its effect is to place a company registered in the United Kingdom and operating in a country with lower taxation than we have here on as good a tax basis as any of its competitors. In other words, to ensure that it is at no disadvantage compared with a company which is doing an identical trade and is identical in all other respects except that of not being registered in the United Kingdom.

I recognise that some hon. Members would have wished in this respect to do less and others to do more. I think it will, in the long run, be thought a pity that the Opposition have not been able to give their whole hearted support—it certainly was only very cool support—to the general concept embodied in Part IV of the Bill. They rather devoted their energies to exclusions from it, notably the attempt to exclude from its benefits companies resident in this country which are trading outside the Commonwealth though carrying on, in many cases, trade which is essential to the economic life of the country.

On the other hand, I know that some of my hon. Friends would have liked to go further and to give to non-resident subsidiaries the minor benefits of overseas trade corporation status in addition, of course, to the major benefits which they already enjoy by virtue of not being resident. The House is familiar with the reasons why my right hon. Friend has felt obliged to rule this out, at any rate at this stage of development. It may be that, in consequence, some companies which have non-resident subsidiaries—I have particularly in mind subsidiaries resident in Commonwealth countries—may be contemplating repatriating those subsidiaries.

I should like to urge any company that may be considering this course, but which attaches importance to having a local board of directors in close association with the overseas territory, to consider whether there may not be some suitable solution within the Bill as it is now drafted. Such a solution might be on the lines of having within the same company a central board of directors in the United Kingdom and a local board managing operations in the overseas territory. It would be possible with such an arrangement for a company to be qualified as an overseas trade corporation but, at the same time, to retain, through its local board, a direct association with the Commonwealth territory which the Government have every desire to see maintained.

The Board of Inland Revenue will be prepared to discuss with those concerned whether such a solution would be appropriate in any particular case. Indeed, in general, my right hon. Friend and the Board of Inland Revenue will wish to learn from the experience of the working of these provisions and they will be anxious to give the greatest possible advice and help to companies that may be affected by them. They will be on the look out for ways in which the working of these provisions can in future be improved.

I believe that the provisions which create this new status of an overseas trade corporation are probably those of the most lasting significance and importance which are contained within the Bill.

Next in importance I would put the removal of an anachronism of very long standing. Ever since 1920, the graduation of our system of direct taxation has been interrupted by a very sharp step at the figure £2,000, at which the incidence of Surtax, without any personal allowances, coincided with the loss of earned income relief. The figure of £2,000 has become, perhaps I should not say a venerable one, but at least a hoary one. It has survived profound changes in our tax system which, on the whole, have made the step sharper and higher, and it has survived the social and monetary revolutions of the last forty years. It was time it was gone, and the Bill gets rid of it.

Like this smoothing of the gradation of our system of taxation, the third feature is also based on a recommendation of the Royal Commission, though it improves upon it. I refer to the graduated and substantially improved child allowances which, for the first time, recognised, in terms of child allowance, the increasing expense which is involved in a dependant child as it goes through the stages of its school life and goes on to higher education. I believe that the House is in general agreement that we have met this fact more suitably within the Bill by the graduated child allowance than by the method which was proposed by the Royal Commission.

It will make a really substantial difference to the position of many families with children under education. I will take one example, the case of a man with two children, one perhaps in the sixth at school and another at university. He is earning £900 a year. In his case it will mean that his tax bill will be halved. At £1,250, in a similar case, it will be reduced by more than a quarter. This will bring really substantial help to a class of taxpayer who, I think it is generally recognised, was entitled to be singled out for special assistance. Those are the main features of the Bill which will stand out in retrospect.

If I had to select a fourth from among the minor and more detailed provisions I should mention the disappearance of another relic of the earlier years of this century—a relic of the First World War—Entertainments Duty in its old form. It will now survive only as a very much reduced cinema duty coupled with an extremely modest television duty.

Experience shows that the Third Reading of the Finance Bill is not a wellomened occasion in which to indulge in prophecy. It was in moving the Third Reading of the Finance Bill, on 23rd July, 1914, that the late Earl Lloyd-George informed the House that our relations with Germany were very much better than they were a few years ago."—[OFFICIAL REPORT, 23rd July, 1914; Vol. 65, c. 727.] I will abstain from prophecy, but I will say that a Measure which, as this one does, continues, and continues in a substantial way, the progressive reduction in the burden of taxation which has gone on in the last five or six years, holds out good prospects for the future.

11.18 a.m.

Mr. Harold Wilson (Huyton)

As the Financial Secretary to the Treasury has said, we have now reached the last stage of these quite protracted debates. I doubt whether, apart from the rather turbulent times of Earl Lloyd-George, we have ever been so late with the Third Reading of a Finance Bill. We are, I think, only three weeks from the date prescribed in the Provisional Collection of Taxes Act for ratifying the Resolutions passed by the Committee of Ways and Means on Budget day.

The Government Front Bench will agree that the debates have been extremely good tempered throughout. Time has not been wasted. Indeed, I may claim that the Opposition have been unusually co-operative in this matter. We have not inflicted any all-night sittings on the Chancellor. Indeed, we did not do so last year; it was his own back benchers who did it. When one stresses the co-operative and constructive attitude of the Opposition in contrast with the way the then Opposition dealt with the Finance Bills of 1950 and 1951—much less controversial Bills incidentally—I hope that we have given to the Conservative Party some very useful lessons from which they will have many years to try to profit when they are on this side of the House.

The Financial Secretary said that we had had twelve days on the Bill.

Mr. Powell

Sittings.

Mr. Wilson

Yes, that is so.

Looking back upon them I doubt whether we have had enough time to examine in detail all the Clauses in Part IV. We may regret this in future years. One reason—I do not complain about this, because it is entirely within the rights of all hon. Members—is that we spent so much time in Committee debating Amendments moved by Government back benchers to widen the scope of Part IV that we did not have enough time to debate some of the safeguards which are necessary not only for the Inland Revenue, but for the country generally.

In past years I have always gone out of my way to pay tribute to the performances from the Government Front Bench, especially those of junior Ministers. I therefore do not like saying that we could have had far more rewarding debates this year if the replies from the Government Front Bench had been more thorough and more pains had been taken. There can be no complaint about the Financial Secretary, who has given us the most courteous and full replies, as, indeed, his predecessors have done for the past few years.

But I am bound to say that the answers given by the Economic Secretary have been perfunctory in the extreme. I thought so on hearing them, but I have now read right through the Committee stage debates and reading them gave an even worse impression than hearing them. One can see how, when very important and powerful arguments were deployed from both sides of the Committee, there were little two-minute contributions from the Economic Secretary which added up to nothing more than saying, "We have decided and we are standing pat on what we have decided."

When one compares those performances with those of the former Economic Secretary, the present Parliamentary Secretary to the Ministry of Education, one remembers that he was always most courteous and went to the fullest lengths in answering points raised in debate. One also remembers the present Paymaster-General, who did the same, I hope that the Chancellor will look at this question and, if by any mischance, he is ever responsible for another Budget, we shall have more courteous treatment during the Committee stage of the Finance Bill than we have had this time.

On the Third Reading, as the House well knows, all we are entitled to debate is the Bill, the whole Bill, and nothing but the Bill. If I were to follow the late Earl Lloyd-George, and talk about our relations with Germany, you, Mr. Speaker, would rule me out of order very quickly. It seems that Third Readings of Finance Bills in those days went much wider than they do now. One would be in order, no doubt, in debating the relevance of this Bill to the economic position of the country as it is now, but I do not propose to do so since we shall be debating the inflationary position next week. I content myself by saying that all the arguments we deployed in the debate on the Budget and on Second Reading and in Committee on the Bill against the Budget strategy as a whole, and the provisions of the Bill, are now immeasurably stronger than they may have appeared to hon. Members opposite at the time we put forward those arguments.

During the Committee stage we have been so immersed in detail that I feel that this Third Reading gives us an opportunity, which the Financial Secretary has just taken, of looking at the Bill as a whole. I do not intend to go through every Clause—I will spare the House that—but I join with the hon. Gentleman in welcoming the removal of Entertainments Duty from the living theatre and from sport. That was something for which we have been pressing for a very considerable time. I think that we were all glad that the Chancellor was able to do that this year. It does not solve the problems of the living theatre, or stop property interests pulling down theatres and throwing up blocks of offices in their place. No doubt they can count on the Chancellor opening those blocks of offices and, when doing so, making speeches deploring the inflation arising therefrom.

I think that the proposals in regard to cinemas are inadequate. More cinemas must be expected to close during the course of the next year. I hope that that will not be so, but there is a very strong incentive to cinema proprietors who are doing very badly by way of income to sell their properties, for conversion into blocks of offices, for self-service stores, dance halls, and all sorts of things and thereby to enjoy a capital gain by selling them. That is something for the Chancellor to look at.

Another point about Entertainments Duty is that the amount and even the method by which it is obtained are not properly linked with the regulations this House has just approved on the films levy. I am quite sure that if the Chancellor had known in detail everything that was going to be done about the films levy, he might have made rather different proposals in this Bill, but of course, by Tuesday of this week when we raised this question again, the Government Front Bench had become quite ossified in their attitude to the Entertainments Duty change. We did not oppose the television duty, but regretted that the Chancellor did not see fit to remove hardship and I think the whole House feels there will be hardship.

Turning to Purchase Tax, we welcomed the decision of the Chancellor to reduce the incidence of the "kitchen tax", the pots and pans taxation, and so on. We still cannot understand the argument of the Government about sewing machines. My confusion about that argument was added to considerably by a letter which the Economic Secretary sent to one of my hon. Friends about it, which makes the position even worse. We may have an opportunity of returning to that point at a later stage.

The Chancellor has thrown over the Lord Privy Seal to some extent. The Lord Privy Seal, in the autumn of 1955, said that the only way to fight inflation was to increase the cost of these necessary goods and essentials in order to cream off purchasing power. The present Chancellor, who is facing an inflationary situation worse than that which was faced by the Lord Privy Seal, has decided to remit half this tax. We should have preferred that the whole lot should be removed from kitchen goods because we always thought such a tax was inflationary and added to the cause of inflation. I am glad that the Chancellor has at least recognised the validity of our arguments to the extent that he has reduced this tax. We hope he will not be weary in well doing, but take an early opportunity of taking off Purchase Tax to the point at which the tax stood before the Lord Privy Seal's disastrous intervention—disastrous for himself—in the autumn of 1955.

Turning to Part III, as the Financial Secretary said, the principal point is the provisions related to personal allowances. We agree that the change in child allowance is a case where the Chancellor has departed from the advice of the Royal Commission and was right to do so. I do not think that any of us, on either side of the House, liked the recommendations of the Royal Commission about child allowance. I think the proposal of the Chancellor was taken from a suggestion in the Economist a little earlier and is a great improvement on what was suggested by the Royal Commission. That, however, does not in any way mean that we support what the Chancellor has done on the extension of personal allowances into the Surtax range. We debated this question very fully at the time of the Budget, in Committee on the Bill, and again on Report. I do not want to repeat the arguments which have been used and with which, I think, the House is familiar.

We were prepared, and have said so many times, to see some extension of the earned income allowance into the Surtax range. We agree that there was an anomaly and anachronism there. We would have been prepared to support something which was part of a socially fair and balanced Budget going as far as the recommendations of the Second Report of the Royal Commission scaled up to take account of changes in prices and in the value of the internal currency since that time. What the Chancellor has done will not, in our view, stop emigration, because the people who are emigrating are not those with £4,000 to £10,000 a year. They are younger and lower paid people.

