FINANCE BILL

HC Deb 18 July 1958 vol 591 cc1584-642

Order for Third Reading read.

11.7 a.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

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

I suspect that I am not alone this morning in experiencing a feeling of relief that we have reached the last stage of our consideration of this year's Finance Bill, something of the same kind of relief that I remember feeling about thirty years ago when I used to ride in point to point races when, as occasionally occurred, I found myself negotiating the last fence with at least a reasonable prospect of survival.

It is, perhaps, right and proper that the discussion of the Finance Bill, settling as it does, the pattern of the country's fiscal system, should each year be a fairly arduous process. Matters of taxation, involving, as they necessarily must, heavy burdens on many, are not subjects to be treated lightly. The severity of the task can, however, be very much mitigated if it is discussed in an atmosphere of good temper and with a general desire to make progress with reasonable despatch. We can look back upon our debates this year with satisfaction from this point of view.

The right hon. Member for Huyton (Mr. H. Wilson) was good enough to remind us on a number of occasions during the Committee stage how indebted we were to right hon. and hon. Members of the Opposition for their restraint in resisting any temptation to prolong our debates beyond any reasonable limit. It is just possible that the same sentiments may be voiced again today. Indeed, I find myself in more complete agreement here with the right hon. Gentleman than on many other subjects. The Opposition have given us very reasonable co-operation in discharging our parliamentary task and I am grateful. I am even more grateful to my hon. Friends on the benches behind me. Many of them have felt that they would have liked more time to discuss some of the important provisions in the Bill, but, recognising that time was not unlimited, moderated their claims upon it.

In general, we have come through this annual marathon at a fairly good pace. It has taken us 11½ days, including today, of parliamentary time, as against 13 days last year. Looking back over the course, the pace has been rather brisker at some moments that at others. Cosmetics, naturally, called for an extremely sensitive, discreet and understanding approach and the technical uses of baby dusting powder demanded a modicum of consumer research. I own that when it came to harp strings, I nearly succumbed, against my better judgment, to the infectious oratorical ardour of a number of our bards from Wales. However, in general I do not think that we have done too badly.

Turning to the Bill itself, we started on 12th May with, I think, a good Bill of 34 Clauses. We shall read it for the Third and last time today as a better Bill with 40 Clauses. I will not weary the House by going through the Bill in detail, but perhaps I may comment on one or two points.

Part I of the Bill deals with Purchase Tax. I doubt whether there is anyone in the House who would not agree that the whole scope of this tax is now, at any rate, better than it was before the Budget. Even my hon. Friend the Member for Kidderminster (Mr. Nabarro), who is not, I think in his place today, has seen some of his ambitions realised and will no doubt be a happier and more confident man. Indeed, it was because this was generally accepted that our debates concentrated so largely on the details of buttons and crash helmets and so on.

I do not claim for a moment that it is even now a perfect tax. There will always be a lot of borderline cases where there will be plenty of room for differences of opinion as to whether an article should be taxed at all or as to what rate it should be charged. In a number of such cases where there seemed to be force in the arguments which were advanced we amended the original proposals of the Bill.

There is. I think we must acknowledge, no objective test by which one can demonstrate either that these changes were unquestionably right or that other suggested changes which we resisted were wrong. But, in general, I am sure that we have now got the balance much better than it was before. I believe that that is the general feeling on both sides of the House. I think that by these changes we have made the tax a more stable and defensible revenue instrument.

The next provision in the Bill is the reduction in the Entertainments Duty. I think that I can say that I knew enough of human nature not to expect, on the part of cinema proprietors, or others engaged in the industry, an outburst of gratitude for the relief which this Bill affords them. Nevertheless, the reduction in the duty by quite a bit, more than one-half, does give the industry very considerable help, help which we recognise was badly needed, and I think that everyone concerned with the industry's welfare is really conscious of this.

Apart from the small libation to Bacchus in the form of a reduction of the duty on imported and domestic heavy wines, the rest of the main provisions of the Bill fall within direct taxation. The first is one embodied in Clause 15, an increase in the initial allowances. I have already explained the reasons which led me to propose the increase of 50 per cent. in the allowances rather than the 25 per cent. which I originally proposed, and I will not repeat them.

Right hon. Gentlemen opposite profess to detect in this a bias on my part in favour of private as against public investment. Bearing in mind that investment in the public sector is running at a higher level than ever before, and is very far from showing any tendency to fall, I cannot see any foundation for that charge. The fact is that the two types of investment are different in many respects, not least in the fact that public investment is under direct Government control and the limits of it can be adjusted at any time, whereas private investment can be influenced very much less directly, and of course, one method of so influencing it is taxation allowances.

Continuing a very brief review of the Bill, we come to the group of Clauses designed to improve the taxation code, in some cases by meeting the convenience of the taxpayer and in others by stopping up loopholes for the avoidance of taxation. I think that the chief characteristic of all these Clauses in their immense complexity. I do not mind admitting that from my own point of view, too. It is unavoidable, but it does put us in the debt of the right hon. and hon. Members on both sides of the Chamber who have devoted a good deal of time to wrestling with these provisions and comprehending their meaning and making suggestions for improving them. We had particular cause to be grateful for the skilful assistance we received from the Solicitor-General in guiding us through the very intricate provisions in that part of the Bill. I was very glad that during our debates we were able to make a number of improvements in those provisions, both by closing further loopholes and also by giving relief where otherwise quite innocent transactions might have been penalised.

When we introduced the Bill I assumed, following the rather unusual behaviour of right hon. and hon. Gentlemen opposite in dividing on Budget day, that the part of the Bill dealing with Profits Tax would become the battlefield for a major engagement between the two sides of the House. In fact, it turned out to be a rather mild skirmish. I do not know whether that was because of the persuasiveness of speeches from this Bench, or whether it was because right hon. Gentlemen opposite had second thoughts. [HON. MEMBERS: "No."] I do not think myself they were able to produce a very formidable case against these measures, which had been so strongly recommended by the majority of the Royal Commission and by representatives of industry.

There are some aspects of these Profits Tax provisions which genuinely do give rise to difficulty. I recognise, for example, that there are a number of bodies, some of them bodies which may have to apply their profits in particular ways, for instance, the promotion of sports, which may have to pay Profits Tax at a higher rate in future than in the past. Not many of them, I hope. I am sorry that this should be so in any case. I do not want deliberately to put any additional burden on them.

The Bill, of course, continues to keep the benefit of the exemption limit of £2,000 and the marginal relief for profits under £12,000, but we have to face the fact that in a major tax reform of this sort one unfortunately cannot hope to meet the circumstances of every single taxpayer, and I fear it is inescapable that there should be some taxpayers who benefit and others who come off less well. The important point is that, on balance, the change should be beneficial, and I do not think there is any doubt that that is the case here.

Mr. Frank Beswick (Uxbridge)

Are we to understand, from what the Chancellor is now saying, that the only reason why he has imposed a further burden of £1.3 million on societies registered under the Industrial and Provident Societies Acts is the difficulty in making administrative changes which would leave them in the position in which they were before the Bill?

Mr. Amory

No. That is not quite so. The reason for the effect to which the hon. Gentleman is referring is our pursuance of the principle which was laid down in its recommendation by the Royal Commission on the Taxation of Profits and Income that all profits should be taxable regardless of their source or nature.

Mr. Harold Wilson (Huyton)

Surely the Chancellor is not going to absolve himself of responsibility in this matter by just sitting back on the recommendation of the Royal Commission. We moved many Amendments which were in keeping with the recommendations of the Royal Commission and which the Chancellor rejected either because he thought them wrong or because he thought they created anomalies. Moreover, the Royal Commission is not the last word on everything. The Royal Commission may not have seen all the implications, and I am sure that it could not have seen the one pointed out by my hon. Friend. In these circumstances, could not the right hon. Gentleman do something about the anomaly created in this case?

Mr. Amory

I thought I made it clear at an earlier stage of our discussions that we approved of the principle the Royal Commission laid down in this respect and decided to help.

Mr. Beswick

The Chancellor was expressing regret at the effect of the Profits Tax, and at its having the effect of increasing the liability of certain organisations. Am I now to take it from him that he expresses no regret at all at the increased liability of co-operative societies?

Mr. Amory

No, I expressed regret at some of the effects produced but, as I mentioned earlier in our discussions and referred to again just now, we approved the principle of the Royal Commission and in following and adopting that principle, the price had to be paid that in some cases the effects would be damaging on some taxpayers. But the important question is whether major tax reform should, on balance, be beneficial and, if that is so, one has to put up with some of the consequences which otherwise one would not have welcomed in themselves.

As some of my hon. Friends have had qualms about certain aspects of the transitional arrangements needed to bring a unified Profits Tax into operation, I will frankly admit that there must be some element of rough justice, but we have tried to make the arrangements as fair as possible. I will not claim that they will have exactly the same impact on every individual film.

Finally, we have new provisions for the payment of Estate Duty where two or more deaths occur within a relatively short time. This covers the question of two people dying in a common disaster, an occurrence which, with the motor car, today is, unfortunately, less rare than it used to be. It also deals with the more complicated problem of relief for quick successions. The difficulty is that it is one of those cases where, having accepted the principle that something ought to be done, it is not easy to decide exactly where one ought to draw the line, or how one can justify one line rather than another.

I think that the Clause as originally drawn was recognised as about right, except that it was thought to be rather less than generous in the case of successions which took place within a matter of a few months. I was, therefore, very glad to accept an Amendment in the name of my right hon. Friend the Member for Blackpool, North (Sir T. Low), which increased the relief to 75 per cent. of the duty if the deaths occurred within three months. I think that with this change the Clause now commands fairly general approval.

I hope that the House will not mind if I end on a rather personal note. I should like to say how very grateful I personally am to my colleagues at this Dispatch Box who have largely borne the brunt of presenting and explaining the Bill in its various stages. I should like to say also how grateful we have been for the advice and help that a number of my hon. Friends have given us, for example, my right hon. Friend the Member for Blackpool, North, my hon. Friend the Member for Dover (Mr. Arbuthnot) and my hon. Friend the Member for Langstone (Mr. Stevens), speaking from considerable experience.

I should like to pay tribute, also, to the courtesy of right hon. and hon. Members who have spoken from the Front Bench opposite, and not least the hon. Lady the Member for Flint, East (Mrs. White) who, if I may respectfully say so, impressed us all with the skill and moderation with which she interrogated us and sometimes chastised us. I should like also to say how grateful we have been on some occasions for the very experienced advice of the hon. Member for Sowerby (Mr. Houghton).

I apologise in advance for my absence during part of the discussion today. I have to preside at a meeting of the National Production Advisory Council for Industry, which was fixed quite a time before this debate. It is an important body whose advice I value and would be very sorry to miss. I have tried to be present and to listen carefully throughout the debates, as far as circumstances have allowed me to do so. Hon. Members are always generous in recognising that a Chancellor of the Exchequer has other calls on his time which, somehow or other, it does not seem possible to ignore. A heavy burden has notably fallen this year on my hon. and learned Friend the Financial Secretary to the Treasury, my right hon. Friend the Paymaster-General and my right hon. and learned Friend the Solicitor-General. The Bill, from my point of view, could not have been in better hands.

If, as I hope, the Bill receives a Third Reading today, the tax reductions as a result of it will amount to about £51½ million in the present year and about £130 million in a full year. Now, in the words of W. S. Gilbert … the privilege and pleasure That we treasure beyond measure is … the gratifying feeling that our duty has been done! or very nearly done.

11.25 a.m.

Mr. Douglas Houghton (Sowerby)

May I, first, thank the Chancellor for his generous references to the part played by my right hon. and hon. Friends and myself in the long proceedings on the Bill? We were not intending to claim any special virtue today for having facilitated the work in Committee and on Report. It has been a joint effort and we have been grateful to the right hon. Gentleman and his colleagues for their unfailing courtesy, tolerance and helpfulness during the debates. I hope that it is not out of place to make a special reference to the right hon. and learned Gentleman the Solicitor-General, who has explained some of the most complicated matters with lucidity, with sparkling humour and with modesty. Modesty in any lawyer is refreshing. In a distinguished lawyer it is almost endearing, and we have certainly had the benefit of very helpful advice on some of the most difficult parts of the Bill.

