FINANCE BILL

HC Deb 28 April 1959 vol 604 cc1106-231

Order for Second Reading read.

3.34 p.m.

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

I beg to move. That the Bill be now read a Second time.

The annual Second Reading of the Finance Bill moved by the Financial Secretary may call to the minds of hon. Members a ceremony which used to take place in ancient Greece. For a year, the chosen victim had lived comfortably at public expense, but inevitably and inexorably the day of expiation approached. When it arrived the ordeal which ensued must have been almost as painful to the onlookers as to the victim. In later centuries, as manners softened. the victim was let down more lightly—literally so, because, as hon. Members will remember, live birds were attached to him to break and ease his fall as he was flung into the sea from the Leucadian Rock, and a rowing boat waited considerately for him below. I can but ask for the same sort of indulgence from the House as, on this day of annual ordeal for mover and audience, I attempt to expound the provisions of the Finance Bill.

Again this year these provisions fall into five main groups. First, there are the measures for reduction of taxation, which are particularly striking and widespread in the Bill: Income Tax, beer duty, Purchase Tax, bus licences and Stamp Duty all reduced, and Corporation Duty abolished. Secondly, there are the measures to encourage investment. Last year, there were initial allowances, and this year, there are the investment allowances.

Thirdly, there is a major project of fiscal reform. In recent years, such reform has mainly been in direct taxation based on the Report of the Royal Commission on the Taxation of Profits and Income. This time, my right hon. Friend has chosen to sweep away the voluminous, costly and chaotic provisions of the beer licence duties and replace them by a code which is simple, easily understood and economical in administration. Fourthly, there are once again measures to counter the shady stratagems of the bond washers and the dividend strippers. Lastly, there are provisions to give relief where the tax code has been found to bear with harshness on the taxpayer.

Clause 1 and the First Schedule, which effect the substantial reduction in the beer duty, Clauses 2, 3 and 4 together with the Second Schedule, which replace the existing liquor licence duties and the club duty by a simple registration licence, and Clause 5, which abolishes monopoly value, are closely associated. Together, they allow the retail price of beer to be reduced by 2d. a pint, equivalent to 48s. a barrel. That the duty is reduced by 43.7d. a barrel only is accounted for by the fact that the cost of the reduction in licence duty and the monopoly value reforms works out at 4s. 5d. a barrel, making 48s. in all.

Clause 1 provides also for the minor adjustments mentioned by my right hon. Friend in his Budget speech, whereby the form of the duty on black beer, a small and specialised product of considerable gravity, has been modernised and the rate reduced correspondingly by 2d. a pint. The Clause is necessarily somewhat long, since it covers the duty on both home produced and imported beer and the drawback rates for each. I do not propose at this stage to comment on it in detail. The new rates of duty for beer and black beer are set out in full in Parts I and II of the First Schedule. I should, perhaps, remind the House that the rates of Customs duty there set out, but not those of Excise duty, are subject to an additional 10d. per 36 gallons whatever the gravity to countervail the duty on imported hops.

I think that it is convenient to consider Clauses 2 to 5 together. They represent a substantial programme of simplification and administrative reform. Let us consider for a moment the system which is being replaced—the elaborate system of duties based on the annual value of the premises—and then contrast it with the new system of flat-rate liquor licence duties set out in Clauses 2 and 3. There are six paragraphs, covering over two pages, in the Fourth Schedule to the Customs and Excise Act, 1952, which lay down how the annual value of premises is to be ascertained. Until now, machinery was necessary to ensure that the Customs and Excise was notified of any changes in the Income Tax value of the premises —for example, on account of improvements—and the licence duty payable by each licensee had to be calculated individually. There were exceedingly complex provisions for relief from duty in a variety of circumstances.

By contrast, under Clauses 2 and 3 the sole reduction from the new flat rates of duty will be in respect of licences held for only part of the year. In effect, the new licences will be registration licences, with flat rates of duty, designed to do little more than cover the cost of administration and taking no account of differences in circumstances between one set of licensed premises and another.

I should emphasise that the changes relate only to the licence duties themselves. The scope of the various licences and the general control exercised by the licensing justices continue unchanged, so that the lower duties will not lead to any automatic increase in the number of public houses.

The arrangements for the proposed new club licence duty are contained in Clause 4. Here again, a flat rate of duty is proposed with proportionate reductions for part year licences, and the responsibility for taking out a licence is laid on the secretary of each registered club. To preserve a fair balance of taxation between competing interests, the rate of duty is £5, the same as is proposed in respect of publicans' licences. Again, it is a more or less nominal registration licence fee which takes no account of the circumstances of individual clubs. The existing duty necessitates a return of purchases of liquor each year, and the duty is assessed at 3d. in the £. Both club secretaries and the Customs and Excise will be glad to be rid of their respective burdens of making and verifying these returns.