The hon. Member for Kidderminster (Mr. Nabarro) tried the other day to prove that they were all Schedule D people in this range any way. He had a very salutary lecture from my hon. Friend the Member for Sowerby (Mr. Houghton) on the whole subject. It seemed that the hon. Member supported the Budget because it would help Surtax-paying shopkeepers.

Mr. H. Hynd (Accrington)

He should emigrate.

Mr. Wilson

I offered my very best wishes to the hon. Member for Kidderminster if he cared to go to the Soviet Union, whose tax arrangements he praised so much.

We feel that these concessions are entirely provocative in the present tax situation, particularly those in the £4,000 to £10,000 a year range. We believe that the Chancellor has to go to a Cabinet meeting. We can understand that, in face of the Government's difficulties. We understand that next week he is to announce proposals for an independent committee, or court, or board of inquiry—I do not know exactly what it is to be called—which, apparently, is to have some influence, if not any control, in the matter of wages. That is the Government's suggestion. But, of course, the Government must realise that a court of this kind would not be regarded in the country as having any authority if, at the same time, the Chancellor were indulging in such irresponsible actions as those which he has taken in respect of Surtax payers.

The question whether the inflationary position would permit such largesse being given to Surtax payers has not been considered by any independent inquiry. The action was taken by the Chancellor at the time of the Budget because of the trend of the bye-elections, and the Chancellor would be asking a lot of the remainder of the country if he asked them to accept the intervention of an independent court of this kind when the group of people who mainly stand behind the Conservative Party can be rewarded by the Chancellor's hand-out at Budget time.

My third and last point about Surtax allowances has been made many times and must be made again. It is that it seems utterly monstrous at this time of inflation that there should be this large hand-out to the people in the country whose needs are least when people whose needs are greatest and who are suffering most from inflation do not get a single penny of relief.

I will not go into the arguments about the investment allowance for ships. Turning to the problems of Estate Duty, I think we broadly welcome the Chancellor's decision to put an end, as far as he can, to the famous disappearing act, which has been debated in Committee and on Report. Nevertheless, he has not dealt effectively with the major problems of the system of Estate Duty. Death duties in this country are very largely evaded today, partly by covenants and by other means. If, as has been said in the debate, Surtax is now largely a voluntary tax, it can truthfully be said that Estate Duty is a tax very largely on distrustful parents.

I should be out of order if I were to suggest means of making Estate Duty provisions more effective. In so far as we are dealing with gifts inter vivos, as we are in the Bill, the provisions are to a considerable extent weakened by difficulties about probate. There are always arguments about the real value of these things, and I think that the Chancellor will one day accept a proposal which we have made from this side of the House—a proposal that the right policy is to let the executor value the goods. The Board of Inland Revenue must find it very difficult to produce expert knowledge on these matters. My suggestion, therefore, is that the executor should be allowed to value the goods at his own valuation, it being understood that the State can then purchase those goods, whether they be shares, land or works of art, at the value put on them by the executor. That would be completely fair and would lead to an honest valuation.

Although I will not deal with the section of the Bill on the National Land Fund, because my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) dealt with it very fully, I must say that we received a very inadequate answer from the Government. The Minister had certainly studied his brief and had gone to great trouble, and it was not that his answer was perfunctory; it was quite full, but we think that it was wrongly conceived.

May I follow the Economic Secretary in dealing with Part IV of the Bill which, as he said, viewed against the background of history and future years will be regarded as the main feature of the Bill? Immediately after the Budget debate, when there had been very little time to consider the implications of the Chancellor's vague words, I said that we viewed these proposals with some sus- picion. That was on 10th April. When we saw the Bill we realised that our suspicions were well justified and the subsequent debates, as well as a study of the blistering comments of the Board of Inland Revenue, have made hon. Members on this side of the House still more unhappy about the whole proposal.

As we made clear last year, we should have supported any special concessions which were very simply directed to dealing with the problem of pioneer industries and pioneer tax relief, for instance in Colonial Territories, but these provisions go much further than that. Indeed, they do not give in every case the help which is required in this narrow field of pioneer industries. We are certainly not satisfied with the safeguards in the Bill, and we are not satisfied that the scheme as a whole is well conceived, is necessary or is desirable.

We have debated at some length a large number of Amendments moved from both sides of the Committee to this Part of the Bill, and this morning I will summarise our main arguments against Part IV. First, it introduces a new and potentially dangerous element of discrimination between one class of taxpayer and another, on the basis of where and how the income is earned. At a very early stage of our Committee discussions my hon. Friend the Member for Sowerby said that in no other part of taxation do we have distinctions between types of income; in other words, we do not say, "This form of income is earned easily, but that form of income is earned with greater difficulty and therefore should carry a different rate of taxation".

My hon. Friend went as far as to suggest that he thought that in the entertainments industry income was fairly easily earned, whereas in certain branches of productive industry it was earned with much greater difficulty. Certainly, in personal taxation we do not say that a coal miner shall pay a lower rate of tax because of the arduous and dangerous nature of his calling compared with the much easier pickings to be obtained by company promoters, advertising agents, and many other people.

The principle of our taxation system is equity of all taxpayers before the law. This point was very strongly made in the memorandum submitted by the Board of Inland Revenue to the Radcliffe Commission. The Board submitted that the introduction of special taxation favours for selected classes of traders would destroy one of the main pillars of the Income Tax system. That was a very authoritative and weighty warning and one to which, I thought, the Government would pay some attention. The Board went on to say: If the national interest demands that assistance from public funds should be given to particular industries, it should be done by means of some form of direct aid and not by way of relief from the general burden of taxation, which would benefit most those who make the biggest profits. We are, therefore, right in asserting as a general truth that if the principle of the fiscal equality of all citizens before the law is to be waived—I do not deny that there may be arguments in special cases for the waiving of that principle—it should be done only for undeniable and overriding considerations of national interest.

We have to consider not only considerations of equity, but considerations of the yield of the tax. Every exemption which is granted erodes and narrows the tax base. We have often said in recent years, I think in all parts of the House, that because of the narrowness of the tax base, because of the erosion of the tax base, because of the exclusion from the area of taxation of so many forms of spendable income, the tax rates on that narrow base are much higher than perhaps otherwise would need to be the case. It is exactly parallel with the problem in certain American cities—a problem which may even be occurring in London; where there is a shortage of land for building, the buildings put on the land tend to become skyscrapers and much higher than otherwise they would be.

This is happening with our tax system. In the Bill the Government are once again narrowing the tax base. Despite the arguments which I well remember being put in Committee by the right hon. and learned Member for Kensington, South (Sir P. Spens), the result must be that a greater burden will fall on the taxpayers who are not given these exemptions. There has been some argument and some discussion about how much erosion of the tax base will result from this concession. The Government told us that it will cost £35 million. It is a formidable sum even if it is only £35 million but, frankly, we have little confidence in the Government's estimates.

In the memorandum of October, 1952, the Board of Inland Revenue estimated that for a somewhat similar scheme the loss of revenue would be between £90 million and £130 million. In June, 1954, commenting on a slightly amended scheme, the Board estimated that the loss would be between £55 million and £65 million. The Prime Minister last year, when a similar scheme was put before him during the Committee stage, said that it would cost £75 million, and now the Chancellor of the Exchequer says that the comparable cost is £28 million, because that is the Income Tax part of it, the Profits Tax part, we understand from the Economic Secretary in one of his rare flashes of illumination, being about £7 million. Therefore, comparing like with like, the Income Tax cost is £28 million, which is the Chancellor's estimate of the cost of this concession.

I do not believe that the changes in the schemes submitted to the Board of Inland Revenue can explain that reduction, and we are bound to ask whether it was the Chancellor, having decided on this concession for political reasons, who twisted the arms of the Inland Revenue statisticians behind their backs until they gave him a figure which he dare quote. This estimate which the Board of Inland Revenue made is based on known figures of the profits of individual companies. The Board takes, as far as it can, an estimate of the known profits which will be exempt from taxation under these tax changes, but in making such estimates it makes no allowance at all for the ingenuity of the tax avoidance industry in this country, which will have a wonderful time out of 29½ pages of this Bill.

When we remember that even on so narrow a field as dividend stripping before the Revenue could catch up and before legislation could be introduced they were able to cost the Revenue between £10 million and £12 million a year, how much more can these ingenious gentlemen wring out of the Revenue by means of the loopholes which this Bill provides? I suspect that a very formidable figure is involved.

The second question we must ask is whether the nation can afford these concessions in our present balance of payments situation. The Chancellor admitted on Second Reading that they would have an adverse effect on the balance of payments in the short run, and I would remind the House of the warning given by the present Prime Minister, when he was Chancellor of the Exchequer, in the debate on the Finance Bill a year ago. This is what the Prime Minister said: Then I have to look at the background, because not only would it involve very big Budgetary losses, but it would have a very considerable effect on the balance of payments. So we have a double pressure on us. I am not making these points as objections, but am stating them as facts. Something involving that amount of money, regarded both from the Budgetary and balance of payments point of view, is not lightly entered into."—[OFFICIAL REPORT, 19th June, 1956; Vol. 554, c. 1265.] I do not usually find myself in accord with the pronouncements of the former Chancellor of the Exchequer. I think that the former Chancellor, despite his short period of office, was quite the most disastrous Chancellor this country has ever known, but this warning of his was justified, and we must ask the present Chancellor whether he thinks that we can afford this strain on our balance of payments position today when we could not afford such a strain a year ago. Does he think that the balance of payments position has improved so much over the last 11 months? After Suez?

Gold reserves are no higher than they were a year ago, and are only comparable because we have borrowed or mobilised nearly 1,000 million dollars from the International Monetary Fund, the United States of America, and the rest, or by the sale of Trinidad assets. I should have thought that most people would feel that our balance of payments position is certainly no easier than it was when the former Chancellor of the Exchequer made his pronouncement a year ago.

Indeed, we understand that the Chancellor had to tell the Commonwealth Conference that there was no money left over for Commonwealth development, and if the Daily Express account of the last meeting of the 1922 Committee addressed by the Chancellor is correct, as it sometimes is, it would appear that the Chancellor had some very gloomy things to say to the 1922 Committee about our potential exportable surplus.

Again, the position of the sterling area has changed very considerably and remarkably last year, and is deteriorating perhaps month by month. It has changed as a result of certain nations achieving independence, which we all welcome on political grounds, does place a potential strain on the mechanism of the sterling area, and yet the Chancellor this year thinks he can make this concession.

I would remind the House of a passage in the Final Report of the Royal Commission on the Taxation of Profits and Income in the chapter on overseas profits, and I should like to quote a few sentences. They are from part of this rather strange chapter headed, "The Case Against Exemption." The Royal Commission was divided on this point of overseas trade corporations. Some members were for it and some were against it, and, unusually, it printed the arguments both ways and put forward what is, in effect, a majority view. This quotation comes from the main Report, and not the minority Report. From the point of view of the balance of payments, a concession to overseas profits would act as an encouragement to overseas investment. It is more than doubtful whether this country can afford to give any such general encouragement. The Report goes on to admit that the volume of our exports is itself related to the volume of investment overseas, and goes on to say that if we invest more, we can in many cases hope to sell more. It proceeds: There can be no doubt that some of the overseas investments which have been made, with difficulty, in these difficult years has facilitated the expansion of exports which has occurred. But it will rarely have happened that overseas investment has so greatly expanded the demand for United Kingdom exports that it has caused a net increase in the surplus available for spending on imports"— and this part of the quotation is italicised— in the year in which the investment has occurred. More usually, there will have been a reduction in that year, which may be matched by an increase in later years. To earn such future increases by present sacrifices is a good thing; but there is a limit to the present sacrifices which the nation will be willing to undergo for that purpose. There is indeed a danger that if we endeavour to expand our overseas investment unduly, we shall do so at the expense, not of home consumption but of home investment; but it is on investment that is ranked as home investment that our ability to produce for export depends. It is accordingly not clear that it would be wise to attempt the expansion of overseas investment, even admitting its favourable effect upon the demand for exports, much further than it has been carried hitherto. That quotation comes from paragraphs 651 and 652 of the Report, and I apologise to the House for making such a long quotation, but it is absolutely vital to the whole consideration of this part of the Bill.