When we are discussing the Third Reading of a Finance Bill I always remember the time when I first came into the House and the rôle of schoolmaster which was assumed by the late Sir Gurney Braithwaite, whose recent death we all heard of with great sorrow on both sides of the House. He once said of me, "Trying hard; will do better next term." After that encouragement I persevered.

The new situation which has absorbed all our thoughts during the past few days makes it very difficult indeed to fit the Bill into the potentially grave political and economic possibilities of present events. It is not easy to part company with the Bill in any great spirit of satisfaction, because no words uttered today on the Bill will make sense unless the present grave events turn out to be less serious than some of us fear, and unless peace and tranquillity reign in the world. The Bill, otherwise, will seem to have little relevance to the world of today. Even making the most favourable assumptions, I cannot see what practical effect the Chancellor's two bites at the cherry of initial allowances, for example, will have on private investment for the time being. Our best hope is that the discouragements of the present crisis will quickly pass.

This is the Bill of part of the Budget and, as the right hon. Gentleman said, it is now several months since the Budget and only a little less time since we first saw the Bill. We naturally ask ourselves what it looks like in retrospect now. Has it stood the test of time? It would be quite fair to say that obviously it has not in some important respects, or the Chancellor would not have found it necessary, while the Bill was before the House, to boost the initial allowances for industrial investment and building and to take complementary steps, outside the scope of the Bill, to lower the Bank Rate and relax credit restrictions at the same time. What he did can be regarded, of course, as confirming the openness of the Chancellor's mind and the flexibility of his policy, of which he has given us frequent assurances. We on these benches would say that the right hon. Gentleman did not judge right the first time.

It is difficult to know what was the cause of the Chancellor's caution in his approach to this Bill and the surrounding Budgetary and monetary measures last April. Was it that he was still in the shadow of the intransigent austerity of the right hon. Member for Monmouth (Mr. P. Thorneycroft), or was he still obsessed with the bitter lesson of the Lord Privy Seal's rather reckless boosting Budget of April, 1955, when the £ sterling had subsequently to be buttressed and fortified by taxes on pots and pans? I grant that if there was ever a case of tying a tin can to a Chancellor's tail the second Budget of 1955 was certainly it.

But, in our view, these things should not have influenced the mind of the right hon. Gentleman when trying to appraise the economic situation three months ago. We have to judge what he proposed regarding industrial investment and building in the light of his readiness to reduce the Purchase Tax by approximately £40 million. The damping down of the demand had been going on for six months and it seemed clear to us that even last April the Chancellor should be taking the first opportunity of giving some fresh stimulus to expansion, and, particularly, to a forward move in the field of industrial investment. Therefore, our verdict on that side of the Bill would be that the Chancellor did not go far enough to begin with. He remedied his initial error in the course of the consideration of the Bill, but we still think that he has not gone far enough.

I am sure that all of us sympathise with any Chancellor of the Exchequer in a democratic Parliamentary system with votes for all in trying to keep in proper ratio the competing demands for a higher standard of living and for a higher level of investment. It is most difficult. It has often been said—and it is true—that every society must constantly strive for a higher standard of living. Temporary curbs on that demand are politically unpopular, and yet there are times when it is necessary for consumption to be lowered, or at least held, in order that room shall be made within our available resources for necessary investment. Unless that can be got across to the people generally, Chancellors will always be tempted to give way to the demands of the consumers, because they have the votes, and to neglect their duty in the field of investment which is not so electorally or politically vocal.

Mr. Cyril Osborne (Louth)

What the hon. Gentleman is saying is that all Chancellors deal with this problem on the basis that jam today is much more popular than jam tomorrow.

Mr. Houghton

That is so. It is the measure of the courage of Chancellors to put things which are economically needful before those things which are politically popular.

I think that our criticism of the Bill, even as it now stands at the end of our discussions, is that it is not in proper balance. We should have preferred to see further concessions given for industrial investment and building even though the Chancellor had decided that in going further he must introduce a greater measure of selection.

Nevertheless, we on these benches agree that in choosing the field of major tax concessions in the Bill the Chancellor was right to concentrate on indirect taxation.

Last year direct taxpayers, especially in the upper ranges of income, received substantial reliefs of taxation. At a time when a repetition of that would have been gravely misunderstood in the country and when it is desirable to achieve as much stability as possible in the price level, there is no doubt that what the Chancellor has done with the Purchase Tax is a desirable move forward. He has simplified the tax and has moderated its incidence.

What, however, has emerged from our discussions on the Purchase Tax—and I think this should now be clearly understood—is that the Purchase Tax has been built into our fiscal system. For some years there have been hopes, however slender, that this was one of those things introduced during the war for special economic rather than for revenue purposes and that we could look forward to the day when it could be removed. It is a sober reflection that this is usually what happens to new war-time taxation. It is never discarded. It is carried on. It becomes far too useful to Chancellors to be dispensed with.

Mr. Mitchison

Like Income Tax.

Mr. Houghton

Yes, indeed, like Income Tax as my right hon. Friend says, and, more recently, Entertainments Duty.

It is necessary, however, for us to understand that Purchase Tax is now a revenue tax and not a luxury tax primarily intended to be a curb on consumption. It is a plain money-maker and we must now put it alongside taxation on beer and tobacco and other forms of indirect taxation making up the general pattern of our fiscal system and forming part of the general relationship between the level of direct and indirect taxation. In other words, it is now bundled up with a whole lot of other indirect taxes, and it can be called "Pay as you spend".

The most controversial change in taxation proposed in the Bill was on Profits Tax, the replacement of two rates, one on distributed profits and the other a lower level of tax on undistributed profits, by a flat rate of 10 per cent. The right hon. Gentleman said this morning that he was rather surprised—at least this is what I inferred from his remarks—that he had had such a comparatively easy passage on the proposals to introduce a flat rate of Profits Tax. While it is difficult to know what Chancellors' expectations are in these matters, it was, in fact, a recommendation of the majority of the Royal Commission. It had been debated on previous occasions. The question was whether the change was desirable in itself, but, more particularly, whether it was desirable now. One of the Press comments at the time of the Budget was that this change in the Profits Tax is not as bad as it looks, but that it does not look too good. I think that is a fair comment.

We must not overlook the very powerful speech made by an ex-Chancellor, my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), on this subject. It was a speech of which for greater accuracy my right hon. Friend supplied some right hon. and hon. Members with a copy. That, I think, is a very welcome addition to our library on taxation and I personally shall cherish my copy very much. In connection with this change we must not overlook that the present Chancellor of the Exchequer has adopted a very different line from that of the Lord Privy Seal on this very matter.

If we look at the attitude of the present Chancellor in contrast to the speeches by his right hon. Friend the Lord Privy Seal in October, 1955, and those of the Prime Minister, we find that in 1955 there were weighty reasons for not making this change, despite the recommendations of the Royal Commission. I believe those reasons are as good today as in 1955. I would remind the House that in October. 1955, the Lord Privy Seal said: I was attracted at first by the majority recommendation; but on examination I have found that it would be very variable in its incidence and have the most anomalous, and in some cases, most surprising results. For example, companies which distribute a high proportion of their profits would gain, while those which put a large proportion to reserve would lose—and the latter include a number of new and important industries. Therefore, I have decided, at any rate for the present, that such a change would not be directed to our present needs."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 225–6.] The Lord Privy Seal said in November, 1955, stressing again that it was undesirable to favour companies which distributed a large proportion of their dividends: I also found out certain other things.. about what type of company and institution a corporations tax"— that is a single profits tax— would benefit. Without being invidious and going into them by name, let me say they were not the types of company I wanted to encourage, particularly at present."—[OFFICIAL REPORT, 29th November, 1955; Vol. 546, c. 2172.] Throughout the long debates we have had on this matter the Chancellor has not explained why he takes a different view from that of the Lord Privy Seal. Let me remind the house also that the Parliamentary Secretary to the Ministry of Education, then the Economic Secretary, said, in November, 1955: It seems to me perfectly right that at a time when we are trying to restrain consumer demand we should increase the differential between the profits put to reserve and profits paid out in dividends."—[OFFICIAL REPORT. 8th November, 1955, Vol. 545, col. 1796.] It will be within the recollection of the House that the Lord Privy Seal in 1955 was not only defending the differential rate of Profits Tax; in fact he was increasing the differential, and he believed that to be fully justified. I think it was justified in circumstances which to a large extent held good at the time the present Chancellor introduced his Budget, namely, that he wished to refrain from doing anything which would stimulate fresh wage demands and add to industrial unrest. Immediately after the announcement made by the Chancellor we saw the effect, or the likely effect, on the dividend policy of many companies which were going to gain from the change.

The right hon. Gentleman has said that it was difficult to avoid a harmful effect on some companies and a beneficial effect on others from changing over from two rates to one. I think that the right hon. Gentleman should have considered more carefully the kind of company which was to benefit, and what it would be likely to do with the benefit it received. That is most important. We shall be watching very closely to see whether the concessions given by the Chancellor to such companies will lead to a more lavish dividend policy. If so, it is, I think, bound to have repercussions on the general attitude of the great mass of the workers. That must not be lost sight of.

There is a tremendous volume and strength of public opinion in the trade union world which no Chancellor can afford to ignore. They have that power. Many factors have led to tremendous strength behind the power of collective bargaining, and Chancellors must pay regard to that, as well as to pressures which may come from employers' organisations, financial interests and elsewhere, when framing their Budgets. The psychology of a Budget is of overwhelming importance in that connection.

Hon. Members on both sides of the House will agree how easy it is to get the question of dividends entirely out of perspective as a factor in the economic situation in relation to wages when comparisons are made in simple percentages, when the real truth of the matter would compel us to examine the relative demand, the call upon the national resources., of the total wage bill on the one hand, and the total dividend distribution on the other. That is how important it is to get the balance right.

The next most controversial part of the Bill has been the Clauses dealing with tax avoidance and the particular form of it known as dividend stripping. The attempts to stop these gaps have been welcomed on both sides of the House. Whether the Chancellor was wise first to announce that he was implementing the threat of retrospective legislation made in 1955, and then to abandon it, is a matter which most distressed hon. Members on this side of the House. On this question the Chancellor had, I think, the most uncomfortable moments during the whole of the discussions on the Bill. With respect to the right hon. Gentleman, I think that in connection with this matter he made the least convincing speech that we heard during the whole of the proceedings. He changed his mind about retrospection. Why did he do that?

The Chancellor told us that he had received letters; that he had heard opinions expressed both inside this House and outside. But he did not wait to hear the opinions expressed in this House in full and open debate. He capitulated before we had even debated the matter. That is what seemed to us to be strange. He hoisted the white flag when shot at from behind in a dark corridor upstairs without coming to hon. Members on these benches and looking at them squarely in the face and asking for "military aid". We could have provided him with all the reinforcements he needed to carry out his original intention.

Mr. Osborne

My right hon. Friend may have been frightened at the sight of them.

Mr. Houghton

We feel very hurt that the Chancellor had so little confidence in our willingness to support him, and in the strength of our support.

Mr. Amory

On such occasions, it is not only the quantity of the troops but the quality which is important.

Mr. Osborne

And their uniforms.

Mr. Houghton

I hope that the Chancellor is not suggesting that what assistance we could have given him, what help we would have given him in quantity, would have been lacking in quality. I think we could have matched any of the arguments used behind the scenes with the right hon. Gentleman, had we had the opportunity of answering them in open debate. Therefore, I think we have to chalk up a concession to the dividend strippers among the tax reliefs in this Bill. That amounts to over £4 million, and undoubtedly it is to be regretted.

In fact, the whole episode about dividend stripping inevitably stinks. I am not accustomed to using strong words in debate, but I feel that this is a most disagreeable episode. With great respect to the Chancellor, I would say that he would have enhanced his reputation for strength of character and independence if he had said, "I am going to deal with this firmly; I am going to deal with it retrospectively and I hope that is the last we shall hear of this form of tax avoidance".