Clause 5 deals with the last item of this programme of simplification and modernisation. Under the Licensing Act, 1953, the licensing justices, when they grant a new on-licence, are required to attach a condition preserving to the public the difference between the value that the premises bear when licensed and their value unlicensed. As hon. Members know, that is known as the monopoly value. The assessment of these amounts is not a simple matter. Clause 5 abolishes monopoly value, but preserves the principle that the public and not the individual should benefit from the monopoly constituted by the licence. It does this by converting the charge into an addition to the beer duty. I think that the House will agree that this is far simpler and more satisfactory.

These reforms will result in an administrative saving amounting to 100,000 Civil Service man-hours a year and a reduction of 14 pages in the size of the Statute Book. The licence duties, club duty and monopoly value formerly represented more than one-third of the beer duty. Today, they come to only one-fortieth of it. I do not think that there can be any doubt of the fiscal wisdom as well as the administrative advantage of shifting the yield from them to the commodity.

Finally, I stress the fact, because it is the heart of the matter, that the cost of all these simplifications, £5½ million a year, is not forgone by the Exchequer, but translates into the 4s. 5d. a barrel by which the beer duty reduction falls short of the reduction in the price to the public.

The reduction in the beer duty has been generally welcomed in the House and in the country, but there has been a little misunderstanding in some of the organs of public opinion; and I may, perhaps, be allowed to emphasise why my right hon. Friend has made this proposal. He had four reasons, each of which was sufficient justification.

First, like Sir Stafford Cripps in 1949, he wished to safeguard the long-term revenue from beer. Secondly, a reduction in duty equivalent to 2d. in the price of a pint of beer afforded an opportunity to carry through the valuable administrative reforms to which I have referred. Thirdly, to quote the words of the right hon. Member for Colne Valley (Mr. Glenvil Hall) when he was Financial Secretary in 1949, which again echo Sir Stafford Cripps in his Budget speech: … the cost of beer enters into the cost of-living index figure, and is often a substantial item in the family weekly expenditure."—[OFFICIAL REPORT, 18th May, 1949; Vol. 465, c 441.] And on 22nd June, 1949, he said: … it would help to keep the cost of living steady." —[OFFICIAL REPORT, 22nd June, 1949; Vol. 466, c. 233.] At that time, with the paucity and expense of other goods, beer had nearly twice as much weight in the index as it has today. On the other hand, my right hon. Friend's reduction is twice as large.

Fourthly, it enabled my right hon. Friend to ensure that his fiscal remissions extended palpably to the productive worker—the worker in mine and mill, in factory, forge and field—and not least to those who do not pay Income Tax. As a highly regarded and deeply mourned Member of the party opposite, the late Mr. Ralph Morley, put it in 1948, when, for the second time within a year, the tax on beer was increased: The incidence of that duty will fall almost exclusively on the lowest income groups." — [OFFTCIAL REPORT, 1st June, 1948; Vol. 451, c. 855.] It follows that my right hon. Friend's relief will inure almost exclusively to their benefit.

As the hon. Lady the Member for Leeds, South-East (Miss Bacon) said: I am certain that many miners, steel workers and agricultural labourers would consider that beer, if not an absolute necessity, was, at any rate, an aid to production." —[OFFICIAL REPORT, 8th April, 1948; Vol. 449. c. 399–400.] This, again, fits in with the object and pattern of my right hon. Friend's Budget. I do not think that we should minimise its effect on the happiness and contentment of many people. Half the adult population, 20 million people, drink beer and their average consumption is seven pints a week. [Interruption.] The hon. Gentleman makes disapproving noises, but, after all, it was the substitution of beer for gin which so startlingly reduced the death rate in this country.

All over the country there are well-conducted clubs—and public houses fulfilling the same need—which constitute a very real and valuable part of the traditional fabric of British society. In them a vigorous, racy social life is pursued with that absence of friction which scientists tell us owes much to suitable lubrication. We in this House have the noble words of the Areopagiticareadily on our lips, and rightly so, but it was a later poet who said: Malt does more than Milton can To justify God's ways to man. I commend these Clauses wholeheartedly to the House.

Clause 6 makes some minor changes, mostly reliefs, in the scope of the duty on heavy hydrocarbon oil used as fuel for road vehicles. These are designed to apply the duty more logically and equitably. None of the changes will have any significant effect on the revenue, although they are no doubt matters of importance to the individuals affected. A heavy oil vehicle used solely in, say, a quarry or a large factory has hitherto been included within the scope of the duty if it happens to be of a type normally used on roads, although it plays no part in road transport and may compete with other industrial equipment not so included. Engines used for purposes such as concrete mixing or refrigeration have been included merely because they happen to be mounted on a road vehicle.

Clause 6 removes both of these anomalies, which have assumed growing importance as the number of diesel vehicles has increased. It also adds two items to the categories of vehicles which may use duty-free heavy oil on the grounds that their use on roads is strictly limited. One relates to vehicles used only for certain purposes in the construction or repair of roads and the other to vehicles which use the roads only for short distances in passing from one part of a holding to another. Finally, the Clause corrects a technical flaw which has recently been discovered in the law. It might have been possible to argue that a few specialised vehicles were entitled to use duty-free oil notwithstanding that they were used as goods carriers.