Mr. Bernard Braine (Essex, South-East)

Would not the right hon. Gentleman agree that the Royal Commission was reviewing a situation against a background of years in which no sizeable surplus, indeed, in many years no surplus at all, had been produced? A few moments ago, the right hon. Gentleman inferred that the Chancellor warned the Commonwealth Prime Ministers that there would be no surplus. He is surely aware that in the past year there has been a surplus and that, in fact, we are currently investing overseas at the rate of £200 million and substantially in the Commonwealth.

Mr. Wilson

I am well aware this country was borrowing short and lending long, which is always a very dangerous position, about which we have warned before. This Report was presented to Parliament in June, 1955, and it was in June, 1955, that this must have been signed—about the time of the General Election, when we heard the Government and all hon. Members opposite telling the country how favourable was our balance of payments position.

Mr. Braine

The right hon. Gentleman knows perfectly well that the Royal Commission was coming to its conclusions on the basis of evidence received at a considerably earlier date.

Mr. Wilson

I do not think that I should like to say too much about the internal workings of the Royal Commission, but I can tell the hon. Gentleman that the Commission originally turned down the proposal for overseas trade corporations, and that it was only in the concluding days of its deliberations, and after the minority had withdrawn to write the minority Report, that this chapter was put into the Report, or so one understands. I am sure that the Government would deny that if they could.

I want to make the point that in June, 1955, we had an article in the Observer—I remember it was the Sunday before polling day—by the Lord Privy Seal, in which he said that there was no economic crisis, that it was not that a crisis had been averted, because there never was one. That was in May, and on 10th June, 1955, we debated the economic position. The present Chancellor of the Exchequer went out of his way to say how wonderful everything was, that everything was booming, and that we should not give so much attention to exports. He chided me for my pressure about exports, and said "Let us have more for the home market. Let everybody be happy. Let there not be so much misery about." It was in that optimistic atmosphere that this Report was presented, and I am sure that the hon. Gentleman will agree that recent Government pronouncements, including those of the present Chancellor, are not more optimistic than those put before the country in May, 1955.

I have apologised to the House for the length of my quotation from the Report of the Royal Commission, but it does bring me to my third point about Part IV—the effect on home investment. As a result of economic mismanagement we are extremely short of resources for home investment, as we are for overseas investment. I heard of a case only yesterday where the Treasury was forcing a very important dollar-earning firm to go to New York to borrow capital for the production of these dollar-earning assets, because there were no facilities for providing that capital in this country.

I think that we would all agree—indeed, we do agree—that home investment, properly directed, can make an even bigger contribution to our balance of payments position than can many forms of overseas investment. Therefore, having given these reasons why we should be very chary about making a concession of this kind, having in mind the balance of payments and the home investment position, we must ask what powerful arguments can be put forward, offsetting, and indeed, overriding, these very strong arguments against taking action of this kind.

Of course, the answer given is the position of our overseas competitors. The Financial Secretary, who summarised in two sentences the case for Part IV, said, as far as I took his words down, that we want to provide for our overseas trading companies as good a tax basis as any of their overseas competitors enjoy; that we want to ensure that they are at no disadvantage in comparison with their overseas competitors. I think that that represents what he said fairly, if not verbatim.

What about our overseas competitors? As the House has been reminded, our competitors from West Germany—very formidable, indeed—have to pay a 60 per cent. corporation tax, and have no tax concession on overseas trade. The United States has a 52 per cent. tax on corporate income, and there is a 27 per cent. reduction for overseas trade, depending on the area where it is carried out. For example, there is no concession—they have to pay the full rate of tax—on any trade with Australasia and Europe. Belgium has a 20 per cent. remission for overseas trade.

Therefore I do not think that the Government have really justified their case in terms of competition with our main export rivals. We know the nature of the German, Japanese and other competition. It lies partly in their extended credit terms, but that is an entirely different issue, and an issue that is not dealt with in this Bill. We feel, therefore, that in so far as there is a case for this concession it should be confined to pioneer industries, and that if it goes more widely even than that it should be partial and not 100 per cent., and should be confined to Commonwealth trade.

But in this Bill the relief is complete. It is 100 per cent., and it makes no discrimination either between countries, between Commonwealth and non-Commonwealth trade, or between types of overseas trading. We could understand a case for proper forms of help for companies that could make a big contribution to exports, or could get essential raw materials from the Commonwealth so as to reduce our dependence on the United States, but this Bill is not selective or discriminatory in that way.

My hon. Friend the Member for Oldham, West (Mr. Hale), who made a very powerful speech during one of our Committee stage debates, pointed out that the kind of company helped by this provision would be a property-dealing company—one dealing in land, property, and so on —in a South American country—in San Paolo. Is it to help companies like that that we consider it right to erode the tax base, introduce discrimination, and endanger the balance of payments, and home investment? The real truth is, of course, that the Government are tender to that kind of interest, or to any other kind of City interest, irrespective of the contribution those interests may make, directly or indirectly, to the balance of payments position.

That brings me to my fifth point against Part IV on the Bill. Again, it has been much debated. The Bill provides not only 100 per cent. Income Tax exemption, but 100 per cent. Profits Tax exemption, something which was not recommended even by those members of the Royal Commission who were in favour of overseas trade corporations. This will tend, obviously, to encourage dividend distributions, and it carries with it a double discrimination against home investment in that home companies are taxed on undistributed profits but these O.T.C.s will not.

Sixthly, I think that arguments have been adduced to show that it does tend to favour non-residents, who can, in certain circumstances, make money by investing in British companies and then can totally avoid taxation on that investment.

Seventhly, and lastly, Part IV bristles—positively bristles—with opportunities for tax avoidance. The Board of Inland Revenue was much concerned about this. It referred to questions of personal expenditure, and said that this might well provide a cloak by which business men could get holidays abroad paid for from tax exempt money. One of the Board's strongest condemnations—couched in language most unusual in such a matter-of-fact body—appears in paragraph 24 of its Memorandum No. 47. The Government were very slow about issuing these memoranda, though we dug them out in the end—

Mr. Powell

The right hon. Gentleman has said that a good many times, but I must again remind the House that the Royal Commission itself recommended that this evidence should be deposited, and not published. But as soon as it was asked for by a Member of the House it was immediately made available in the Library—in a large number of copies.

Mr. Wilson

I know that it was made available, and I am most grateful to the Financial Secretary. I was the Member who asked for it, when we were already at a very late stage of the Committee—we had not reached Part IV, I agree—but if the hon. Gentleman is saying that hon. Members should have been expected to debate Part IV on the basis of making journeys to the Marshall Library, Cambridge, to Nuffield College Oxford, or to the London School of Economics Library, he is asking a lot.

Mr. Powell

The House knew from the Report of the Royal Commission that this evidence existed, and where it was. I say that as soon as the first request was made to the Government, that request was met.

Mr. Wilson

I have no complaint about the speed with which the Financial Secretary acted when he was asked, but I think that the Government should have volunteered it, and should have published it as a White Paper, so that the whole country could know the arguments. I quite agree that a number of copies were put in the Library—I believe that a few of them disappeared—and I understand that they have been very carefully studied, but I am sure that it would have helped us all if we had had those documents earlier. When I referred to them before they were issued, I said that I understood that they were blistering—but the hon. Gentleman threw doubt on that—about the Government's case.

Paragraph 24 of the Board of Inland Revenue's Memorandum No. 47 had this to say: It is to be feared that the adoption of a remittance basis for the charging of profits deemed to arise abroad would, in the absence of complicated anti-avoidance legislation, reduce the rôle of the Revenue in these cases to little more than the receipt of voluntary contributions by way of tax. Those are very strong words for the Board of Inland Revenue to use. No doubt the Government will say that their 29½ pages were designed to make it avoidance-proof—and certainly the provisions are tortuous and ingenious to the point where, for many companies that might be thought should benefit, the scheme will turn out to be, in a classic and farsighted prophecy, a mouldy turnip.

We are worried, as I think all hon. Members are, about the opportunities for tax avoidance, and many have been mentioned on different parts of the Bill. There are fears about the transfer of profits between an O.T.C. subsidiary of a United Kingdom firm and a nonresident subsidiary of that firm. There is the inadvertence Clause: for the first time in tax legislation any firm which makes itself liable to tax by an act of inadvertence can get away with it if it can satisfy the Board of Inland Revenue about it.

Then there is the arm's length argument. The Inland Revenue is supposed to be able to decide whether the prices charged for a particular commodity between associated companies are genuinely at arm's length. We used to ask the Board of Customs and Excise to enforce the utility provisons and they said that they could not tell which was utility cloth and which was not. Yet they are supposed to be able to tell the traders who have any hope of "fiddling" what will be a genuine arm's length transaction. Frankly, I doubt it.

There is the problem of exchange rates. It will pay these companies to hold profits abroad if the rates move one way and to remit to this country if they move the other way. It is a very one-sided arrangement—heads they win and tails the Inland Revenue loses. How can the tax collectors, with all the work they have to do, be expected to say whether a decision to remit or not to remit is right? We understand that some trade is now being conducted on a barter basis between British motor cars and Scandinavian fish. Suppose the rates of exchange between motor cars and fish change from one period to another. Suppose there is a tendency to hold motor cars—or fish, which, I gather, is canned. How will the Board of Inland Revenue know whether this is being done for the purpose of avoiding taxation?

There are fears about the free trade area. My hon. Friend the Member for Stechford (Mr. Roy Jenkins), on 27th June, pointed out that it would be possible under the Free Trade Area for United Kingdom capital to be used to set up manufacturing capacity in Germany or in Belgium making goods largely for export to the United Kingdom, but that separate importing companies importing and selling goods into this country would be more favourably treated than a company manufacturing and selling goods direct in this country. This might easily happen. My right hon. Friend the Member for Battersea, North (Mr. Jay) mentioned the possible rackets which could be operated in countries where there is no company tax, Kuwait and Bermuda.

These are only a few of the dangers. My hon. and learned Friend the Member for Kettering (Mr. Mitchison) could probably find another hundred, which perhaps we ought to have debated in Committee. I personally tremble to think how many more of these will be concocted. Hon. Members opposite have told us that this is a wonderful Bill and that it will help exports and employment. I think that the main gain in employment will be to an already fully-employed and over-inflated profession, the parasitical class of tax avoidance experts with which the City of London is infested.

It is for this reason that my hon. Friend the Member for Sowerby made a powerful plea for a genuine anti-avoidance Clause in the Bill, as was originally provided for profits and, I believe, the Excess Profits levy. I am sorry the Government have not done that. Because of the danger of avoidance, the Chancellor could deal with this in advance if he would say now that if special measures are devised purely for purposes of avoidance he will not hesitate to introduce legislation, retrospective if necessary, to deal with methods which have been invented for that purpose.