In 1955 emphatic declarations about the ending of this traffic were made. Determination was expressed to put the dividend strippers out of business. Yet very shortly afterwards it was found that there was a particular form of dividend stripping in the acquisition by exempted taxpayers of companies which could distribute dividends, taxed or deemed to have been taxed, and claim repayment, and we found they were going to indulge in this nefarious practice by proxy. One stage removed dividend strippers clearly fell within the scope of the threat of retrospective legislation in 1955.

The new breed of dividend strippers, which, we were assured, has been discovered since, may have had to be dealt with by new legislation without the same justification for retrospective effect, but dividend stripping is dividend stripping whatever form it takes. The new breed of dividend strippers are companies with accumulated losses which acquire companies with cash reserves which are distributed and deemed to have been taxed, or taxed, and setting off losses against the franked income. This is a form of dividend stripping which is really indistinguishable in principle from the type we thought we had stopped in 1955.

Out of the debate on this Bill has come to light the more general question of how this House is to equip the Chancellor of the Exchequer to deal with this constant flow of new devices for tax avoidance. The annual Finance Bill is not in our view enough. It is not speedy enough and, in many cases, the Finance Bill would be handicapped in its endeavours in this field by many other pressing matters we may have to bring before the House. My right hon. Friend the Member for Huyton (Mr. H. Wilson) has already made a suggestion. Despite the wishy-washy conclusions of the Royal Commission on this subject, the Chancellor should be empowered to lay a Statutory Instrument before the House, which could be subject to an affirmative Resolution and would give the Chancellor temporary powers to deal with new forms of tax avoidance as they arise, subject to statutory confirmation in the Finance Bill, or otherwise, later.

The general body of taxpayers cannot help but be disturbed at the news they constantly receive of devices which enable people to get out of paying taxes which normally would be due. I think that is a matter to which the right hon. Gentleman should give consideration. The old tradition of an annual Finance Bill to deal with these matters is no longer adequate to deal with the ingenuity of those who are engaged in this new profession of tax avoidance.

I come next to a feature of the Bill which we all welcome because we have pressed for it so often. That is, a relaxation of the expenses rule under Schedule E for subscriptions to learned bodies. We were a little surprised to realise all the administrative difficulties which a comparatively small concession of this kind would create and we are glad that the Chancellor has felt able to make it. We regret, however, that at the same time a bolder effort to clean up the expenses rules under Schedule E has not been attempted in this Bill. I shall not dwell on that, as the provisions are not in the Bill, but we should have been glad to see them there. I content myself by repeating once more that not until the whole field of Schedule E expenses is purged—on entertainment and lavish commercial expenditure—will there be any justice or common sense in our expenses rules under Schedule E.

Finally, I come to the proposals in the Bill regarding administration. We welcome the assurance given by the Financial Secretary, whose help in this Bill has been remarkable for his patience, his good humour and helpfulness. The hon. and learned Gentleman promised that, although it would not be in this Bill, another Bill would contain reforms on the property qualification and appointment of general Commissioners of Income Tax. I notice that that promise has been fulfilled in a Committee upstairs.

I remark only that a new Clause in that Bill, implementing the promise given in debates on the Finance Bill, was quite short and was proposed by the Under-Secretary of State for the Home Department in a speech lasting perhaps 30 seconds. There was no further debate and the new Clause was accepted. That was the climax of 38 years' agitation for this reform. After the Colwyn Commission in 1920, the Codification Committee of 1936, the Radcliffe Commission in 1955, and Opposition Amendment after Amendment and new Clause after new Clause on this subject, the property qualification for Commissioners of Taxes goes without a whimper in a Committee, which is not even a Finance Bill Committee, and without debate. This veritably is a strange place. I can only say that we are very glad to have achieved at least this change, but it gives rise to more questions on administration.

I recommend the Chancellor once more to consider bringing a tax management Bill before the House to incorporate many proposals which have been made by the Royal Commission and which it seems will not get into a Finance Bill unless the Opposition press for them, and there is time for them to be debated. That is not very satisfactory.

I hope that the right hon. Gentleman will not be put off by the ill-fated Revenue Bill of 1921 which, perhaps, was the last attempt to bring about administrative reforms outside a Finance Bill. I have a photographic copy of that ill-fated Bill in my hands and, suitably, it is photographed in mourning. The Bill was introduced on 6th April, 1921, and by the end of May, before its Second Reading, it was as dead as mutton. The Chancellor of the day was as roughly handled behind the scenes on that Revenue Bill as the present Chancellor has been handled behind the scenes on dividend stripping. That fact alone should encourage the Chancellor to redeem himself on another occasion by bringing into a tax amendment Bill many overdue reforms recommended by Royal Commissions.

What is our final verdict on the Bill and on the Chancellor? On the Bill, it is that, after a hesitant start, it got a little bolder, but in our view it still deals with the past and is not up-to-date. We need a new surge forward and this Bill does not give it. As to the Chancellor, some ill-disposed persons have said of him, "Derick, or Dither by Dither". No such unkindness would ever come from these benches about the present Chancellor of the Exchequer, although I remember that my right hon. Friend the Member for Huyton has made some reference to mice in this connection. I think the late Sir Gurney Braithwaite, if he were with us, would have said, "The Chancellor is trying hard and will do better next term, unless the school breaks up in the meantime."

12 noon.

Mr. Cyril Osborne (Louth)

After the stormy debates of the last two days it is a pleasure to come to the House and to hear these very important financial proposals discussed in a calm manner. When it is remembered that the Bill imposes taxes of nearly £5,000 million, it is remarkable that so few hon. Members have taken the trouble to come here and pay attention to the immense burden that is being put upon the ordinary citizen.

It is with great diffidence that I follow the hon. Member for Sowerby (Mr. Houghton), because he obviously knows very much about this subject. He hides a great deal of what he knows, and he speaks in such a friendly and modest way, that the ordinary Member like myself finds himself out of his depth in following him; but I will do my best.

The hon. Member for Sowerby said four things. With some I agree and with some I do not agree. He said that the Bill had little relevance to the crisis of the day which we were discussing yesterday and the day before. In a way it is true and in another way not true. If the finances of the country were not on such a sound basis the events of the last two days especially would surely have driven sterling almost underground. There would have been a run on sterling and a crisis on the foreign exchanges. I think, therefore, that the hon. Member for Sowerby would agree that the Bill, which is the cornerstone of the Government's financial policy because it is so well laid and sound, has relevance to the awful happenings of the last few days.

The second thing he said, and in this I agree with him because it is fundamental, was that all Chancellors in a popularly elected democracy in which everyone has the vote are aware that those who have the votes do not appreciate fully the economic difficulties before them, and that Chancellors are naturally tempted to give consumption for today as against investment for tomorrow. The greatest problem facing the modern democracy is how to make our masters, those who have the votes upon whom we depend to serve our party, understand the problems before us. Even some of us do not appreciate those problems as fully as the hon. Member for Sowerby. As I said in an interruption in the hon. Member's speech, the problem of making the electorate accept jam tomorrow by way of investment rather than jam today by way of consumption will be difficult, no matter which party sits on the Government benches.

The third thing which he said, and with which I disagree, was that he was glad that relief from indirect taxation had been given this time, by way of Purchase Tax reduction. He said that it was better than more direct taxation relief. I wonder whether that is true. I wonder how far direct taxation is having an adverse effect upon production, from the men on the floor of the factory right through to the managerial class and the directors. The tax burden is so heavy that it convinces me that we would get much better quality production as well as more of it if direct taxation were lightened. Here I take issue with the hon. Member for Sowerby. If I had my way I would give greater relief of direct taxation and less of indirect taxation. I would prefer to see men spending the taxes rather than their earnings. What the nation wants above all else is greater quality production.

Mr. Houghton

If spending could be taxed in a suitable ratio to ability to spend, then we might get nearer to the hon. Gentleman. We all know how regressive indirect taxes are.

Mr. Osborne

That is true, but the hon. Gentleman knows that British industry has to compete in world markets while competition gets harder and harder. I could mention competition in textiles from Hong Kong and in shipbuilding and ship repairing from Japan and Germany. We have to improve the quality of our production within our costs. If it is agreed that direct taxation is a hindrance, everybody would benefit by a reduction in the immense burden of direct taxation. We could then increase our productive result.

The last thing the hon. Member said and the only other point he made, was that dividend stripping "stinks." While it is the law of the land, people are entitled, as it were, to look after themselves and their own. The great task of the Chancellor of the Exchequer is to see that people cannot do things that "stink." I feel strongly against any proposal for retrospective legislation, no matter on what ground it may be proposed.

The Finance Bill is only one part of the Government's financial policy, but it is an important one. If this policy had not been sound, and the test had come yesterday and this morning, there would have been such a run on sterling as would have left the City of London in a whirl: whereas, though sterling has fallen slightly, it is still in a, strong position. In the present international situation that is a remarkable tribute to my right hon. Friend and his predecessor, my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft), who took certain action last year. If those unpopular steps had not been taken last September I do not think that we should be able to hold sterling today as it is being held.

Mr. Houghton

So far.

Mr. Osborne

"So far", the hon. Gentleman says. We have to think about the fate of the country, and I am happy that we shall be able to hold what we have, judging on the facts as they stand. It is a remarkable tribute to my right hon. Friend the Chancellor of the Exchequer that sterling has stood so firm under what must have been immense pressure, because of the developments in the Middle East.

I regard the Bill as modest and, in a way, if I may say this without offence to my right hon. Friend the Chancellor of the Exchequer, it is typical of him. It reflects his character, which is moderate and conciliatory. I congratulate him on the work that he has done for the country in the last few months. When he was pitchforked unexpectedly into this high office, to face immense problems, many of us wondered how he would fare and whether he would do the job.

I was one who regretted what I considered the unnecessary decision of my right hon. Friend the Member for Monmouth to resign, because I thought that he was doing a fine job. I wondered when my right hon. Friend succeeded him so suddenly and almost tragically. I think hon. Members will now agree that he has acquitted himself extremely well. He has won much good will for the reasonable and fairminded way in which he puts his case all the time.

Mr. Speaker

These are all very pleasant sentiments, but they are rather remote from the Bill.

Mr. Osborne

I thought I might be stopped on that, Mr. Speaker. I rather feared that I might get into trouble. I would direct your attention to the fact that last year, when you were in the Chair, the right hon. Member for Huyton (Mr. H. Wilson) said on 19th July: 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. Then he went on to say, and he was not checked by the Chair: 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."—[OFFICIAL REPORT, 19th July, 1957: Vol. 573, c. 1529.] He was allowed to develop that.

Mr. Speaker

I do not object to the utterance to which the hon. Gentleman has referred. It is quite in order to take a bit of the Bill—a Clause of the Bill, or a provision of the Bill—and say that it is relevant or irrelevant to the present situation. There is nothing wrong in that, but I did not gather that the hon. Member for Louth (Mr. Osborne) was doing precisely that, at the moment.

Mr. Osborne

The last thing that I would do, Mr. Speaker, is not to accept your Ruling, of course, but the right hon. Gentleman was allowed to say that it would be in order to discuss the whole question of inflation, which was not in a single Clause of the Bill.

Mr. Speaker

I think that the hon. Gentleman has really misunderstood what the right hon. Member for Huyton (Mr. H. Wilson) said.

Mr. Osborne

I am very much obliged, Mr. Speaker. In that case, I will, if I may, turn to Clauses 12 and 13, which I hope you will allow me to discuss.

These Clauses provide for the imposition of Income Tax up to the rate of 8s. 6d. in the £, and for Surtax up to another 10s. in the £. Those rates are monstrously high. The hon. Member for Sowerby spoke of Purchase Tax as a war-time temporary imposition that became permanent, and that is equally true of the heavy taxation provided for in Clauses 12 and 13. Before the war—in the 'thirties—we should have thought that such top rates of Income Tax and Surtax were just lunacy, and I think the same today, because I fear that taxation like this is a hindrance to the best and highest production that we can get.

Since before the war, when taxation was so much smaller under these two headings, the value of money has fallen to one-third. The Income Tax and Surtax imposed by these Clauses reach their limit at £15,000 a year. The purchasing value of that sum would have been £5,000 in the 'thirties, and to have taken as much as 18s. 6d. in the £ on what a man earned over £5,000 a year would, before the war, have been regarded, even by Mr. Philip Snowden, Ramsay MacDonald and "Jimmy" Thomas—the old leaders of the Socialist Party—as complete madness. I believe that taxation like this is affecting production. It is far too high, and I want to make my protest against it. This heavy taxation is like sin. If one lives with it long enough one accepts it, and forgets its ugliness and beastliness.