Mr. H. Hynd

He dare not.

Mr. Wilson

I do not know whether he dare not. I hope he will; I doubt whether he will, but there was a precedent for it in the Third Reading of the 1955 autumn Finance Bill when I asked the then Financial Secretary, in connection with dividend stripping, what he would do if new methods of avoiding those extremely tortuous and thorough provisions were devised. I asked him whether he would give an undertaking that such retrospective legislation would be introduced. To my surprise and gratification, he said that he would do so.

I now understand that, despite the thoroughness of Section 4 of that Act, three new methods of dividend stripping have been devised, but have not been put into effect because of the Financial Secretary's warning about retrospective legislation. Hundreds of new methods of avoidance can be worked out which could drive a coach and horses through these 29½ pages. I hope the Government will give that kind of warning to discourage these tax evasions. I think that we have justified our claim that these overseas trade corporations proposals are misconceived, untimely and costly to the Budget and balance of payments alike. Insofar as there is a place for special help in special circumstances this can be done with much more simple and restricted provisions.

Taking the Bill as a whole, three and half months have already shown, even before the Finance Bill has left this House, how improvident and irrelevent are the Chancellor's Budget proposals taken as a whole and in detail, because, as we shall show in a much wider setting next Thursday, in the Budget and in this Bill he has not merely done many of the wrong things but has missed a great opportunity of doing some of the right ones.

12.5 p.m.

Sir Patrick Spens (Kensington, South)

I should like to start by agreeing with the right hon. Member for Huyton (Mr. H. Wilson) that throughout all these weeks we have received the greatest courtesy and patience from the Chancellor and the Financial Secretary, but I strongly disagree with him in what he said about the Economic Secretary. I personally think that it is a very great advantage that on the Government Front Bench—I wish it were equally true of the Opposition Front Bench—we should occasionally have a right hon. or hon. Member who can make his point shortly and concisely. I noticed that the Financial Secretary spoke for sixteen minutes, whereas the right hon. Member for Huyton has taken the rest of the time so far.

Mr. H. Wilson

I think the right hon. and learned Gentleman will notice if he studies the Report of the Committee and Report stages that in terms of the number of interventions and of the total length of time taken, I do not begin to rival his own contributions, let alone the contributions of the others.

Sir P. Spens

I should be more than prepared to take a very large bet on that, and I hope that some industrious person will calculate what the right hon. Gentleman said during these debates and how often he has repeated exactly the same arguments, including this morning's debate.

I want to start with Clause 11 which deals with Surtax rates for this year. Hon. Members will realise that one constantly finds the word "Surtax" in marginal notes. We all talk about Surtax when, in fact, so far as the statutes are concerned, there is no such thing. It is nothing but Income Tax. I look forward to the time when, I hope, we shall get rid of the words "whose total income exceeds £2,000" and this absolutely hopeless, unreal and undesirable division between those whose taxable income comes to less than £2,000 and those whose taxable income exceeds £2,000. It is creating an absolutely unreal division in society, throughout the whole country, and the sooner we get rid of it the better.

Therefore, I am extremely grateful that in these Surtax provisions this year we have for the first time got over the barrier of this £2,000 a year distinction. I hope that this is the beginning of the good work of the Conservative Government on this question of Surtax and that before this Government's term of office comes to an end we shall have got rid of this wholly artificial distinction between these two sections of society. I look forward to what there ought to be—a graded system of income tax generally throughout the country.

Having said that about Surtax, I want to deal with a small point on Clause 13. The Clause is worded as follows: A claimant, if he proves that at any time within the year of assessment either he or his wife living with him was of the age of sixty-five years or upwards,— (a) shall be entitled to … certain exemptions. It is suggested that the way the Clause is worded makes it impossible for a widow to be a claimant. I do not accept that view; I believe that it is all right. I would, however, very respectfully and, I am afraid, at this very late stage, ask my hon. Friend the Financial Secretary if some assurance on the point could be given to these anxious ladies, of whom I have several in my constituency.

Coming now to Clause 37, which deals with gifts inter vivos, I want very strongly to disagree with the right hon. Gentleman's approach to retrospective legislation. I am afraid that, in spite of everything which has occurred during the years I have been in the House, I find myself absolutely convinced that there is nothing worse for society than retrospective legislation. To say that it is sufficient to give a warning to people that they are not to do something which is within the law and then, subsequently, retrospectively to legislate against it, is as fundamentally wrong today as it was thought to be when the first piece of retrospective financial legislation was introduced in this country.

I admit, of course, that there are occasions, every now and then, when retrospective legislation has to be introduced. To give one example, three weeks before I went to India, my predecessor and his colleagues had decided that all the Defence Regulations in India were, and had always been, invalid. In those circumstances, of course, it was essential retrospectively to validate them, in the public interest. But the doctrine of retrospective legislation should not be encouraged. It is a doctrine which is being treated far too lightly by many politicians in this country, whereas it should be something to be employed only in the last resort on a matter of the greatest public interest.

It is quite wrong to say, when we legislate, "We have not got this quite right, and we cannot get it right; but if somebody does something within the letter but against the spirit of the law which we are passing today, we shall make it wrong retrospectively next year". Such a doctrine, if encouraged, would be extremely detrimental to the public interest, and moreover, detrimental to the care with which we ourselves legislate. After all, it would mean that one could pass a Bill in any form one liked, and the Minister could get up and say, "If anything is done which we think is against the spirit of the Bill, we will legislate retrospectively against it next year". That would be absolutely disastrous.

It is true that all the criticisms which the right hon. Member for Huyton has made against Part IV can be made, but what is the problem facing us? We have here a country which is bearing the highest rate of taxation in the world, and we have prosperity such as we have never had before, but everything depends upon maintaining the trading income of the country during the years to come. Unless we can maintain the general pool of income of the Income Tax payers of our country, inevitably we shall not be able to raise taxes and we shall not be able to maintain the prosperity of our people.

If one comes across a factor which is limiting the trading activities of our trading companies, it is surely right and in the country's interest to tackle that limiting factor and to encourage trade wherever trade can be obtained. No one can deny that the rate of our taxation, together with certain local factors, has made it impossible for overseas trade to be extended during recent years to the degree it might have been if some relief could have been given to those endeavouring to establish and extend it. The result has been that efforts have been either abandoned altogether or left to foreign companies to pursue. This cannot be good for the country. Therefore, while I fully appreciate that the opportunities given by Part IV may lead, as I hope they will, to a very substantial amount of investment overseas. I still do not believe that they will do any harm to people here at home. On the contrary, I believe that the provisions of Part IV will, in the long run, create demand for our goods, will make more sure the employment of our people at home, and will make more sure that the trading prosperity of our country grows down the years.

I should have liked these facilities to have been given even wider scope than has been possible this year. I was tremendously interested in what my hon. Friend the Financial Secretary said about the way in which use could be made of the Clauses of the Bill in order to enable British companies overseas to bring themselves within the ambit of it. It is quite true that measures of that kind can be taken. However, trading groups have to adopt whatever form is convenient, or, indeed, required, in the local situation, and it is not possible sometimes to avoid having companies actually registered overseas and operating through, as we regard them, foreign companies.

None the less, I fully realise that this is a great experiment. I hope that it will prove successful very soon. If it does turn out during this year, or during the next two or three years, that there are handicaps to the development of overseas trade, I hope that the Government will see their way clear to extending the facilities so as really to remove as many fetters as possible upon our overseas trading operations. Of course, the greatest limitation is the rate of our own existing taxation on these companies, and the Bill goes a very long way towards removing that.

I find it very difficult to understand the argument of the right hon. Member for Huyton, which was based, in the main, on an objection to discrimination. He said that we must not discriminate between those who carry on trade in some particular place abroad and those who carry on trade at home. He found therein the fundamental fallacy underlying the whole of Part IV. Then, having said that there should never be any discrimination—

Mr. G. R. Mitchison (Kettering)

No.

Sir P. Spens

Yes, he did. He most certainly said that there should be no discrimination between one group of traders and another.

Mr. H. Wilson

If the right hon. Gentleman will allow me to say so, I said that there may be cases, but only considerations of over-riding national interest should justify discrimination of this kind. I then went on to say that there were even stronger arguments—balance of payments grounds, budgetary grounds, and the tax base—which were not produced.

Sir P. Spens

I do not generally mishear the right hon. Gentleman; there is no excuse for doing so. As I understood his argument—and I should like to make the point in case, when I re-read his speech to-morrow, I find that my recollection is right—he said that these provisions discriminate between traders at home and traders overseas, which is wrong; there is no excuse for that. Then, having said that, he went on to say that, when we are dealing with traders overseas, we must go in for still more discrimination; we must, first of all, restrict it to those inside the Commonwealth. He went on to say that we must consider the position of land companies in South America, and lastly, he referred to the American system. He said that we must discriminate between those engaged in trade in different parts of the world. In other words, there must be discrimination upon discrimination upon discrimination; and if that was the scheme, the right hon. Gentleman and his party might have considered it a rather good idea.

Mr. Mitchison

I have been listening very carefully to the speeches of both my right hon. Friend and of the right hon. and learned Gentleman. My right hon. Friend the Member for Huyton (Mr. H. Wilson) made it perfectly clear that the criterion ought to be the overriding national interest. He prefaced his remarks by saying that we should have supported the pioneer industry relief. This was made abundantly clear in the course of our debates and it ought not to be obscure now. May I take the opportunity to say to the right hon. and learned Gentleman that, if he wants a statutory reference to Surtax, he need go no further than Section 2 of the Income Tax Act, where he will find it?

Sir P. Spens

That may be; but whether it is there or not, let us get rid of it.

It is true that the right hon. Member for Huyton brought in the suggestion that if there was to be discrimination, it should be in the overriding national interest, and I agree with him. I would say that it is in the overriding national interest that we should encourage and increase trade overseas. The right hon. Gentleman does not think so, because, I gather, he thinks that it would damage trade and investment at home. That is the difference between us.

It is true that in so far as the Bill does not give the facilities to pioneer companies registered overseas, it does not cover all pioneering companies. It does, however, cover the great bulk of them—namely, those that are British companies in fact pioneering overseas. It is only to the extent of those that are registered overseas that the advantage is not given. That was one of the reasons why I hoped that these facilities would be extended even further than they are at present.

I shall not repeat all the arguments which from time to time I have put forward in Committee, but I agree with those who have said that this Finance Bill will be known chiefly for the Clauses in Part IV. I believe that they will prove to be of great value to the country. I believe that they will increase our trade generally. I believe, above all, that they will increase our trade in those parts of the world where we want to increase it. I regret to say that if ever the other party come back into power, they will find that they have a very greatly increased national wealth to dissipate.

12.23 p.m.

Mr. H. Hynd (Accrington)

I feel almost like a gate-crasher in this debate because I do not pretend to be either an economist or a financial expert, nor have I taken part so far in the debates on this Finance Bill. Nevertheless, I suggest that it is of interest not only to the companies of Income Tax evading experts or the representatives of big business, or even to the Surtax payers, but also to the great mass of the people.

I disagree with the right hon. and learned Member for Kensington, South (Sir P. Spens) about the main effect of the Bill, because I believe that the greatest impact it has made on the country is not in connection with overseas trade corporations. The main reaction of the great body of people to the Budget undoubtedly is that a large sum of money—some £100 million—has been given to a privileged section of the country at the expense of the under-privileged. That is my objection to this Finance Bill.