My right hon. Friend the Chancellor said in his White Paper that by the taxation imposed by these two Clauses he expected to raise £2,132 million in Income Tax, which is £103 million more than last year, and £163 million, an increase of £5½ million over last year, in Surtax. In view of the grave warning issued by the F.B.I. about the fall in trade in the country, and the obvious fall in profits that is now taking place very sharply in industries like shipping and textiles, does my right hon. Friend think that his expectations under Clauses 12 and 13 will be realised; or will he have to come to the House later and say, "I am sorry, I have not got so much from these taxes as I had expected?"

Mr. J. T. Price (Westhoughton)

I suppose that most hon. Members in this House who have given any thought to these questions would agree that the high rate of taxation at these higher income levels may, in some cases, act as a deterrent to increased production, where those people who are receiving the very high levels of income are, in fact, engaged in production.

However, there are in this country a great many people who are receiving extraordinarily high incomes by financial operations, dividend stripping, owning land that has been inherited in the form of estates—to which I attach no particular vice, as it is just the accident of birth—and the like, but when Conservative hon. Members argue that there is a deterrent to production because these high, excessive—oppressive, as they say—rates of taxation are levied on those incomes, let them reflect that a great many of the high incomes do not derive from production at all, but merely from owning the instruments of production—owning the land, for instance. They do not derive from making any useful contribution at all to the productive effort of the country, in the way that, if I may say so with respect, the hon. Gentleman himself is doing. So let us make a distinction there.

Mr. Osborne

I agree that there is a difference between earned and unearned income, but I only say that these rates are too heavy for those who enjoy earned income. I should like to see something done to help them, no matter at what level. Men on the shop floor are just as anxious to avoid extra P.A.Y.E. as the directors in the board room are to avoid extra tax, and whatever causes a man to cease from production and go into speculative ventures—whether football pools, dog racing, or horse racing—in the hope of getting something free of tax, is bad for the nation. It is for that reason that I say that these Clauses are oppressive.

The Chancellor expects to raise £165 million in death duties, which is £5½ million less than he expected to get last year. I should like him to consider their effect. Our business community is suffering today from a new disease that I call "settlementitis." That is doing a great deal of harm to the older men who built up businesses and acquired fortunes, and even greater harm to the children on whom the money is settled. This all comes about because when one allows for the degree of inflation that has taken place in the last twenty years, death duties are at such criminally high rates. I should like my right hon. Friend to see what can be done about that.

Some months ago, I read in one of the London evening newspapers that a woman had won over £200,000 on a 2d. football pool. On that money she paid no tax at all. Let us suppose that a man is running a business and earns £20,000 a year. He pays £15,000 a year in taxes, and is left with £5,000. He lives on £3,000, and he saves £2,000. That man would have to run a successful business for a hundred years to have the same capital gain as was acquired by the old lady who blindly put the right markings on a football pool coupon. It is no good saying that that is a good system. It is shockingly bad from the national point of view, and something should be done about it.

Although there are many other things that I would have liked to have said, I will finish by saying that this is a good Bill. It has given stability to our finances, and it will help us during the difficult days through which we are passing. I hope that my right hon. Friend will live for very many years to produce similar Bills, but I hope that, in his next one, he will do something to relieve us of some of the taxation imposed by Clauses 12 and 13.

12.20 p.m.

Mr. Arthur Holt (Bolton, West)

I am very glad to follow the hon. Member for Louth (Mr. Osborne) and to support him in his request that, in a future Budget the Chancellor will do something to reduce the standard rate of Income Tax I agree with the hon. Member for Sowerby (Mr. Houghton) that if it were possible only to make the total sum of reductions that the Chancellor has thought fit to make, he was probably right to make alterations in Purchase Tax and some of the other taxes rather than to cut 6d. or more off Income Tax. My complain: is that, by taking other measures, he could have cleared the way to a cut in the standard rate even this year, but I will say more of that later.

I think that the hon. Member for Louth is rather optimistic about the state of the E. I do not know what evidence he has for saying that there has been no movement away from the £ in the last few days. The £, of course, has been under some pressure, in that its price has gone down a bit. If, in fact, it has been under less pressure than it was, say, two years ago, I think that it can fairly be said that that is due more to the fact that the United States is in this venture with us, whereas she was not with us in the venture of two years ago, but was strongly opposed to us, as were many of our other allies.

One of the strange things about the Conservative Party's economic and foreign policies is that they do not tie up. I quite understand that for a person who believes in what I call the Tory outlook on affairs, and who wants a firm, robust policy—I see the logic in it, although I do not agree with it—it is necessary to have a firm, economic policy. This was shown to all the world at Suez. I do not know whether it was Russia, or the Commonwealth, or the United Nations which brought us—

Mr. Speaker

Order. I feel that I ought to remind the hon. Member that on Third Reading he should confine himself to what is in the Bill. It is true that on Second Reading of the Finance Bill a very wide discussion is permitted, bringing in all the economic aspects of the problem, but not on Third Reading.

Mr. Holt

I am sorry, Mr. Speaker, that I was led to answer one or two of the points mentioned by the hon. Member for Louth. I will leave them.

We must recognise that the standard rate of Income Tax imposed by Clause 12 is a great burden on industries in difficulties, such as the shipping industry and, particularly, the cotton industry. It is most unfair that these industries, which are up against the most severe competition, still have to bear this extremely high rate of Income Tax.

I welcome many of the Clauses. Some of them are of only small impact, but I welcome, in particular, the alteration in the Purchase Tax system and the reduction of rates from seven to four. The hon. Member for Sowerby (Mr. Houghton) suggested that this is no longer a tax on luxuries. I take the point which he made, but I suggest that a tax which still amounts to 60 per cent. is of a rather high order and cannot be justified on ordinary economic grounds. I do not think that it could be justified on the ground of taxing a luxury. I never know what a luxury is, but I think the rate will have to come lower yet before it fulfils the idea which he was advancing that it is part of the indirect tax system which must stay with us for a long time and while the Government have to spend as much money as they spend now.

I welcome the alteration in the Stamp Duty on the purchase of houses. I am sorry that the Chancellor has been unable to make any alteration in the Schedule A tax, but we look forward to some alteration next year. Unlike the Labour Party, we welcome the change which has been made in Profits Tax in Clause 25. In this context, the hon. Member for Sowerby said that the Chancellor had to take notice of the powerful interests which existed in the land and he referred to the effect which increased dividends had on the organised trade union movement. He suggested that this was something that the Chancellor had to recognise. He said that the Chancellor had to recognise the power of these interests and could not ignore them when he was thinking of giving way to other interests behind him.

I agree that that is a picture of the situation as it exists at the moment, but I must point out that the House cannot accept that it could go on for ever. It might have been quite all right for the previous Labour Government to introduce the discriminatory Profits Tax because they thought it was a good economic weapon, but I cannot understand on what ground, other than giving way to these powerful interests, the Tory Party has been able to maintain this Profits Tax for seven years while it has been in power, because I do not believe that successive Chancellors of the Exchequer have believed that it was a good tax. It is precisely because they have recognised the feelings of organised trade unions and their power that they have retained this tax, against their own view that it was a bad tax. This raises a very important point—the point that it is time that the House exerted itself against all those vested interests which make us carry out policies which we think are undesirable.

Turning to Clause 36, I am sorry that the Chancellor and the Government have still not considered how they can remove the raising of capital from the Budget. We have made suggestions about this. Obviously, it cannot be done unless there is a considerable increase in private saving so that the money can be found outside the Budget. The proposals which we made for an employees' saving bank, for instance, would have been ways in which those savings could have been increased. It would make a great deal of difference if £300 million could be removed from the Budget. It makes no difference whether it is above or below the line; it is being provided by tax. If extra, genuine saving could be provided, then the nationalised industries could go to the market and mop up those savings instead of the money being found by the taxpayer. I hope that next year will be the last in which the capital is raised for the nationalised industries by compulsory and not voluntary saving.

I hope that next year the Chancellor will have done some rethinking on the need both to increase net saving and to spread ownership. It will have been noticed that in his interjection the hon. Member for Westhoughton (Mr. J. T. Price) complained about the people who owned the systems of production and said that they often get benefits from the Budget. If we can spread that ownership more, there will be less complaint. If the Chancellor does these things he will be able to reduce the burden on the Budget and to make a cut in the standard rate of Income Tax, which I believe myself and the hon. Member for Louth want very much.

12.30 p.m.

Mr. Graham Page (Crosby)

It is with some diffidence that I intervene, after some of the passages in the speeches by my hon. Friend the Member for Louth (Mr. Osborne) and the hon. Member for Bolton, West (Mr. Holt) fitting the Bill into the national economy and into the international situation. I feel that I am incompetent to follow along those lines in any way, and I rise only to make a few points on the content of the Bill.

I am sure that the Bill receives the approbation of the great majority of the people in the country for the very substantial relief which it gives to the taxpayer and for the loopholes which it stops up in some of the tax avoidance instances, because the stopping up of those loopholes is itself of benefit to the general taxpayer. The Bill is also welcomed because of the way in which several of its Clauses have released perfectly innocent transactions not meant to be caught by tax, so that the taxpayer who is innocent of avoidance or evasion can carry on these transactions.

Both hon. Members referred to Clauses 12 and 13 and to Income Tax at the rate of 8s. 6d. in the £. It is a tax upon income within all Schedules under which the tax is charged—A, B, C, D and E. It is under Schedule A that it falls particularly hard, because only under that Schedule does a notional income fall to be taxed. Under Schedule A, the owner-occupier is charged to tax at 8s. 6d. in the £ on an income which he is assumed to have received—income which it is assumed that he would have received had he chosen to let his house instead of living in it himself.

Under no other Schedule is a taxpayer charged to tax on some income which he has not received. If he had invested his money in a motor car, a mink coat or a television set he would not be charged to tax on what he might earn if he let them out or hired them out. It seems to me that the continuance of a tax of 8s. 6d. in the imaginary £ on the man who occupies his own house is unjust, unfair and discriminatory against a certain category of taxpayers—the owner-occupiers. I hope that during this year my right hon. Friend will be able to see how that tax is falling on the owner-occupier and whether he will be able to relieve the owner-occupier of it in future.

I wish now to refer to Clauses 18 and 19, which deal with dividend stripping.

"Dividend stripping" is a delightful expression, of course, with which to castigate the business world, and right hon. and hon. Gentlemen opposite have used it freely, rolling it round their tongues as if it were a terrible thing which was being done. I wish to issue a warning. Throughout the debates on dividend stripping, the emphasis has been on stopping up the holes. I am not quite sure that in these Clauses of the Bill we have not gone a little too far. We may have stopped up the holes so well that we have stopped the air from coming in and we may suffocate some perfectly innocent traders.

We have said that the trader cannot, in many circumstances, use Section 341 of the 1952 Income Tax Act, which provides that one can set one's trading losses off against one's investment income in the year when one makes that loss or in the following year. It has been most beneficial to the trading community to do that. All it means is that the trader is then not paying tax on more than his total income. If he has paid tax on more than his total income, he is entitled to get it back again almost at once, under Section 341, by setting it off against his investment income. In the Bill, we say that the trader must never use Section 341 if the income against which he wants to set off his trading losses comes from investment which was acquired by him after that income had been accumulated.

I fear that we may be going a little too far. I know that some of these transactions are deliberately carried out for tax avoidance, but there are also cases where traders are merely asking the Revenue to return tax which they have overpaid. That is all it amounts to. Now, in the Bill, we say that the Revenue can retain that tax indefinitely. I hope that my right hon. Friend the Chancellor will watch the operation of the Clauses during the year. Although I join with right hon. and hon. Gentlemen opposite in wishing to stop up any tax avoidance loopholes, I hope that we shall not suffocate the innocent trader.