Many people, including myself, are completely puzzled as to what is the Government's financial policy. I have looked up the speech, to which my right hon. Friend the Member for Huyton (Mr. H. Wilson) referred a short time ago, made by the Chancellor of the Exchequer when President of the Board of Trade on 10th June, 1955, when, amongst other things, he said. The programme which we are discussing— that was the Queen's Speech— is unashamedly designed to secure abundance, and to see that all our people can share very fully in it … Do not let us be too afraid of our people consuming things."—[OFFICIAL REPORT, 10th June, 1955; Vol. 542, c. 160, 162.] That seemed to be an encouragement to people to end any idea of austerity and to get on with spending money. To encourage spending, the Chancellor has given away very big sums, including the large amount of relief to Surtax payers in this year's Budget. On the other hand, he has done his best in several directions to make spending more difficult for the other and larger section of the community: for example, by increases in interest rates, which have led to an increase in local rates, and by the withdrawal of housing and food subsidies, but not, of course, the withdrawal of farming subsidies or the subsidy to private owners of woodlands or any of the other subsidies that hon. Members opposite always support while claiming that they are opposed to subsidising from public funds. The Chancellor has given increased allowances to shipbuilding firms and, on the other hand, he has increased the tax on television. It is puzzling to know whether the Government want us to save money or want to give money to those who would spend it on certain articles.

Prices are rising and this has caused distress in many directions. The Government claim, and they have repeated it today, that the Bill represents another step in the progressive reduction of taxation. Has the Financial Secretary forgotten, however, that only yesterday from the Treasury Bench his colleague the Postmaster-General announced a further piece of taxation? The increase in postal charges is taxation. It is no good giving reliefs in one direction—[Interruption.] I do not suppose the Financial Secretary denies that the extra postal charges are taxation?

Mr. Powell

Of course I do. A postal charge is not taxation.

Mr. Hynd

There may be a technical meaning of the word "taxation," but it is certainly a burden on the community. To my lay mind, an increase in postal charges is just as much taking money away from the people as any other form of Government charge; so I shall not argue about the word "taxation." I realise that it has technical meanings.

As the Government are claiming that they are giving reliefs in one direction while, at the same time, they are levying charges on the public, as in the case of the increased postal charges, I suggest that there is something wrong about all this and that it rather takes the edge off the Financial Secretary's claim that this beneficent Government are doing their best to lift burdens from off the people.

My sole intention is to register my protest that in the Finance Bill this year, when the Chancellor, having last year deliberately raised too much money to combat too much spending power, found that he had £100 million to give away, he should have given it to the wrong people. Why could he not have used some of that money, for example, to avoid the increases in postal charges, which he must have foreseen would be necessary? Why could he not have used it to help the old-age pensioner?

Why could not the Chancellor use this money—this may be a revolutionary suggestion—to subsidise rail charges and thereby encourage more use of the railways and relieve some of the burden, both of passengers and goods, from the roads? Had he used this money in some of these directions, it would have done far more lasting good to the country than the proposals in the Bill, which, unfortunately, have now gone too far to be prevented.

12.30 p.m.

Dame Irene Ward (Tynemouth)

I know that it is not considered traditional to make speeches on the Third Reading of the Finance Bill. [HON. MEMBERS: "Why not?"] Indeed, back benchers are certainly not encouraged to make speeches on the Third Reading of the Finance Bill.

Mr. Douglas Houghton (Sowerby)

The hon. Lady should speak for her own side. There is no discouragement on this side of the House.

Dame Irene Ward

If the hon. Member would wait until I finished what I was about to say he would realise that back benchers on this side of the House have more courage in speaking against their own Government than back benchers on the other side have in speaking against their Government when in power. I am only asserting that it is not traditional, and I think that if the records were searched the same would be shown during the time that the Opposition were in Government from 1945 to 1951. I am merely commenting that it is not traditional, but occasionally I think that it is a good thing to part company with tradition.

There are one or two comments that I want to make about that section of the community in which I am particularly interested, the small fixed income groups. I listened—and I am obliged to say this—to the speech of the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) and I found myself feeling rather sorry for him, which is quite unusual for me, because he seems to have met only people who are anxious to do the country down. I think, therefore, that he must have a very peculiar circle of friends. I prefer to think, and I have a fairly wide circle of acquaintances, that most people are anxious to help the country forward.

I agree that there are points of difference and disagreement over policy, but I prefer to hear arguments advanced against the policy which is advocated by the Government which I support on the grounds that perhaps the policy is wrong rather than trying to make the country believe that this great island is full of people who are trying to stab the country in the back.

Mr. H. Wilson

I am grateful to the hon. Lady for her solicitude. I am, however, in a little difficulty. I gave seven reasons against Part IV of the Bill. The right hon. and learned Member for Kensington, South (Sir P. Spens) took the first of the seven as my only one and the hon. Lady is now taking the seventh point about the dangers of tax avoidance. All I did there was to quote the Board of Inland Revenue, which has quite a lot of knowledge about tax avoidance. I did not suggest that the majority of the people want to go in for tax avoidance, but it is a very powerful profession.

Dame Irene Ward

I see the reasoning of the right hon. Gentleman. But I am saying that he seemed to spend the vast proportion of his time talking about people who are willing to try to sabotage the national effort, whereas I think that the Finance Bill introduced by Her Majesty's Government is really designed to help those people who want to do the best that they can for the country.

I should like to make this observation. Neither the Conservative Party nor the Socialist Party, nor even the remnants of the Liberal Party, can, in fact, alter human nature. I agree with the right hon. Gentleman in not wanting to support those people who wish to sabotage the national effort, but if all our efforts are directed towards trying to catch the scalliwags we are apt to forget those who want to make progress in national development and expansion.

Therefore, I am sorry for the right hon Gentleman, because he does not seem to have met those people who are anxious to go forward and help this country to continue the work that it has done in the past as a great world leader. That is all I have to say about that. I could not resist saying it, because I think that it is important to the general basis of our discussion on the Finance Bill.

I want to say one special word to the Financial Secretary. I hope that the point made by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) about Clause 13, in which I myself have a very specific interest, will be dealt with in reply to the debate.

Mr. Powell

I can assure both my right hon. and learned Friend and the hon. Lady at this stage that that "he" embraces "she" in that Clause as elsewhere.

Dame Irene Ward

I am very grateful to the Financial Secretary for that intervention, because I have noticed that—and this is one of the points which I want to make rather briefly and which I hold against my own Treasury Bench—we do not always get the answers to the questions that are asked. I sometimes think, although I know that the Financial Secretary will not agree with me, that women are more logical than men. When a question is asked they like to have a reply, and do not like it to go by default.

I am referring to a reply which has not been given, so far as I know, in the debate this morning. The Financial Secretary will recollect that during the course of the Finance Bill a great deal was said about Purchase Tax. I do not want to repeat what I said on that occasion, but I was hoping that before we parted with the Bill we would at least have had an answer, as, I think, was implicit in the speech made by the Financial Secretary, on behalf of the Chancellor of the Exchequer, on a point which was raised during discussions on the Bill.

I will quote what the Financial Secretary said: The hon. Lady will appreciate"— presumably that is me and, I think, the hon. Lady the Member for Coatbridge and Airdrie (Mrs. Mann) also, because we were acting together on that occasion— that it would be impossible within the scope of order to make an Amendment to that effect in the Finance Bill, but my right hon. Friend will, without commitment, consider whether this difficulty of a sufficiently accurate definition within the scope of ironmongery can be overcome."—[OFFICIAL REPORT, 28th May 1957; c. 258.] I want to know when we are to get an answer. I cannot continue that further because I should be outside the rules of order, but may I put it to the Financial Secretary that I do not intend to allow him to escape from giving an answer?

There is another point that I want to make and it is our answer to one of the statements made by the right hon. Gentleman the Member for Huyton and many other people. I always like to get the facts quite clear because I am a realist. The right hon. Gentleman kept asserting that the concessions to the Surtax payers on this occasion was because the Surtax payers were failing to support the Government in the by-elections. I do not take that view at all. The right hon. Gentleman does not seem to be very good at figures, which is very unfortunate if he sees himself as a "shadow" Chancellor of the Exchequer.

I would point out that the number of Surtax payers is very few indeed and that the people who are failing to support the Government in the by-elections—and I say this quite advisedly—are not the Surtax payers, but those who are living on small fixed incomes. I realise that the Surtax payers do a great deal for the expansion of the trade of this country, but I think that a great deal more attention has to be paid to those living on small fixed incomes.

I want the Financial Secretary, or whoever is to wind up for the Government, to give me one simple answer. In Budget debates we are told that we cannot have certain expenditure of money or remissions in taxation or a reduction of Purchase Tax, because to release too much money will cause inflation. That is said over and over again, and it is said that the Chancellor is budgeting for a surplus, to try to deal with the inflationary problem.

The ordinary, simple man and woman, living on a small fixed income, never get an answer which is understandable to the question why it is inflationary to help them—help them by a few methods which I could very well describe. There are so very few occasions on which I may talk about those people. It is very difficult for me to do so because the matter always seems to involve legislation, and one is, therefore, precluded, for instance, on the Motion for the Adjournment, from talking about those people and means to help them.

However, it is difficult for them to understand why they cannot be helped by the Budget. They do not understand why it is inflationary to help them but not inflationary to help others—for instance, in the Post Office; though I am not going to comment upon that matter, because I have no objection to people in the Post Office being as fairly treated as other sections of the community. But if £46 million are released for expenditure by increased wages in the Post Office—

Mr. H. Hynd

But not by taxation.

Dame Irene Ward

It is not taxation. It is by a wage award. If we get into the realm of argument about whether wages are taxation we never know where we shall get to.

Mr. Speaker

The hon. Lady says that we never know where we shall get to if we embark upon these topics, but there is one thing I can tell her, that if we pursue that subject on the Third Reading of this Bill we shall go beyond the bounds of order.

Dame Irene Ward

I shall not develop that matter, Mr. Speaker, but I noticed that a previous speaker made many observations about the Post Office, so I thought it would be in order for me to mention it in passing.

I will return to my small fixed income groups, who are the people in whom I am really interested. What I want to know from my hon. Friend is why it is impossible to give them some reliefs without creating further inflationary pressure. It may be that I cannot, within the rules of order, develop all the arguments or ask all the questions that there are upon this subject, certainly not on other occasions, but as my hon. Friend has such a far-seeing brain he will, I think, know what is inside my brain, and be able to answer me in due course.

Several Budgets ago the then Chancellor of the Exchequer reduced from £100 to £60 the band of income on which graded Income Tax relief was payable. This matter has been raised on several occasions, but no Chancellor of the Exchequer has righted it.

My complaint is not that the Surtax payers have encouragement by this Bill, not that their services are being recognised, but that, at the same time, the people at a lower level of income, except for the reliefs which, I am glad to say, are given by Clause 13, have very little encouragement at all through this Budget.

Those who are not Surtax payers find it very hard to realise how helpful to the country are the people who pay Surtax. They find it hard to understand why the Chancellor gives them so much help. This is a psychological question. What the people want to know, and what I want to know, is why, when the Chancellor, in preparing his Budget, sought to help the Surtax paying section of the community, he did not also take steps to put the band of income on which the lower rate of tax is payable back from £60 to £100.

Mr. H. Hynd

The hon. Lady should come over to this side of the House.