I have a point to make about Clause 25, the Profits Tax Clause. The rate of Profits Tax, at 10 per cent. on the amount of profits throughout, whether distributed or not distributed, will work harshly on a number of undertakings. To understand the point which I want to put, one has to go back to the predecessor of Profits Tax, the National Defence Contribution, and realise that, when it was imposed, statutory undertakers were treated in a separate category. Under Section 19 (5) of the Finance Act, 1937, statutory undertakers were exempt.

That situation continued when Profits Tax took the place of the National Defence Contribution. In 1951, when distributed Profits Tax rose to 50 per cent., statutory undertakers were limited to 10 per cent. whether their profits were distributed or not. Just prior to this Bill, Profits Tax was divided into two parts, 3 per cent. on the undistributed and 30 per cent. on the distributed profits.

In statutory undertakers I include such undertakings as those whose names appeared on the Notice Paper during the Committee and Report Stages of the Bill—the Poole Ferry, the Mersey Tunnel, and also all omnibus undertakings, because they, too, have always come within the definition of a statutory undertaker. They are now to be charged Profits Tax increased from 3 per cent. to 10 per cent. with no compensation of any reduction in the distributed Profits Tax rate because they were never liable to it. My right hon. Friend, in his opening speech today said—I do not think I am being unfair in paraphrasing it—that to have one level was a nice tidy way of doing it which made for tidy administration; but it will work harshly on these statutory undertakers. They cannot pass the increase on to the customer or consumer, because they are tied by Statute in some way or another in the charges which they make.

I have one small point in Clause 34, the Stamp Duty Clause. The fact that Stamp Duty has been abolished on conveyances not exceeding £3,500 is welcomed in all quarters of the House. Unfortunately, it still leaves some small irritations. On reading the Clause, one would think that no longer will one have to take the conveyance to Bush House and produce it to anybody, that it is good and valid without any stamp on it at all.

But I am not sure whether this provision does relieve the conveyance of the deed stamp of 10s. if it contains a covenant. Most conveyances do contain a covenant in some form or another, for example, a restrictive covenant or the like. The Controller of Stamps at Bush House is bound to discover whether a deed contains a covenant, because one still has to take it to Bush House with the wretched little form under the Finance Act, 1931, setting out particulars of the conveyance and have the conveyance stamped with what we know as the "P.D."—particulars delivered, stamp.

Although one is relieved of the ad valorem Stamp Duty on these conveyances, one still has to take them to Bush House and have them stamped with the P.D. stamp. What is done with these forms when they have been filled in and filed at Bush House? An enormous number of particulars has been collected in the Controller of Stamps Department since 1931, yet, when I have asked Parliamentary Questions which could easily have been answered after examination of the forms, I have been told that it is too much trouble to obtain the information.

I do not believe that these forms are used at all. What staff is employed for the purpose? What information is gained from them? What value is it for solicitors acting in conveyancing matters to trot up to Bush House, file these forms, and then—I tell my hon. Friend this—charge the client a guinea for doing so because it is not included in the scale fees? I had hoped that we could relieve the conveyancer from that altogether.

With those few critical comments on one or two parts of the Bill, I commend it to the House. Although I have been critical on those points, I am not unmindful of the very many good things in it. I do not want to be the superfluous bush for the good wine. Others can say good things about the Bill much better than I can. If I have been critical on these few points, that does not mean that I have no regard for the very good things in it.

12.44 p.m.

Mr. Frank Beswick (Uxbridge)

The hon. Member for Crosby (Mr. Page) began by saying that taxpayers generally would welcome the Bill because of the concessions it made. He then went on to say, quite convincingly I thought, that the concessions which have been made have not been made fairly as between one section of taxpayers and another; nor, indeed, is there any discernible social or economic justification for some of the changes to which he referred.

I wish to restrict my remarks to the Clause dealing with Profits Tax and to call attention again to the extraordinary attitude of the Chancellor in the application of this tax to those societies registered under the Industrial and Provident Societies Acts. The facts, briefly, are these. As the hon. Member for Crosby said, there are concessions in the Bill. Altogether, the concessions amount to £118 million in one year. There are concessions in direct taxation, in Profits Tax. Those concessions amount to £16 million in one year. But within the Profits Tax concession, as the Bill is drafted, those societies which are registered not under the Companies Act but under the Industrial and Provident Societies Acts will have an additional liability of £1.3 million a year.

I hope that the question I have to put will be answered by the Financial Secretary on this occasion, not by the Paymaster-General, who did not give a very full reply when dealing with the matter previously. I want to know whether this incidence of increased liability was anticipated by the Chancellor when he originally drew up the Bill. Did he want this to be the effect or not? It is not good enough for the Chancellor to tell the House that he was applying a principle which had to fall equally upon deserving and undeserving alike. As has been said already today, the Chancellor has not always stuck so rigidly to principle. On dividend stripping, he had some regard to consequences and he adjusted his principle to fit the consequences of his proposed action. It seems quite clear that, if the will was there, if the Chancellor had wished this Clause to apply differently, he could have made the necessary changes.

As I understand it, the purpose of a Finance Bill is twofold. On the one hand, we have to raise taxes and, on the other hand, we have to raise them in such a way as to cause the least damage and give the maximum benefit to society and the economy as a whole.

This year the Chancellor has said that he was under no compulsion to raise extra revenue, and, of course, he has made some concessions; but he has at the same time increased this liability for an important and valuable section of our economy. I should like the Financial Secretary, to whose courtesy I paid a tribute the other day when he received a deputation from the Co-operative movement, to tell us why these changes have been made in this way affecting the co-operative societies. None of the general arguments for a flat rate as against a differential rate applies in the case of these societies. Previously they paid a flat rate and there was no administrative difficulty in that respect.

I challenge the Chancellor or the Financial Secretary to give one economic or social advantage which will flow to the co-operative societies from these changes. If they cannot give one reason, I ask whether they are content to leave the situation as it is without making some attempt to alleviate the increased burden on these societies.

The Chancellor said something about regretting that the changes in the Profits Tax, which meant that some bodies have an additional liability. I was not certain whether he was extending his regrets to these societies. Does he regret it? Is he sorry that it is necessary to call upon them to make these additional payments? If he regrets it and has done nothing about it, I hope that every member of the various co-operative societies, amounting to about 13 million electors, will draw the necessary conclusions. If he does not regret it, the only conclusion they can draw is that he is again deliberately penalising the co-operative societies. In previous Finance Bills there has been a discrimination against the Co-operative movement and societies.

If the Chancellor or the Financial Secretary cannot give me one example of an economic or social benefit which is held to follow as a result of these changes, I must conclude that they are satisfied deliberately to penalise the societies again this time, and there will be some 13 million people who will know about this and I hope they will draw the necessary conclusions when it comes to the next General Election.

12.53 p.m.

Mr. R. Gresham Cooke (Twickenham)

As the hon. Member for Uxbridge (Mr. Beswick) has so rightly pointed out, the Chancellor has made concessions to the taxpayer this year of £118 million, and I think that all of us, as taxpayers, must be very grateful to him for that action. Therefore, we can congratulate the Chancellor upon this Finance Bill.

In addition to that, what appeared to me to be so satisfactory in the Bill was that a large number of anomalies and small injustices were ironed out. Besides the large changes in taxation made, my view is that opportunity should always be taken to get rid of a certain number of these anomalies which always provoke resentment against the financial system. I refer to matters like allowances for fees to professional societies, in Clause 16, and the presumption as to order of death and so on in Clause 29. It would be very satisfactory if every year we could have a number of these items dealt with in the Finance Bill in order to get rid of some of the difficulties.

One of the most welcome features of the Finance Bill to me has been the incorporation in it of the Chancellor's current proposals for the simplification of Purchase Tax, in Clause 1 and the First Schedule. There is no doubt that the changes which he has made, especially the reduction in the higher rates of Purchase Tax, will be most welcome to many parts of British industry, will affect a considerable range of goods and should be a stimulus not only to factory efficiency but also to exports. Obviously, many of us on both sides of the House would have liked the Chancellor to go further, and if all goes well with our financial affairs in the next few months I believe there is good reason to suppose that he may find it possible to make further reductions in Purchase Tax in the near future.

I recall that in his Budget speech the Chancellor said: … these measures taken together amount to a not inconsiderable step forward in simplification and reform. There is clearly no room for large relaxations this year, but my proposals do lighten some of the burdens on the taxpayer, as well as improving our fiscal system."—[OFFICIAL REPORT, 15th April. 1958; Vol. 586, c. 74.] This year I was one of those who thought that there could be only a moderate amount of streamlining of the tax—for one reason in particular, namely, the £80 million of tax on stock held by retailers which they would lose altogether if there were a sudden and sweeping change of Purchase Tax. However, guided by the experience this year, I gather that wholesalers and retailers are making arrangements with Customs and Excise for sale and return schemes which would avoid losses on Purchase Tax reductions in the future. To my mind, that movement should be encouraged by the Chancellor to prepare the way for bigger changes next year.

I should like to express the hope, too, that in this important field the Chancellor will give definite and fairly early priority to a review of Purchase Tax on the chassis of commercial road vehicles, which, after all, are clearly essential to trade and, therefore, entirely unsuitable as a target for Purchase Tax at all. I should in this connection declare an interest, and I trust that the House will forgive me if for a moment or two I dwell on that matter.

The Federation of British Industries has very properly pointed out that the charging of tax on goods such as these, which are not consumer goods but are used in industry in the course of producing other goods, is wholly foreign to the conception of Purchase Tax as a consumer tax, and unnecessarily adds to the delivered cost of goods, even though, as has been said, Purchase Tax has become almost a "pay-as-you-spend" tax.

The right hon. Member for Battersea, North (Mr. Jay) said in 1950 that the tax on these particular types of goods was not intended to be permanent. Another Socialist promise has gone west. However, in this connection one welcomes the decision of the Chancellor during the passage of the Finance Bill to increase the initial allowances for capital equipment from one-quarter to three-tenths. This will, of course, give some small but very welcome assistance.

But surely it is absurd for Purchase Tax to be payable at all on items of capital equipment, the purchase of which the Chancellor is trying to encourage by giving initial allowances. Indeed, to a substantial extent, all that the Exchequer gains from the revenue obtained by levying Purchase Tax on this capital equipment has to go back by way of initial allowances upon them.

To take an example, although the Chancellor may tell us that he cannot afford at the moment to give up this tax on commercial vehicle chassis because it brings in a gross amount of £14 million a year, the fact is that over the years he gets only about 47½ per cent. of the £14 million because he loses the rest gradually on initial allowances and annual depreciation allowances.

It is satisfactory that on 20th May the Chancellor said that while this particular matter was being discussed in greater detail he would be glad to hear anything that could be said further on the subject. I hope he will have the opportunity for further discussions, particularly in view of the suggestion that I have made that the Chancellor obtains only £7 million instead of £14 million from this tax.

I should like to propose further that the Chancellor should give sympathetic consideration to the higher rate of tax, the 60 per cent., which is levied on many industrial products. I appreciate that it produces a large amount of revenue, but it is a material and very serious burden on many industries and hinders the efficiency of production.

The other day I was in Frankfurt and had the opportunity of a discussion with the secretary-general of the German Automobile Manufacturers Association, who told me that the German turnover tax on motor cars was equivalent to a sales tax of 11 per cent. on the finished product. That shows the disequilibrium there is between the turnover or sales tax as in Germany and our Purchase Tax at 60 per cent. If ever the Free Trade Area were to come about, we should have to try to standardise our Purchase Tax with the level of sales tax in Europe, which, broadly speaking, varies between 10 per cent. and 20 per cent. at the most.

That is one reason why I hope the Chancellor will be able to continue the study of these matters during the coming year, so that we may look forward to further substantial improvements being made next year in Purchase Tax generally. Far from calling our Chancellor "Derick, or Dither by Dither", as he has been called from the other side of the House, I suggest that he should be more rightly called "Amory, or More by More."

1.0 p.m.

Mr. G. R. Mitchison (Kettering)

The thing that strikes me about this Finance Bill is the extreme paucity of personal reliefs in it in relation to reliefs of other kinds, and I propose presently to say something about that.

Before I come to it, however, I should like to make one personal observation. The standard of courtesy on the Treasury Bench in debates on the Budget and the Finance Bill has been consistently high for many years past, but certainly those who have occupied the Treasury Bench during these debates this year have not only lived up to it, but almost excelled it. It would be invidious to mention any names since each of them, in different ways, has shown a consideration, a lucidity and a general kindliness to the Committee and the House as a whole which have certainly helped us in our work and, we only hope, have given them some indirect benefit, too. They will fully understand that these are personal compliments. They will not expect me to like the results in the Finance Bill. That is another matter.

I have said that the first thing that strikes me about the Bill is the extreme paucity of personal reliefs in it in relation to other matters. There are two quite minor personal reliefs directed to the elderly and in this year they cost £2¾ million, and so does the remission of duty on port and sherry. The figure happens to be identical. If a Budget can make £130 million in concessions, I feel, putting it quite broadly, that a much greater part of it ought to go in personal reliefs than the very small figure which I have just indicated. Those are personal reliefs in the narrow sense.

There are two other categories of reliefs in this Budget which have something of the personal in them. The quick succession duty reliefs come to about £3 million; that may have been slightly enlarged by the concession made in Committee. They are larger than the concessions made to the elderly, but they are not a very large amount. The only other concession that can be said to be a concession to people rather than to companies or things is the Purchase Tax itself. That is the largest of these concessions. It was £41 million in the Chancellor's original Budget statement and it has been increased, no doubt, by one or two small matters, but only to a small extent, in the subsequent stages of the Bill.

All that is happening about the Purchase Tax is that, so far as amount goes, the taxes imposed by the Home Secretary, when Chancellor of the Exchequer, are gradually being returned. He put an extra £75 million on Purchase Tax. Twenty-one million pounds was given back—not in identical form, but in Purchase Tax as a whole—by the right hon. Member for Monmouth (Mr. P. Thorneycroft) when Chancellor of the Exchequer. The Prime Minister, when he was Chancellor, did nothing about it except make a small change in connection with the conversion of motor vehicles and the present Chancellor is now giving back about £41 million. The net result is that we are still about £10 million short of the amount which the Home Secretary put on to Purchase Tax in the first Budget after the last Election.

Therefore, when hon. Members of the party opposite are considering what they have done by way of Purchase Tax, they might remember that since the last General Election they have, on balance, increased it and not decreased it; and they have a bit of a way to go yet before they get even square. If they say that it is a bad tax, and ought to be altered and contains anomalies and all the rest, we all know that; but on the mere question of amount, they are the people who, since the last Election, have, on balance, increased it.

Turning to the form of the Purchase Tax itself, there are anomalies. I cannot let it pass without regretting that the anomalies have not been corrected in one rather important matter: that is, protective clothing. The difficulties about it are obvious, but a concession was rightly made to miners. Of the other possible concessions, one was turned down. It concerned items called asbestos spats. Nowadays, in the present state of the world, one really wants asbestos spats to walk about it in, although it is foundrymen who use them. No doubt, it may be difficult to draw the line. I do not know what the Chancellor has on today, but I should be surprised if he wears asbestos spats habitually, or, indeed, ever. At least, foundry workers wear them.

Mr. Amory

Let me show the hon. and learned Gentleman that I do not wear them.

Mr. Mitchison

I should have thought that something which, obviously, was protective clothing might have been exempted and it would have been sound to do so. Those are the only concessions which have anything of the personal in them.

I now turn to what I call the company concessions. The first of these was about £23 million at the time of the Chancellor's statement and, owing to the doubling of the rate, no doubt somewhere about twice as much, if not more, by way of initial allowances. I am not an economist, but it always strikes me that initial allowances must be inflationary, because they really amount to nothing more than a tax-free loan made to the company in question.

I suppose that it is possible for a person to have an initial allowance, but these allowances are obviously mainly a company concession. On that ground alone, they are of rather doubtful wisdom in comparison with the selective investment allowances on which I cannot dwell today but which, as the Chancellor knows, we on this side would have preferred. I regard it as doubly unsatisfactory because the effect of an initial allowance is that the company concerned gets an initial allowance under this Government and subsequently it suffers the burden of repayment. That is what it comes to if we look at it as a tax-free allowance. So that I think that the concession is inflationary and necessarily temporary.

I am not saying that initial allowances should not be given, but I am saying that a selective investment allowance seems to us definitely preferable. There is nothing really new or strange about that, since there already are selective investment allowances in some cases, for instance, in connection with shipping.

Now I come to the Profits Tax. I am well aware, as is everybody in the House, that the majority of the Commission made a recommendation which the Chancellor is now carrying out, but I take liberty to think that the recommendation was wrong. I think it was in connection with this recommendation that the Chancellor said that the test is whether a major tax code—tax change, I think, must have been the phrase—is, on balance, beneficial.

Mr. Amory

Tax reform.

Mr. Mitchison

I am much obliged.

No doubt that is so, but that is a lazy doctrine if it is carried no further. Having decided on one's major tax reform one has then to carry it out not only in a way which is, on balance, beneficial, but in a way which will, so far as possible, eliminate unfairnesses and though one may not be able, in practice, to be too complicated, one has to hold some balance between simplicity and fairness, and where an excess of simplicity produces too much unfairness then one must make the matter a little more complicated and make some special provisions. That seems to me to be exactly the position in connection with this change in relation to a very broad group of notional persons who are to be affected by it.

The very broad group of notional persons is those persons who are not ordinary profit-making corporations. They include building societies. There has been a special arrangement in this Bill in favour of building societies, and though they no doubt have their grievances, and we sought to give expression to them in Committee, on balance they have not come so badly out of it as some other bodies of the kind I have in mind.

I am bound to say that I still think it anomalous and wrong that local authorities carrying out their necessary functions should be treated as amenable to the Profits Tax. I know quite well that the change was made under the Labour Government, but it was a change at a time when there were two rates varying according to the question of distribution, and, consequently, the effect in this kind of case was quite small, as represented at present by a liability to a 3 per cent. tax. Because of this major tax reform these bodies, which really have remarkably little to do with the kind of question which the Royal Commission was considering, though, no doubt, it did take them into account among other things, though on the broad question they are lot much affected, suddenly find they have to pay three times as much.

I agree that, looking at the figures, local authorities are not likely to pay very much, but there is a third type of body which, I think, has got a very raw deal out of this change and that is the co-operative societies. They, too, are getting a concession similar to the one of the building societies, but in their case the balance at the end of the day is very much more against them than in the other case and I think it is wrong that they should be made to pay this very considerable increase. I should have liked special provision to have been made for the type of body of which I have given some examples, probably the most obvious one, and of which the Chancellor gave another example when he mentioned sports associations. I cannot think it right to push the change in the Profits Tax in that direction against these people.

As to the change itself, it seems to me a most dangerous thing to do at the moment to penalise companies which are putting aside their earnings for the purpose of investment or to provide for contingencies, as against companies which distribute up to the hilt. I am not an economist, as I have said, and I do not understand how we reconcile this with the Chancellor's policy of increasing initial allowances. It seems to me to be doing the opposite sort of thing.

When we look at the companies which are to benefit by this change, they are all whooping about it already. We find that the old, old friends of the party opposite, the brewers, are heading the list. I do not forget that when the Tories got back to power the very first Bill they introduced, unheralded, was the Measure to give the brewers certain advantages in new towns which they would not otherwise have had. That Bill, Act as it now is, stuck in my mind, and it still does.

Then there are the real estate people. I have nothing particularly against them, but I cannot see that their social importance is so considerable that they ought to get what proves to be a considerable fiscal advantage in this way. I could go on with this list and think of others. On the other side of the picture, I remember one Chancellor after another has talked about the need for investment and bringing in, as the present Chancellor is, initial allowances, making concessions to shipping about investment allowances and the rest of it. How do we reconcile that with this change in the incidence of the Profits Tax?

I will sum up—and the House will be relieved that I have nearly finished [HON. MEMBERS: "Go on."]—what I was saying at the beginning about the balance between personal and company allowances. I have mentioned the personal allowances which, in this year, total exactly the same as the port allowance.

Port and old folk. It does not look very well. I think that it does not do the party opposite much credit that here should be this unfortunate arithmetical coincidence in the Chancellor's statement. If only he had made the port £250,000 less and given the old folk £250,000 more it might not have been very different in spirit, but it would have looked better. But there it is.

Then, if we take the whole of the personal concessions we get about £48¾, million for a full year, and £41 million of that is simply giving back some of the Purchase Tax the Tories imposed directly after the last Election; company concessions, £39 million; miscellaneous concessions, cinemas and what not, wine and stamps, £23½ million. It does not look to me the right sort of Budget at a time when we are still having inflation and the risk of inflation. The cost of living went up one point just the other day.

And talking about broken Election promises, there is no need to go very far back. What about the cost of living still going up? What about the hole in the purse and the rest of it? It is still there; and that is the difficulty. Have we really introduced a Budget that, for the very very little that it does, does much good? We have helped the port drinkers, we have helped certain classes of companies, more or less the wrong ones. We have simplified the Profits Tax a little, and that is something. We have removed some of the excessive Purchase Tax put on by previous Tory Governments. Then we have really directed our attention to dividend stripping and settlements.

Mr. Gresham Cooke

The Entertainments Duty.

Mr. Mitchison

I agree, but ought it to be there at all? However, that is another matter.

Let us look at the preventive measures. The Chancellor will find that the Financial Times said but yesterday that the £ is sensitive and erratic. I think that the Chancellor has been sensitive and erratic in this Budget, much too sensitive to his own supporters and to certain people who are no doubt interested in these matters. It is really quite inexcusable that a Tory Minister promised retrospective legislation in a particular matter, that a subsequent Tory Minister—this Chancellor—should introduce retrospective legislation or purport to introduce it in his Budget statement and should then run away and change his mind, whichever he likes to call it. It seems to me an absolutely inexcusable state of affairs and I cannot believe that the country, in a Budget of this character, will think any better of it than I do.

The Chancellor regards his Budget as the last fence of his steeple-chase. There are times when he reminds me of the gentlemen who steeple-chased by moonlight, no doubt towards the dawn of the next General Election. I think that that is where the right hon. Gentleman is going. This is a dim and mingy Budget and it has been enlightened only by promises of things to come. I feel certain that the next Budget will be so soft that we shall hardly know where we are, subject only to one thing. There may be circumstances outside which will make it difficult for a Chancellor to do that. I would remind the right hon. Gentleman of what Mr. Jorrocks said about hunting—that it was just as exciting as war and only half the risk. Some of his right hon. Friends are neglecting Mr. Jorrocks's maxim and if we have a nice quite steeple-chase today the results of what is happening in other places may prevent even an Election-minded Chancellor from introducing as soft a Budget as otherwise he would wish to do next year.

1.25 p.m.

The Financial Secretary to the Treasury (Mr. E. S. Simon)

At this stage of the Finance Bill a sort of calm descends on the House. The fierce battles of the past are over. I could not help thinking that, when we are reviewing the Amendments that have been made, we are rather like two old veterans of war rolling up their sleeves and comparing their honourable wounds. And there, sure enough, is little Peterkin, in the shape of the hon. and learned Member for Kettering (Mr. Mitchison), asking what it has really all been about.

A certain degree of fraternisation is obviously permissible at this stage; but I should like to say, in all sincerity, that a junior Minister left temporarily in charge of a Bill is in a vulnerable position, parliamentarily speaking, and I have been most grateful for the support of my hon. Friends and particularly for the courtesy and consideration which I have had from hon. and right hon. Members opposite. I certainly hope that it will not be invidious if I mention the hon. Members to whom I have been particularly opposed in the matters of which I have had charge, namely the hon. Lady the Member for Flint, East (Mrs. White) on Purchase Tax questions, the hon. and learned Member for Kettering and the hon. Member for Sowerby (Mr. Houghton).

I noticed time and again when I got up to follow the hon. Member for Sowerby that I had been supplied by the Inland Revenue with an exhaustive review of the fiscal point under discussion. It was practically never necessary for me to tell the House about it because the hon. Member, with complete accuracy and fairness had performed that task for me. I am extremely grateful for the very pleasant and agreeable debates which we have had.

On this occasion it is respectable, indeed almost obligatory, to indulge in retrospection. I might just glance at some of the Amendments made to the Bill, because I think that they show that my right hon. Friend has been perhaps exceptionally ready to listen to suggestions that have been made from all parts of the House, to weigh them and, if possible, to accept them.