Dame Irene Ward

It is extremely difficult to get an answer to my question. It is so easy for the Treasury Bench, whether it is Conservative or Socialist, to evade issues. There are not many people in the House today and I do not think there will be so many questions that cannot be answered in the winding-up speech, and I shall sit here in the hope of hearing an answer to my question. I do not know whether the Financial Secretary will answer, or whether it will be the Chancellor himself who will wind up, or whether it will be the Economic Secretary, but I want a straight, specific answer from whichever one of them replies to the debate. I do not want the answer that the Royal Commission on Taxation recommended that the increased personal allowance should not benefit the higher income groups. I appreciate that argument and I think it is a wise recommendation, but if the Chancellor wished to carry this into effect he could have applied a ceiling above which the new band of income for graded relief became effective.

The Chancellor has been very unfair to those people who are still paying tax on the lower range of income. I am quite prepared to support the claims of those people who, in leadership in the trade and industry of this country, have a great burden to carry, but I think that other people are entitled to consideration, too. Part of the difficulty about Treasury Ministers—and this goes for other members of the Government, too, although I am glad to say that they do not mix with such odd people as does the right hon. Gentleman the Member for Huyton—is that there are so many vast problems to be deal with that they seem unable to get into their heads the fact that there are thousands of first-class men and women who are keeping their end up in very difficult circumstances, and that if they want them to co-operate in the effort which the nation must make to get over this very difficult period in our financial history they must give them the impression that they are as interested in their problems as they are in the problems of other people. That, in my submission, is where the Chancellor of the Exchequer, the Economic Secretary and the Financial Secretary have failed.

I know that we cannot make another Amendment to the Bill now, but I do want to know why, when we can maintain the negotiating machinery for increased wages in the nationalised industries of all kinds, which increases must have inflationary pressure on the country, we cannot do something for those loyal, devoted bands of men and women with small incomes, who really are the salt of the earth, and who are also taking part in the national effort. The country wants to know that. That is what I want to know, and I hope I shall get an answer today.

Mr. H. Hynd

Can the hon. Lady say why, if she holds those views on this matter, she does not sit on this side of the House?

Dame Irene Ward

I make very good speeches in my constituency on these subjects. I will answer the hon. Gentleman quite briefly and very much to the point,

I think that the Opposition are absolutely crazy. They make all sorts of promises and statements. I refer the hon. Gentleman to the question of the old-age pensioners as an example of what I mean. He himself mentioned them. I want something to be done for the old-age pensioners, just as much as the hon. Gentleman opposite does. The last gesture which the Labour Party made to the old-age pensioners was in 1951. The Labour Party made this discrimination. If an old-age pensioner was entitled to a retirement pension after 1st October, 1951, when the General Election was coming, he did not get an increased old-age pension, but if he was born before that date—

Mr. Speaker

I agree that the hon. Lady is entitled to answer the hon. Member for Accrington (Mr. H. Hynd), but not to that extent.

Dame Irene Ward

But I am sure, Mr. Speaker, that you would like me to finish my sentence. It will look so odd in HANSARD if it is not finished. If the pensioner was so entitled before October, 1951, he got his pension bumped up by 4s. This, of course, covered all those drawing retirement pensions, but not those coming along.

12.50 p.m.

Mr. Douglas Houghton (Sowerby)

While I am happy to join with the hon. Lady the Member for Tynemouth (Dame Irene Ward) in breaking any tradition there may be that back benchers do not speak on the Third Reading of the Finance Bill, I hope that I shall contrive to keep more within the rules of order than the hon. Lady has done. Early in her speech she paid a tribute to her sex by saying that women are more logical than men. I think that one thing we can say after listening to the hon. Lady's speech is that women ask more awkward questions than men, and that that is why they do not always get the answers.

The hon. Lady certainly asked her hon. Friend the Financial Secretary some awkward questions in the course of her speech, and I shall be very surprised if she gets the answers to them. Of course, she makes the Financial Secretary's task more difficult when she not only demands an answer, but then goes on to tell him the sort of answer that she will not accept. The hon. Lady has certainly made more difficulties for her hon. Friend this morning.

In her speeches in the House the hon. Lady continually stresses the difficulties in the present economic situation of those living on small fixed incomes. I believe that on both sides of the House there is a good deal of concern for the welfare of such people and sympathy with them as victims, among others, of an inflationary situation. Clause 13 of the Finance Bill, however, does something more for them. It gives complete exemption for single persons over 65 whose total income, earned or unearned, is under £250 a year, and for a married couple the exemption given is up to £400 if either of them is over the age of 65. That is an advance on the previous position.

We must also bear in mind that a lot of people, though living on small fixed incomes, are in a position to add to their resources by small capital gains if they are holders of equity shares and that they have also had reliefs in the case of purchased annuities where there is an element of capital repayment in the amount of the annuity paid. That concession was given under the Finance Act of last year. I think that the House welcomes these easements of the tax burden on those with small fixed income.

The hon. Lady the Member for Tynemouth must not overlook the benefits which are given to those older taxpayers who are living on unearned income—the benefits, within limits, of earned income relief. The unearned income of a person over 65 years of age, within certain limits of total income, is treated for purposes of Income Tax as earned income. That was an attempt made a long time ago to put those who saved for their old age in a comparable position with those who received pensions during retirement. Pensions, as the House knows, are given the benefit of earned income relief. I only make these observations in defence of the hon. Lady's hon. Friend the Financial Secretary.

Dame Irene Ward

Perhaps we could now have a controversy involving the hon. Member for Accrington (Mr. H. Hynd) who interrupted me in the course of my speech to ask why I was not on his side of the House. I now ask the hon. Member for Sowerby (Mr. Houghton) why he is not on this side of the House.

Mr. Houghton

I think that common sense meets in the middle, and that is where we are at the moment. I certainly welcome the changes made in the direction for which the hon. Lady has been pressing at different times.

In passing, I should like to say that my hon. Friend the Member for Accrington (Mr. H. Hynd) was unduly modest about his own contributions to the discussions on the Finance Bill. He said that he had not taken part in our debates. In fact, he moved a very deserving new Clause to the Bill which sought to give greater life assurance relief to those paying premiums on small policies.

Mr. H. Hynd

I apologise; I had forgotten all about that.

Mr. Houghton

It was a pity that the Committee did not accept the new Clause, but I recommend my hon. Friend to bear it in mind for another time.

The right hon. and learned Member for Kensington, South (Sir P. Spens) made some remarks about retrospective legislation. The degree of retrospection in Clause 37, as it originally stood, was, of course, very limited. It did not interfere with anything that had been done by a donor who had died before publication of the Finance Bill. It sought only to alter the tax position for Estate Duty purposes on gifts which had been made by people still alive at the time. Although there was some controversy as to whether that was retrospection or not, or whether it was unduly harsh or not, the Chancellor has accepted the suggestion, made mainly by the right hon. and learned Gentleman, to relieve donees from hardship which might be caused if they were called upon at some time in the future to pay Estate Duty on a gift which they had disposed of and the proceeds of which they had probably used for other purposes.

Sir P. Spens

May I point out that inadvertently I referred to Clause 37? I had forgotten that a new Clause had been accepted and that the whole discussion ought now to be on Clause 38 as the Bill stands.

Mr. Houghton

I am much obliged to the right hon. and learned Gentleman. I was so sure that he had quoted the right Clause that I did not look it up in the amended Bill which only came into our hands this morning.

It would not be appropriate on the Third Reading of the Finance Bill to follow the right hon. and learned Gentleman too far on the question of retrospective legislation, but I would remind him of one illustration of the need for retrospective legislation. Some years before the war the practice of parents of making dispositions in favour of minors grew so rapidly and extended so widely that the then Chancellor, I think Mr. Neville Chamberlain, had to step in not only to stop its spread but also to invalidate all agreements entered into up to that time. From then on all dispositions of income by parents to children were not regarded as valid alienations of income, as the right hon. and learned Gentleman knows, for Income Tax purposes.

The right hon. and learned Gentleman and my right hon. Friend were in complete agreement on one thing—that the overriding national interest will justify almost anything. That is what it amounts to. Of course, it depends on what one considers to be the overriding national interest, or whether tax avoidance is reaching the proportions of a public scandal as it certainly was in the 1930's when these dispositions had to be stopped, when forms for the purpose were being advertised for sale in newspapers and when everyone knew that they were not genuine dispositions at all. These bogus arrangements which were attracting considerable tax relief certainly had to be invalidated.

There is no doubt that, in connection with Clause 38, a number of people must have known that the disappearing trick was not the sort of thing which the Chancellor or the House could tolerate indefinitely. It would surprise me greatly if they had not in their minds the possibility that something would be done before long to put an end to the practice. I do not think that the Clause as it was originally drafted would have transgressed the general tradition against retrospective legislation or imposed undue hardship on the donees who had received the benefit—multiplying in their hands after their receipt, let it be noted—if they had had to pay tax upon it.

May I pass on to deal with two matters, one of which I have certainly referred to before in debates on Finance Bills. It is the fantastic disadvantage at which hon. Members on this side of the House, and probably hon. Members opposite, are placed in dealing with a Bill of sixty-five pages containing many complicated Clauses which we are expected to master, and understand. In addition, we have to consider Amendments to them and to debate them intelligently and intelligibly during the Committee stage of our discussions. Why cannot the Financial Secretary arrange for a simple explanation of the Finance Bill Clauses to be put in the hands of all hon. Members so that we may be saved an enormous amount of time which is spent on research on our own account? We should be relieved also of dependence on external sources of explanation and interpretation, and the House would be able to do its job with reasonable efficiency.

I hope that I am not making this plea in vain. In connection with the Double Taxation Relief (Estate Duty) (Pakistan) Order, which is to come before the House next week, there is a most useful memorandum from the Board of Inland Revenue which I understand has come to the Leader of the Opposition by courtesy of the Treasury. Why cannot that be done in connection with the Finance Bill? I know that the hon. Gentleman receives voluminous briefs from the Inland Revenue in connection with Amendments and new Clauses to the Finance Bill, giving the background and probably reminding him of what the hon. Members moving particular Amendments said and did on previous occasions. I know the whole story is there so that he may have all the answers.

Not only will the official briefs tell him what it is all about, but they will provide him with "bullets" to shoot across the Chamber as rapidly as we know the hon. Gentleman can shoot them. That may be the job of the Administration and I am not quarrelling with it. Nor do I ask that all that information should be freely disclosed to hon. Members. If we wish to remind ourselves of what we said three years ago, we can look that up for ourselves. If we desire to remind ourselves what we did four years ago we can do that for ourselves. I am not asking that we be provided with that sort of information. But surely the basic brief on the Bill should be made available to us so that the work of the Committee and of this House may be facilitated.

We have to put down Amendments and to move and debate them before the Clauses to which they relate have been explained to the Committee, and before any debate can take place on the Clauses. That seems to me a nonsensical way of doing business and, if it is the tradition, I hope that the hon. Member for Tynemouth will consider joining in another challenge to tradition, because surely this is a matter which should be put right. I will not pursue it further, but I do not see how we can deal with this sort of complicated legislation unless we are given information which enables us to understand the Clauses of the Bill which in many cases—and necessarily so—are written in the obscure jargon of the Statute.

Surely we are not so hidebound in this matter that some reform in this direction is impossible? We do not ask for anything unreasonable or inappropriate, but why should right hon. and hon. Gentlemen opposite be in sole possession of the work of the Administration on a Bill which has been prepared at public expense by public officials and which should be available to all hon. Members so that we may deal with the matter intelligently? The way we deal with legislation, in my humble opinion, would not do credit to an average trade union branch.

Now I come to another matter so frequently overlooked by the House when dealing with the Finance Bill. It is with regard to administration. This Bill creates additional problems of administration. Clause 12 (5) puts the date to the application of the changes contained in the Bill on tax paid in the form of P.A.Y.E. as 22nd June, 1957. As soon as the necessary Resolutions were passed by this House 20,000 members of the staff in the Inland Revenue Department had to go on overtime for two months in order to complete the job of recoding by this date.

What was the hurry? The main changes requiring recoding in this Bill affect those whose incomes are over £2,000 a year. Are those people so hard up that they had to have these P.A.Y.E. recodings by 22nd June? I concede at once that a large number of the recodings also concern those people whose children were over the age of eleven or sixteen, and at school, and to whom considerable tax reliefs are given in this Bill. Naturally, we always wish tax reliefs to be given to the community at the earliest possible date after they have been approved by this House, but it is a salutory thought that 35,000 members of the staff of the Inland Revenue Department are engaged in Income Tax assessment and collection, and the efficiency of their work and the spirit in which they do it is of importance to this House and to the country. One of the biggest problems arising in the Inland Revenue today is the belief of the staff that when they are doing all the recoding jobs ready for the beginning of the new taxation year on 5th April, they will have to go all over the ground again—or if not all of it, a great deal of it—and that there may be an enormous duplication of work. We find that these people are "down in the dumps" before Christmas and in the early part of the year, because they are saying, "How much of this will we have to do again when the Chancellor gets on his feet on Budget day?".

Resolutions have been submitted to conferences of these officials asking that the Chancellor should announce his P.A.Y.E. changes in November so that duplication of work may be avoided. That is not dissimilar from the cry often made by retailers and others who say that waiting for Budget day for changes in Purchase Tax is a great inconvenience to trade. I am not for a moment pleading that the Chancellor should make his budgetary and taxation changes known in November, but I do say that in fixing a date upon which these changes are to be made administratively, the right hon. Gentleman should, so far as possible, avoid putting heavy additional burdens on staff already overworked which require them to work overtime just after the dark days of winter are over and the first sunshine of spring appears. It can have a very depressing effect upon those concerned.

Finally, I suggest to the Financial Secretary that something should be done about the administration of Surtax. The Bill introduces relief by personal allowances for Surtax payers for the first time. Never before has the marital state of a Surtax payer or the number of his children made any difference to his Surtax liability. That information will now have to be supplied to the Special Commissioners by the local tax offices. A lot of wasteful activity goes on in this way.

The Royal Commission referred to this matter, and the Board of Inland Revenue appointed a Departmental Committee on it, inviting distinguished chartered accountants and representatives of other Departments to join in, so that the best available experience should be brought to bear upon the internal problems of the Inland Revenue. The Royal Commission recommended that the whole question of the administration of Surtax should be reviewed, as to whether it should be decentralised to local offices, so as to save a great deal of that traffic between them and the Special Commissioners, although in some parts of the Surtax field it might still be desirable to deal centrally.

The Special Commissioners cannot get on with their job unless they are fed by local tax offices with material for the making of Surtax assessments. They wait for the local offices to fed them with information without which they cannot begin to make a Surtax assessment. The Financial Secretary rejected one of my Amendments which suggested a tapering arrangement for child allowance, which is dealt with in Clause 12 (4), and mentioned the additional staff which would be required to deal with that matter. The additional staff for giving the taxpayer justice in that respect would be nothing compared with the saving of staff by a more rational organisation of Surtax and Income Tax assessment.

I have had much to say generally throughout the discussions on the Bill and I do not want to traverse ground again from the more remote position I am now occupying during the concluding stages of the Bill. I thought it would not be inappropriate to remind the House of some of the problems of administration of this enormously complicated fiscal code of Income Tax and Surtax, and I trust that the Chancellor and his hon. Friends will bear my remarks in mind when they review the machinery of the Inland Revenue Department.

1.13 p.m.

Mr. Bernard Braine (Essex, South-East)

The whole House enjoys the speeches of the hon. Member for Sowerby (Mr. Houghton) on taxation matters, because we know he speaks with great authority. I am in strong sympathy with his suggestion that at the outset of the debates on a complicated and important Measure such as the Finance Bill we should have a great deal more information about its provisions.

I had the impression during the debate on Part IV that those who framed it, let alone those on both sides of the House who discussed it, could not entirely grasp its implications. I do not wish to be churlish or ungenerous since, speaking for myself and my hon. Friend, I would say that in Part IV the Bill goes a very long way towards what we want. But as an illustration of the lack of understanding of this part of the Bill I got the impression that hon. Gentlemen on both sides of the House who are interested in business, industry and finance were in favour of the broad concept of the overseas trade corporation. It was not until after the beginning of the Committee that the Opposition came out with a strong argument against this concept.

It was quite clear in the debate on 26th June, as the hon. Member for Sowerby will remember, that what influenced the thinking of the Opposition was the Minutes of Evidence of the Board of Inland Revenue before the Royal Commission. They were not in the possession of the Opposition until quite a late stage. That illustration reinforces the plea of the hon. Member for more background information about complicated proposals such as these.

Having said that, I would like to register a protest that the Bill does not go far enough in this respect. I will not go into detail, or over ground that has been traversed, but will explain broadly why I take this view. It is generally accepted that the Royal Commission was right to point out that British companies trading overseas have for years been at a disadvantage compared with their trading competitors by reason of the weight of taxation they have to bear. I am seized of the points made from the opposite side of the House about the adverse effect on our balance of payments of extending the concession made in the Bill. But I do not think that hon. Gentlemen would disagree that British companies have been, and are, disadvantaged by heavy taxation, that this has a serious effect in a highly competitive world upon expanding trade. Although we are not doing too badly, we do not secure anything like the proportion of that expanding trade that we should get. It should be a matter of alarm to every hon. Member that our proportion of Commonwealth trade has been declining in recent years.

My complaint is that the Bill extends concessions in respect of trading income only to companies which operate through branches overseas. I got the impression in the earlier stages of the debate that my right hon. Friend and other hon. Members had not realised that this fact meant that the Bill did not adequately deal, or hardly dealt at all, with the well-known question of frustration of pioneer relief, for the simple reason that in many Commonwealth Territories pioneer relief is extended only to locally incorporated companies.

The right hon. Member for Huyton (Mr. H. Wilson), in his most interesting speech this morning, referred more than once to what he called the national interest. He argued that the national interest in this matter was such that we could not afford to extend this concession at present. I think he was looking at it from the point of view of balance of payments and the effect on investment at home. That is an arguable point of view, but I should like to view the national interest from another angle.

The Bill discriminates in favour of the old-fashioned kind of company which operates through branches of its organisation overseas and against the twentieth century kind of company which finds it convenient, expedient and prudent, to operate through the medium of locally-incorporated subsidiaries. The Bill, in that respect, discriminates in favour of absentee proprietors and against that kind of business organisation which brings local nationals, and sometimes local capital, into partnership with British enterprise.

If we are arguing this from the point of view of the national interest being concerned with the wider interests of Commonwealth unity and development, that discrimination is unfortunate. I wish to ask my right hon. Friend to explain, when he replies, what is the real distinction between a company organised in the form of branches operating overseas and one organised in the form of, say, 100 per cent. owned subsidiaries. Surely, while it is a purely artificial and legal distinction, it is also, from the point of view of actual business practice, one of enormous importance.

It may be that in the nature of things my right hon. Friend could not extend the concession further this year. I can understand that. But the purpose of my intervention at this late stage is to ask for an assurance from him that he will see how the present concession works in the months to come and that, before next year's Finance Bill, he will give serious consideration to the possibility of extending it to those modern, twentieth century, enterprises which are operating through the medium of subsidiaries in territories overseas and contributing so much to our balance of trade.

1.22 p.m.

Mr. G. R. Mitchison (Kettering)

This Finance Bill, like every other Finance Bill, contains a few matters which are really not related particularly to the year in question, but are related to the general business of the management and collection of taxes.

I wish to say how much I agree with some of the comments made by my hon. Friend the Member for Sowerby (Mr. Houghton) both as to the need for giving unskilled Members like myself and others some assistance about the background of these financial matters, which we find very difficult, and also about the tendency, in dealing with the more urgent and immediate matters, to neglect the question of the administrative difficulties that may be involved.

The right hon. Gentleman, I am sure, will take it from me that I am not for a moment suggesting that he neglects anyone in that way, but I hope that the Government—and future Governments—will consider the possibility from time to time of bringing in Measures which are really concerned with the collection and management of our tax system, with purely technical matters. There is an obvious instance in this Bill in what is now Clause 9, dealing with the extension of the Provisional Collection of Taxes Act to Purchase Tax. That is a matter which can be dealt with in that way and there are others, of the type to which my hon. Friend referred, about questions of timing and work wasted on hypotheses which may or may not prove to be correct. Clause 5 raises rather similar points about composite goods, and so on, although, in that case, I think that they are points relating to the Customs.

The general object of the Bill is to put into the shape of legislation the intentions of the right hon. Gentleman, expressed in the Budget statement, of making tax concessions during the year amounting to about £100 million. The right hon. Gentleman's figure, even for this year, was arrived at only by including something which I should hardly describe as a tax concession, that is to say, the withdrawal of the extra duty imposed by reason of the Suez crisis on petrol and other hydro-carbon oils. I think that the more accurate figure, at any rate for the purposes of what I am about to say, is £90 million this year and that the corresponding figure in a full year would be about £130 million.

It is significant to look at the proportion which these concessions bear to those two figures. There are two outstanding concessions. One is the extension of earned income relief to Surtax payers, which is to amount, on the figures given in the Budget statement, to about £17 million this year and £24½ million in a full year. The other is the O.T.C. concession of £25 million this year and more than £35 million in a full year. Those are distinctly the largest concessions made in the Budget. There are other concessions with which we find no quarrel at all. The child allowance concession is smaller than either of those two, but it is still substantial, and there is the Purchase Tax concession.

I would call the attention of the House to the fact that what is done by way of a Purchase Tax concession, that is to say, the removal of half the pots and pans tax, or kitchen tax, could have amounted to the complete removal of that tax if the Surtax concession had not been made at the moment. The Surtax concession itself is more than enough to allow for the complete instead of the partial removal of a tax which I should have thought the Government and the right hon. Gentleman now realised was a complete mistake, and is at the moment a complete mistake. I regret very much that the half concession in the matter of the pots and pans tax is not a complete concession.

I will not go into the general economic position of the country, not only because we shall debate it later but also because I doubt whether I should be in order in doing so on the Third Reading of the Bill. We all have a general idea in our minds of the general position at the moment both internally and in relation to other countries. I find it quite imposible to justify the Government's large Surtax concession at the moment, and the removal of only half the pots and pans tax. To my mind, the two things go together. I could add other things which I should have far preferred to have seen than the Surtax concession. I should be out of order in going into them, because they are not mentioned in the Bill; but they would occur to all of us.

When there are questions of age relief in the Bill, one example of an alternative to the concession to Surtax payers must occur to us all. There are some elderly people to whom age relief in the matter of Income Tax is not much use because they do not reach an income level at which Income Tax is payable.

From a social point of view, I find it very much as the Chancellor himself described it—a Tory Budget—when to a limited category of people, fewer than a quarter of a million, a concession is made amounting in a full year to £24½ million at this time in the economic history of our country and bearing in mind the present economic position. It seems to me that that is something for which the Budget is as much likely to be remembered as for any question arising in connection with overseas trade corporations. From another point of view it is at least equally outstanding.