Ten Amendments from both sides of the House have been accepted, together with six others which the Government proposed in pursuance of suggestions by hon. Members. There was the reduction of Purchase Tax on plain buttons, which the hon. Member for Oldsbury and Halesowen (Mr. Moyle) and my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) particularly pressed. There was the Amendment relating to clogs, proposed by the hon. Member for Huddersfield, West (Mr. Wade) and the one on shopping baskets, of which the hon. Member for Shoreditch and Finsbury (Mr. Collins) was mainly the proponent. Another Amendment was that for quick succession relief of 75 per cent., moved by my hon. Friend the Member for Langstone (Mr. Stevens). Another was on the qualifications of the General Commissioners of Income Tax, which the hon. Member for Sowerby suggested and which he particularly pressed. I am especially pleased that this year we have made a start on administrative fiscal reforms, which I know previous Chancellors had been anxious to put in the Finance Bill. We have gone rather further in another Bill in the matter of the General Commissioners than the one Amendment which was all that we could discuss on this Bill.

There was a further Amendment to change the method of assessing a firm's dividend in the standard period, moved by my hon. Friend the Member for Langstone, and another which was an adjustment to allow certain firms to revoke grouping notices originally tabled by my hon. Friend the Member for Southampton, Test (Mr. J. Howard). There was the new Clause relating to Estate Duty where property had been compulsorily cleared for slum clearance purposes, which my hon. Friend the Member for Carlton (Mr. Pickthorn) moved, and the Amendment to exempt gas-fired furnaces from Purchase Tax, which my hon. Friend the Member for Kidderminster (Mr. Nabarro) has been pressing. Finally, under this heading, there was the means of reducing the deemed dividend in the standard period where it would be unduly high, which my right hon. Friend the Member for Blackpool, North (Sir T. Low) proposed.

I do not think that I need rehearse the other Amendments which the Government proposed in response to suggestions made by hon. Members in all parts of the House; but in case the hon. and learned Member for Kettering is still keeping a score I should mention the Amendment moved by the hon. Member for Sowerby to make incorrect accounts rank as incorrect taxation returns, and the exemption from Purchase Tax on protective helmets which was supported by many hon. Members, mainly from the benches opposite.

The other thing about which I should, I think, remind the House is how far we have now gone in implementing the recommendations of the Royal Commission on Taxation. It is frequently complained that Governments disregard recommendations of Royal Commissions. That certainly cannot be said of the various recommendations of the Royal Commission on Taxation. Most of its major proposals have now been implemented, and, as I said, we have this year started to implement some of the administrative recommendations which are only second in importance.

The hon. Member for Sowerby put the Bill against the background of the economic situation and rather suggested that changes made recently falsified the assessment made by my right hon. Friend when he introduced his Budget. I do not think that is entirely fair. What my right hon. Friend did was to call attention to the tendencies for economic activity to halt or to decline both here and abroad. His conclusion was that it was too soon yet to contemplate any general relaxation on the economic front; that our prior needs were for the strengthening of our external position and for price stability at home; and that this required us to act with caution.

Subsequent developments have confirmed the tendency that my right hon. friend then discerned. The recession in the United States got a little deeper, but there are now signs of a gradual turn. In the primary producing countries the change in the terms of trade which helped our own balance of payments has continued to add to their difficulties. I think that the world as a whole is still in a somewhat recessionary phase. My right hon. Friend will be discussing these problems in the next few months at a number of meetings—with the O.E.E.C., with the Commonwealth and at the annual meeting of the International Monetary Fund.

Mr. H. Wilson

I hope that the hon. and learned Gentleman is not trying to use this argument to justify the mistakes which the Chancellor made in assessing the position at the time of his Budget. In fact, the American recession has not got worse. All the signs are that it is bottoming out or saucering out, or whatever phrase one cares to use to describe the position. As to the position of raw material commodity prices, the hon. and learned Gentleman will see from the official figures published this morning that again there has been a slight improvement. We agree that the world is very much in a recessionary stage and we drew that fact to the Government's attention very clearly last October and then called for some of the measures which the Government are now beginning to take. With regard to the internal position, we made a very fair assessment of the situation. While we welcome the Chancellor's response to what we proposed soon after that time, it has been very slow, very late, and is in our view still inadequate.

Mr. Simon

So far as the right hon. Gentleman's statements are statements of fact I do not think that they differ very much from what I said. My right hon. Friend's assessment has, I think, been amply borne out by subsequent events, as, indeed, I have just quoted. At home, production has remained fairly steady, but unemployment has been increasing gradually. I think it would be rash to say that price stability has been assured, but there has been considerable progress in that field, too, and, as my right hon. Friend said the other day, he looks forward to the fall which has taken place in wholesale prices working its way through the economy.

In those circumstances, my right hon. Friend felt able to make some moderate relaxations designed primarily to encourage productive investment. But, subject to the overriding objectives which I ventured to stress on the Budget of a sound and stable currency, our policy is to play a full part in world expansion, and it will continue to be so.

So much for the economic situation. I now turn to the specific proposals in the Bill. I think it was the hon. and learned Member for Kettering who dealt mainly with the Purchase Tax. He said that we were doing no more than giving back the impositions of 1955. I think that one must look further back than that. The fair comparison is with what has happened in the whole period of the Conservative Government since 1951. One has only to mention that at that time the three Purchase Tax rates were 100 per cent., 66⅔ per cent. and 33⅓ per cent. to see the substantial relief that has been given to the indirect taxpayer.

The hon. and learned Member for Kettering also mentioned protective clothing. I freely recognise that the position is now anomalous. Indeed, it has always been so ever since miners' protective clothing was exempted. I still remember with trepidation the storm that broke over my head at Question Time after my right hon. Friend had suggested removing that exemption. We have taken a further step—again, I am afraid, creating a further anomaly—so far as protective helmets are concerned. My right hon. Friend will be giving further consideration to this difficult and complicated problem during the coming years. The hon. and learned Gentleman mentioned the difficulty of drawing a line which is clearly recognisable, which seems to be fair and which does not create a whole number of new anomalies.

Mr. Mitchison

The hon. and learned Gentleman is forgetting asbestos spats.

Mr. Simon

I heard the hon. and learned Gentleman. I now come to the main taxing Clauses of the Bill, Clauses 12 and 13. My hon. Friend the Member for Louth (Mr. Osborne), who explained to me why he could not be present to the end of the debate, mentioned, as indeed did my hon. Friend the Member for Crosby (Mr. Page), that we now have an Income Tax at 8s. 6d. in the £ and that that is too high. I do not dissent at all from the proposition that the weight of taxation on earnings is too heavy in this country; but, nevertheless, I think it should be recognised that the effective rate is not 8s. 6d. in the £. In point of fact it is 6s. 7d. in the £ up to £4,000 when account is taken of the earned income allowance and the personal allowance. I think it is a matter for congratulation that this Government have brought the effective rate of tax down from 7s. 7d. in the £ up to £2,000 to 6s. 7d. in the £ up to £4,000. Of course, that is not to say that there is not room for improvement.

The hon. and learned Member for Kettering then went on to the Clause relating to personal reliefs and pointed out the small relief which my right hon. Friend found it possible to give in that field this year. I would venture to remind the House that a concession in personal relief, just like an increase in the personal allowances or a remission in Income Tax, continues year after year. Last year the personal reliefs were improved at a cost of £56 million in a full year, and those reliefs are being enjoyed again this year, and will, I hope, continue to be enjoyed in the future.

Mr. Mitchison

Does the hon. and learned Gentleman think that everybody is going to stop drinking port?

Mr. Simon

I sincerely hope not, although I must confess my obtuseness in failing to see the relevance of that observation.

Mr. Mitchison

It goes on year after year.

Mr. Simon

Of course, to say that one must never reduce one tax because another tax has not been reduced really will not bear examination. The heavy wine duty had not been reduced in living memory and was causing a great distortion in trade. As I say, last year there was an improvement of £56 million in the personal reliefs, and that does inure to the benefit of the taxpayer again this year.

The hon. and learned Gentleman and the hon. Member for Sowerby went on to examine the dividend stripping provisions of the Bill, Clauses 18 and 19, and—I do not know how far it was strictly in order, but at any rate they mentioned it—the question of retrospection. I will not add to the arguments which have been copiously marshalled on either side during this debate, except to say this, which I do not think has been said before. Parliament has been under criticism in some of the public organs—I think quite unfairly and exaggeratedly under criticism—for the supineness of private Members and their readiness to surrender their convictions to the party Whips. I think that a misconceived criticism. But it would surely have had deplorable repercussions on the Parliamentary system and on its standing if in a matter of this sort there had been an attempt to drive my right hon. and hon. Friends through the Lobbies in violence to their consciences. That seems to me a matter which, there clearly being a nice balance between the arguments, my right hon. Friend was bound to weigh and to take into consideration.

The other matter on dividend stripping was mentioned by my hon. Friend the Member for Crosby. He was apprehensive that the provisions which we have enacted on this occasion might interfere with perfectly legitimate business transactions. The House will remember that the 1955 legislation contained a number of safeguards so that ordinary business transactions, legitimate trading, would not be interfered with. So far as I know, there has been no reason to suppose that those have not been successful. That being so, and the 1955 safeguarding provisions having been applied to the new provisions against dividend stripping, there is no reason to think that the new provisions will, in turn, interfere with ordinary and legitimate trading.

Regarding the Profits Tax the weight of argument, I think, came from the—

Mr. H. Wilson

Before the hon. and learned Gentleman leaves the subject of dividend stripping, will he say whether he thinks that the Governments proposals in this Bill will be adequate to exterminate the practice of dividend stripping? The reason I ask that is that in 1955 one of his predecessors was very confident that the 1955 measures were going to end, as he said, this odious tribe of dividend strippers. Those hopes were falsified, as we warned him they would be. Will the hon. and learned Gentleman say whether he thinks that these measures will effectively end this practice, which I am sure the whole House desires to see ended?

Mr. Simon

I was aware of what was said in 1955 and for that reason I was rather more cautious the other day when asked a similar question by the hon. Member for Sowerby. All I think I can say is this: we have examined this matter exhaustively, as I am sure the right hon. Gentleman will appreciate. Indeed I think some of the possibilities that were closed on the recommittal stage were recondite in the extreme. We have examined it exhaustively and with the best advice that is available to us—and it is good advice, as the right hon. Gentleman knows—and we believe that we have closed every single gap which we can conceive. That is not to say objectively in a pledge that we have closed every gap that might exist or may be found. But we shall be alert to watch the situation with the greatest care, and prompt to act.

I have not seen it myself, but I understand the right hon. Member for Huyton (Mr. H. Wilson) has handed a memorandum to my right hon. Friend—

Mr. H. Wilson

I intend to.

Mr. Simon

That is, perhaps, why I have not seen it. I shall, of course, study it with the greatest care, with the Government's advisers, and take such action as it demands, and I am grateful to the right hon. Gentleman.

Mr. Wilson

Will the hon. and learned Gentleman take it from us that when he sees this memorandum, he will find that, even with existing methods to deal with dividend stripping, a wide range of practices is not covered? I should be out of order were I to outline any of them, but I hope that the hon. and learned Gentleman will study the memorandum.

Mr. Page

Will my hon. and learned Friend say that he will not be bound in the future by those words which he used just now—I think a little loosely—that he would take such action as the memorandum from the right hon. Gentleman demands? We do not know yet what that memorandum demands.

Mr. Simon

I think I said as the situation demands. I meant to.

Mr. Wilson

It is the same thing.

Mr. Page

Oh, no.

Mr. Simon

The hon. Member for Sowerby asked why we had chosen to make this reform in the Profits Tax, when it had been rejected by my right hon. Friend the Lord Privy Seal and his successors. The answer is that the arguments of the Royal Commission were in our view conclusive—the arguments both of the majority and the minority—about the desirability of unifying the tax on general economic and fiscal grounds. The difference, the reason as I understand it why my right hon. Friend's predecessors did not accede to these arguments was that those were years when the main problem facing the Chancellor was that of inflation. This year my right hon. Friend has not attempted further to damp down demand, and the relaxation—quite apart from the overwhelming fiscal merits of the reform—fits in with the Purchase Tax reliefs and the increase in initial allowances against the background of the general economic assessment that my right hon. Friend has made.

The hon. Member for Uxbridge (Mr. Beswick) referred particularly to the taxation of the co-operative societies and the effect upon them that this reform will have. I had the pleasure of receiving a deputation from the co-operative societies which the hon. Gentleman introduced, when the case for the co-operative societies was argued with great cogency, complete fairness and, I need hardly say, complete courtesy. I have always been a strong supporter of the Co-operative Movement and in my present post I certainly recognise its importance to the thrift movement in the community.

The hon. Gentleman asked whether the increase of liability on the co-operative societies was intended by my right hon. Friend. The answer is that he certainly did envisage it. It was one of the matters which my right hon. Friend had to weigh in his assessment of whether he would now reform the Profits Tax as recommended by the Royal Commission. In so doing, of course, he had to weigh the manner in which the reform would operate to the disadvantage of some traders, both private traders and co-operative traders, against the general advantages, and in the end he felt that the advantages far outweighed the difficulties that the reform would cause for some traders.

The hon. Gentleman asked me to give one reason why this reform should be carried out. I could not help calling to mind the scene when the mediaeval king called on the burghers of a city to surrender the keys of the town. The chief burghers came out appropriately dressed in their night-shirts and with halters around their necks, and with a list of ninety-nine reasons why they could not give up the keys. The first reason was that they had lost them, whereupon the king graciously dispensed with the other reasons. I hope that I shall give one reason which will lead the hon. Member to dispense with all the others.

To have left the co-operative societies out would have amounted in this field to unfair discrimination in their favour and against the private traders. They compete with private traders, and it would have meant that the co-operative societies would have been able to place their profits to reserve, in other words, to finance their trading tax free whereas the competing private trader would have to pay taxation on such profits.

Mr. Beswick

Actually, I asked the Financial Secretary, I challenged him, to give one economic or social advantage which followed from the taxation. The reason which he gives of competition with the private trader is based upon a wrong assumption of facts. The private trader does not pay Profits Tax at all. Previously the co-operative societies paid 3 per cent. Profits Tax. They now pay 10 per cent.

Mr. Simon

I was, of course, dealing with the private corporate trader, with whom we are concerned here, and he pays Profits Tax. The individual private trader in appropriate cases pays Surtax. The private corporate trader pays a corporate equivalent to Surtax in his Profits Tax. Therefore, it is true to say that the profits placed to reserve in the case of an ordinary commercial corporate trader would be taxed and those of a co-operative society would be tax free.

However much one would wish to benefit the co-operative societies, and I for one wish them very well and recognise their importance, that seems an unacceptable proposition. What we have done is not, as the hon. Gentleman suggested, to discriminate against or penalise them. On the contrary, we have gone as far as we properly can in allowing the dividends on their share capital to be free of Profits Tax because they approximate to the investments in the various savings movements.

Mr. Page

Would my hon. and learned Friend deal with the question of the statutory undertakers, who fall into the same category, to a certain extent, as co-operative societies?

Mr. Simon

The same arguments apply to the statutory undertakers. When they were debated at considerable length during the Report stage of the Bill, my right hon. Friend took his stand on the recommendation of the Royal Commission, which he fully endorses, that the only fair way to operate a corporate tax like the Profits Tax is to tax impartially the profits, irrespective of their source, of all corporate bodies and without trying to assess the social value of those bodies.

I pass from Profits Tax to Stamp Duty and would refer to a small point asked me by my hon. Friend the Member for Crosby, about the filing of the particulars at Bush House. I am told that the particulars are required by the Valuation Office for their very important work in advising on property valuations for Government purposes and for Estate Duty purposes. This is regarded as essential if the public purse is to be safeguarded.

There is only one other point on the Stamp Duty, although it was not raised in the debate. At an earlier stage, my hon. Friend the Member for Crosby asked whether a conveyance dated between 5th July and 1st August, when stamped on or after the latter date, would qualify for the reduced rate of tax in Clause 30. The answer is that the conveyance must be stamped in accordance with the law in force when it is first executed, that is to say, when it has been signed and sealed by the vendor and delivered to the purchaser. If there is more than one vendor, the conveyance is not executed until that process is completed by all the others. Since the new rates of duty do not come into force until 1st August, a conveyance executed before that date will be liable at the old rate of duty, even though it may be stamped later. The fact that the conveyance may be stamped without penalty within thirty days of execution does not affect that position. I thought it much better to put that on record in view of the fact that some slight misunderstanding arose at an earlier stage.

I hope that the House will acquit me of discourtesy if I have not dealt with all the points that were raised. I will certainly consider them, and so will my right hon. Friend, in the course of the next year.

The Budget was assessed by public opinion to be fiscally a fair one. [An HON. MEMBER: "No."] That was the independent assessment of those who were qualified to judge public opinion. On the economic side, the worst that could be said about it by the hon. Member for Sowerby was that it was not quite in proper balance. Allowing for a certain obliquity of vision that one must expect from the Opposition, I do not think that the Budget comes very badly out of that judgment.

The Bill gives a further remission of the heavy burden of taxation which weighs on the economy. It substantially simplifies and improves our fiscal system. I am most grateful to the House for having improved it and expedited its passage, and I commend it to the House.

1.57 p.m.

Mr. John Rankin (Glasgow, Govan)

The Financial Secretary to the Treasury has referred to the fact that during the debate much good temper has been shown. I assure him that I shall say nothing to disturb that atmosphere. I am aware that I am speaking at a point when a reply cannot be made to me, but I feel sure that what I say on the two or three issues which I am especially anxious to deal with will be noted, and that the hon. and learned Gentleman will put them to his right hon. Friend the Chancellor. I hope that they will bear fruit in due course.

The Chancellor of the Exchequer referred to Clause 2, and seemed diffident about the effect that the reduction in cinema tax had had on those connected with the industry. It is true that the reduction was generally welcomed. There was a criticism that the Chancellor did not go far enough. Oliver is always looking for more and I think that more was essential. We hope the Chancellor is taking note now of what has been happening over the last few months. During the week, I drew the attention of the President of the Board of Trade, who, also, is concerned in this matter, to the slump in admissions to cinemas in the first quarter of this year. There has been a fall of 65 million as compared with the first quarter of last year, and that is something we cannot ignore.

I agree, Mr. Deputy-Speaker, that the decline lies outside the period of change so far as the tax is concerned, but we have to note that the second quarter, when the tax was in operation, revealed the same tendency. The President of the Board of Trade, on Tuesday, told me that the decline, although not so marked, still continues. He went on to make the statement to which I want to draw the attention of the Chancellor, that the Government are not responsible for the change in public taste. It is that change in public taste to which the Chancellor, perhaps, like the President of the Board of Trade, attributes the fall in admissions and that is where the Chancellor's help is required.

If there is a change in the public taste about entertainment—and I think that none of us would deny that—obviously, the techniques of cinema exhibitors have to be adapted to try to meet that change. If they have to do so, they must employ more capital because some of these changes are very expensive indeed. It is at that point that I feel the Chancellor must step in, because he is taking from the industry money that might be ploughed back into it to meet, by improved techniques, this change in public taste. I hope that when the right hon. Gentleman considers again what he ought to do about the industry he will realise that, while the reduction he has given was welcomed, the abolition of the tax is something he must face in his next Budget.

I find this practice of taking away money from parts of our economy where it is needed exemplified in another case, and in many respects a more important case, because it concerns the employment of a great many people in my country. The Chancellor had an opportunity of dealing with it during the passage of this Bill, and I must draw attention again to the fact that he is taking out of the shale oil industry in Scotland £700,000 in tax per year. He is taking that money from the industry when it faces a declining trend in employment. In all probability, as a result of taxation of that nature, he will put the industry out of business altogether. So I again want to direct his attention to the fact that through the Finance Bill he is taking money from the shale industry when he ought to be ploughing more money back into that industry.

There is also a case of injustice which has been dealt with very fully by my hon. Friend the Member for Uxbridge (Mr. Beswick). The Financial Secretary has made a reply on that. I refer to the injustice meted out by the Budget to co-operative societies. The hon. and learned Member is a member of a co-operative society. It must have pained him very deeply indeed to take part in the infliction of a very serious injustice to co-operative societies. He still persists in the view that we can compare a co-operative society with distributive and productive industries in the private sector. We cannot do so because they are fundamentally different.

I presume that it would not be in order to develop that aspect further, but we made it very clear in Committee. So long as that fundamental difference exists in the methods of trading and the methods of applying surpluses, and in what is done with the surpluses accumulated, it is quite impossible to treat organisations like co-operative societies on the same sort of basis as organisations operating within the private sector.

There is a wider case I want to make, and I shall do so briefly. My hon. Friend the Member for Sowerby (Mr. Houghton) referred to the fact that what we wanted in the Budget was greater proof that the Chancellor was prepared to invest more of the nation's money in productive industry. We all want more production and we all recognise that today the Government have control over a greater amount of the gross national income than they ever formerly had. Because they have that control they also have control over the shape and development of industry in a way they never formerly had. Because they have such responsibility, it is the business of the Government to do their best to maintain a stable economic system and also full employment which is a necessary consequence of that system.

I am perfectly sure that the Chancellor and his hon. and learned Friend do not dissent from that view. They want to plough back more money into investment in productive industry. I want to assure the Chancellor that this is the very thing that he is not doing in Scotland. The proof is that in Scotland today 80,000 people are unemployed. They are looking for jobs because the Government, who have such large control over the gross national income, are not using it sufficiently to invest in more productive employment in Scotland. The result is that our average rate of unemployment is now 3.6 per cent. compared with 2 per cent. for the whole United Kingdom.

The hon. and learned Gentleman will recognise that that does not reflect the consumption of the policies his right hon. Friend and he have outlined during proceedings on the Bill. As a Scottish Member, I feel it my duty to draw his attention to the fact that he is not practising in Scotland what he is preaching in the House of Commons. Every newspaper in Scotland today—not merely Socialist newspapers like the Daily Herald but the Glasgow Herald, the organ, if I may say so without offence, of high Toryism in the West of Scotland, and the Scotsman, which, again, is not a Socialist newspaper—are united in saying that if we wish to create parity between employment in Scotland and employment in the rest of the United Kingdom we need more investment in Scotland in the form of at least two new industries.

I hope that the hon. and learned Member is paying deep attention to what I am saying. In some ways, I think that he has Scottish blood in him, and that should help him to underline in his mind the words which I say to him now. If we can see materialising in the near future in Scotland some of that investment about which we have heard so much in the House, perhaps I shall have kindlier thoughts about the Finance Bill that I have at present.

2.12 p.m.

Mr. Robert Edwards (Bilston)

I will not keep the House for more than two minutes, but it seems to me that we should protest when we have the opportunity—we who feel strongly about an injustice in the Finance Bill—so that it shall be noted that a very strong feeling exists in the country and the House arising out of the injustice which has been imposed in the Finance Bill on the great Co-operative movement.

It seems to me a scandal that the Government, which boasts that our economy is expanding and has never been so satisfactorily based as it is today, that our gold and dollar reserves are large, and that everything in the economy is healthy, should relieve big business of taxation amounting to millions of pounds and impose an extra tax on a great social movement like the Co-operative movement.

This case has been stated again and again, but it should continue to be stated that the Finance Bill puts on the Co-operative movement an extra tax of £l,300,000. That money has to be found, in the main, by the hard-working people of this country. We cannot impose an extra burden of £1,300,000 on a movement like the Co-operative movement without doing it great harm.

I believe that this is the beginning of an offensive by the Government against the whole principle of co-operation. This great Socialist movement is built up on the savings of millions of workers and based on non-profit-making principles, and it is a scandal to compare it with ordinary private traders. The Co-operative movement cannot issue bonus shares and in such a way give its surpluses back to the shareholders. It is limited by law. It makes no profits and uses its surplus for the benefit of consumers. To treat it on the same basis as private industry and private trade seems to me completely unjustified.

With my right hon and hon. Friends, I therefore protest against this gross injustice to a great social movement, the Co-operative movement.

Question put and agreed to.

Bill accordingly read the Third time and passed.