It is true that we on this side of the House were deeply influenced by a perusal of the comments of the Board of Inland Revenue on the O.T.C. concessions. I agree with my hon. Friend the Member for Sowerby that the Board of Inland Revenue performs an administrative function and that its administrative comments and criticisms are very valuable. In this connection, they were made abundantly. We never gave approval to these proposals or similar proposals; we gave hardly a guarded acceptance, but rather a statement that we were prepared to look at the matter.

In any event, we made it perfectly clear that we favoured something more limited and more directed—directed, in particular, to what we consider of profound importance, the development of parts of the Commonwealth and the general development of the Commonwealth. We linked it last year and again this year with the question of pioneer companies, but what we had in mind went beyond that; we had in mind our Commonwealth responsibility and the direction of this concession towards this responsibility.

What we have been given, finally, is a concession which seems to me to be a little different. I regard the whole of this business about overseas trade corporations as a concession made by the Government very largely for one purpose, and that is that they dislike the emigration of companies. This is an alternative to companies emigrating in the sense of becoming non-resident and transferring their direction and control. I would say at once that the Government are perfectly right to dislike it. There is no doubt that it is better that the control of a British company should in general remain in this country, for the reasons given by the Royal Commission. Of course, from a Treasury point of view, emigration also represents not only a substantial loss of revenue up to date but also a loss of revenue which is increasing, which is likely to increase further and which is uncontrollable by any method which a Tory Government appear willing to adopt.

This O.T.C. concession has, in general, been made for this reason. I regret that the Government feel unable to reconsider their general policy of allowing emigration, with very few exceptions, and that they regard what has been introduced in the Bill as a substitute for the reconsideration of that point.

I take certain objections to the provisions, and although I do not want to repeat what has been said in criticism, I should like to outline very shortly some points which occur to me as general difficulties about the O.T.C. arrangements. First, the whole of this part of the Bill seems to me to involve detailed investigation of the affairs of the companies concerned, and it will be impossible for even the highly efficient gentlemen who manage the administration and collection of our taxes to do it properly. It will certainly involve putting on them a great deal more work than they have at present.

We have all sorts of examples, arms' length transactions being one and the question of subsidiaries being another. I can think of dozens which were mentioned as we went through the Bill in Committee. I do not believe that these provisions are workable in the sense that the proper investigation which would be required to carry out the Government's full intention is more than can be expected from any Inland Revenue service, however efficient. I do not think that it will be possible.

I turn next to the question of subsidiaries. I am always doubtful about hinging legislation, particularly concessionary fiscal legislation of this kind, on the question of what is and what is not a subsidiary. That is a vital question to this part of the Bill. It is so easy to get out of it by devices which may be a little shaky. It is easy to get out of it without resorting to shifty devices, simply by sharing the subsidiary among two or three companies. I put this point to the Financial Secretary in Committee and he said that he would pursue it. I will not go back to it again, but it is an example of how artificial, narrow and how difficult to work is the line which this Clause draws.

That is the sort of objection which was raised by the Board of Inland Revenue—not that specific objection, but that type. It is largely an administrative objection. I feel that it has not been met and I have an uneasy feeling that the Government themselves agree that this is an experiment which involves a very large sum of money, which if it does not work may involve an even larger sum of money, which certainly involves risks on the foreign exchange side of the matter, which has not been sufficiently considered and sufficiently worked out to be put into legislation and which at the end of the day is fundamentally wrong because it is looked at as a method of equalising companies with their competitors, or perhaps a method of preventing the existing emigration of com- panies, when it ought to be related to the particular part of overseas trade which the Government, for good and sufficient reasons, ought to consider of national importance.

For all those reasons I find parts of the Bill unsatisfactory. They are unsatisfactory in the social balance which some of these concessions and the limited character of other concessions represent and unsatisfactory on the particular question of overseas trade corporations for the reasons which I have given. Nevertheless, the Bill contains come concessions which we all welcome, although I will not go through them again. Even a Tory Chancellor, in a Tory Budget, if he is to make concessions of about £100 million, is bound to make some which appeal to the Opposition and which prevent them from voting against the Third Reading of the Finance Bill.

1.39 p.m.

The Chancellor of the Exchequer (Mr. Peter Thorneycroft)

I must first apologise to the House for my absence during part of the debate, but I have had conveyed to me some of the main points which were made. I agree with the hon. and learned Member for Kettering (Mr. Mitchison) that the debate on the Third Reading of a Finance Bill tends to be a little frustrating to the extent that unless one has the courage of the late Earl Lloyd-George one is confined to the measures which are in the Bill and must refrain from suggesting interesting additions. This stage of the Bill is often reached, I believe, with a certain feeling of relief on both sides of the House.

We have for many days been finding our way through the many complicated Clauses of this Bill, analysing them and, as is our duty, seeking to improve them as we can. We have now reached the stage at which we should look back and take stock. I think that my hon. Friend the Financial Secretary took stock with his usual clarity this morning, and I do not want to repeat all that he said.

As to the general structure of the Bill, we decided that, in present circumstances, and with the need to strengthen our balance of payments position, as well as the need to look for an external surplus, the most that we could do was to budget for tax reliefs amounting to about £100 million. Indeed, I think the hon. and learned Gentleman is right. If we examine this and the turn of events, probably some lower figure is one to which should be attributed the outturn of the proposals of this Bill. If I may say so. how right we are, and how right we were, because we resisted pressure at that time to go further, and we can now stand up and say that Government policy in this respect is rightly attuned to the needs of the moment.

The right hon. Member for Huyton (Mr. H. Wilson) asked me a number of questions. He asked whether I had not tortured the statisticians of the Board of Inland Revenue as to the figure of the O.T.C. concessions. Let me assure the right hon. Gentleman that nothing of the kind occurred. The earlier scheme was a different one which amounted to about £70 million. The statistics were based on different levels of trading profits current in the world at that time, and that explains the difference. I took the figures as I found them, and no influence was brought to bear.

My hon. Friend the Member for Tynemouth (Dame Irene Ward) asked a number of questions. The first was on safety appliances. They are not mentioned in the Bill and therefore it would be out of order for me to reply, but I will give her an answer to her question as soon as I can. She also asked me about postal charges, which are also outside the Bill, but I would say to her that if we ran the Post Office at a loss, it certainly would be inflationary. As for the reduced band of income upon which the lower tax rates are paid, I should inform her that the arrangement was made at a time when increased personal allowances were being given and the general rate of taxation was being reduced. The object of this arrangement was to ensure that the benefits in fact accrued to the lower income groups, rather than to others. That is the reason, but I do not think I should develop it further because I should be out of order on the Motion now before us.

Dame Irene Ward

My right hon. Friend has said exactly what I knew he would say and has not dealt with my argument at all. I have said this about three times in this House. Would my right hon. Friend like to give me a personal interview, as that is probably the best way of dealing with it, because he does not seem to be able to understand it?

Mr. Thorneycroft

My hon. Friend can have a personal interview with me at any time. I shall be very happy to see her.

The hon. Member for Sowerby (Mr. Houghton) suggested that this type of Bill needs more explanation than others and asked whether we could not have an Explanatory Memorandum. I will certainly look at his suggestion and at a number of other points he made; I will not answer them now but I will certainly examine them.

On the question of recoding and why it had to be effected in the two months period, the reason for that is that the people affected are more than the limited number above the £2,000 group. There are all the child allowance factors to be borne in mind, and it is desirable that the code figures should be worked out at the earliest possible time.

Mr. Houghton

I appreciate the reason which the right hon. Gentleman has given, and I referred to some of the qualifications in my general statement that the whole of the benefits are going to those above £2,000 a year. I fully appreciate the argument which the right hon. Gentleman has used.

Mr. Thorneycroft

I appreciate what the hon. Gentleman has said. That was the reason. It seemed wiser, apart from the desire of the Inland Revenue on all occasions to get on with the job, which is what they are doing here.

My hon. Friend the Member for Essex, South-East (Mr. Braine) raised the question of the frustration of pioneer relief. I would point out to him that in the case of a company resident in these territories, as it is not paying Income Tax here, there is no need for any pioneer relief. I will consider any particular points he may put, but I think he will appreciate, and I know his interest in the matter, the statement made by the Financial Secretary earlier today in dealing with particular cases of companies trading in various parts of our Colonies.

Mr. Braine

It appears to me that my right hon. Friend is not seized of the point I made.

Dame Irene Ward

Hear, hear. The Chancellor is not seized of any of the points made.

Mr. Braine

In so far as these pioneer concessions are made to attract British companies to invest and to establish themselves in these territories overseas, if pioneer reliefs are frustrated in the way which the Royal Commission recognised and which I think my right hon. Friend will recognise, then such investment would be discouraged by British tax practice.

Mr. H. Wilson

No.

Mr. Braine

Yes, indeed; that is the whole point. Otherwise, there is no frustration of the pioneer reliefs. The Bill as it is drawn at the moment discourages that kind of organisation, and the result will be that in many cases parent companies here will seek to alter their organisation and bring control back to this country. I put the point to my right hon. Friend that that is politically unwise in the light of Commonwealth relations.

Mr. Thorneycroft

It is a very odd argument that we should now deliberately pursue a policy of making life intolerable for people in this country in order that they may go somewhere else. That was not the purpose; nor would it be urged by the Government. I appreciate that my hon. Friend is greatly interested in these matters, but I think it needs to be made clear beyond peradventure that if a company is resident overseas and is receiving pioneer relief there, it does not really need anything. It will not be taxed in this country, and will not be subject to United Kingdom taxation at all.

Mr. H. Wilson

I am glad that the Chancellor has made that point, because of the support for the pioneer proposal which came from all sides of the House last year. Certainly, what we had in mind was that it seemed an anomaly that a company paying tax in this country, as the Chancellor fairly says, should get a concession from some perhaps impoverished colonial Government, and, directly as a result of that, pay more tax in this country. We did not want to extend that to the sort of point raised by the hon. Member for Essex, South-East (Mr. Braine).

Mr. Thorneycroft

The hon. and learned Member for Kettering dealt with various complicated provisions dealing with overseas trade corporations. I will not go through all the points he made, except to say that I believe he has overestimated the complexity and difficulty of these provisions, though I agree that this is a complex and difficult subject. I am sure that he hopes, as I myself hope, that his worst fears will not be proved true. We all hope that these arrangements, which, after all, are a very adventurous extension of tax relief in this Bill, will work. It is true that they will give very considerable benefits to British companies in this position. The right hon. Member for Huyton said that in some circumstances they might be better off than even a German company, but that does not disturb me, because I think that only the best is good enough for British companies, which we want to put on the most competitive basis we can.

I think I have covered a great many of the points raised in the debate, and I would add my personal gratitude to my hon. Friend the Financial Secretary and my right hon. Friend the Economic Secretary for the part they have played in the conduct of these debates. We have not been able to accept all the suggestions put forward to us—I do not think that Governments generally can—either because they are too expensive, or because it is felt that they ought to be dealt with at another time, but the fact that Government spokesmen have continually to say "No" on these occasions does not mean that they are impervious to all the arguments advanced. There are other future occasions in the work of the House when all these can be examined, and I hope that, perhaps on some future and appropriate occasion, some of these useful suggestions can find their way into Statute law.

Question put and agreed to.

Bill accordingly read the Third time and passed.