I now come to a few Clauses dealing with certain minor fiscal matters which my right hon. Friend did not consider it necessary to mention in his Budget speech. The first of these is Clause 7, which increases from 525,000 tons to 540,000 tons the maximum annual quota of sugar imported from Colonial Territories at the special preferential rate of duty. This follows from recent arrangements made under the Commonwealth Sugar Agreement and reflects the growth in colonial sugar production.

Clause 8 deals with herrings. Fish meal and oil, which are used extensively for animal feeding stuffs, can be imported into this country free of duty. On the other hand, if herrings are imported for the purpose of conversion into meal and oil, or if they are imported for human consumption but, having failed to find a market, end up in the conversion factory, they are charged import duty at 10 per cent. This puts our conversion factories at a disadvantage with their competitors abroad. The Clause will enable them to compete on equal terms and will, I trust, help to maintain and increase employment in Scotland, where most of the conversion factories are situated.

Clause 9 deals with unlicensed motor vehicles left standing on the public roads. This practice has shown signs of becoming quite extensive. I am told that a police count made a year or so ago suggested that, in the Metropolitan Police District alone, 14,000 unlicensed cars were standing on the roads. The number has almost certainly risen since then. Doubtless the problem exists in other big cities. More than three-quarters of these vehicles are private cars. There is clearly no case for allowing people to make use of the highway for parking purposes, at least without paying the normal Excise duty.

Clause 10 carries out my right hon. Friend's proposal to help the road passenger transport industry by substantially reducing the Excise duty payable on hackney carriages with more than eight seats: in other words, buses and coaches. The new scale will be an initial charge of £12 a year for any vehicle seating more than four passengers, with an additional charge of 10s. for each seat over twenty.

Perhaps I may give a few examples to show how this will work, A small minibus of 12 seats will pay £12 a year instead of £20; a 20-seater bus will pay £12 instead of £36; a 35-seater, which is the average single-deck bus, will pay £19 10s. instead of £61 4s., and a 60-seater, the average size for a double decker, will pay £32 instead of £91. Therefore, as my right hon. Friend stated in his Budget speech, the new scale will reduce the annual duty on buses by about two-thirds.

My right hon Friend was anxious that any help which he could give should take effect as quickly as possible. The Clause therefore provides that the new rate of duty should apply from the day after Budget day, and in the case of licences already taken out before Budget day, the difference between the old and the new rates of duty will be refunded for so long as the licence is valid after the end of March.

This relief should give the bus industry considerable help in maintaining its less remunerative services. I know that the industry would have liked other forms of tax relief as well, but the House is aware of the serious objections which successive Chancellors have seen to such a claim. I do not say that the Clause will solve all the industry's problems—I do not believe that any fiscal measure could do that—but by reducing the overhead costs of the industry, at a cost to the Exchequer of over £6 million this year and over £3½million annually thereafter, we are giving immediate and practical help to this industry.

The last of this group of Clauses dealing with vehicle Excise duties is Clause 11. This covers a point which has been brought to our attention on several occasions by hon. Members with agricultural constituents and also by the National Farmers' Union. A farm tractor enjoys a special low rate of licence duty of £2 a year and a tractor so licensed may, with certain limits, haul agricultural goods along the highway on a trailer. In recent years, however, a device has been developed of fitting tractors with a removable container, sometimes called a transport box, for carrying farm produce or implements, such as a buck rake for lifting and carrying hay and straw and suchlike goods.

At present, the tractor which carries such goods (as opposed to towing them) is liable to tax at the considerably higher rate of duty applied to goods vehicles. My right hon. Friend accepts that this is unreasonable; but any relief must not allow vehicles that are really small vans or lorries to masquerade as tractors. For this reason, and also because the use of these vehicles as load carriers must be restricted in the interests of road safety, the Clause lays down limits both to the size of the appliance in question and the distance from its base over which it may operate.

Sir James Duncan (South Angus)

Why is there a five-mile limit for a tractor with a transport box but a 15-mile limit for a tractor with a trailer? This does not seem to me to make sense.

Mr. Simon

Perhaps that is a matter we can clear up in Committee. I will certainly take note of it.

I now come to Part II of the Bill, on which I can be brief. Its two Clauses give effect to my right hon. Friend's Purchase Tax proposals. Clause 12 reduces the former 60 per cent. rate to 50 per cent., the 30 per cent. rate to 25 per cent. and the 15 per cent. rate to 12½ per cent. Clause 13 relieves replacement television tubes and goods vehicle chassis from tax entirely. Last year my right hon. Friend reformed the structure of this tax. It has stood up well to a year's practical work; and this year my right hon. Friend has been able to propose substantial changes, to the value of over £80 million in a full year, in two simple and self-explanatory Clauses.

I turn, therefore, to the Inland Revenue Clauses in Part III of the Bill. Clause 14 deals with the reduction in the standard rate. It imposes Income Tax for the year 1959–60 at the standard rate of 7s. 9d. in the £. The Clause also imposes the charge of Surtax for 1959–60—that is, the Surtax which will be payable in respect of this year's income on 1st January, 1961—at the same rates as were in force for 1957–58 and are continued for 1958–59 by Clause 15. The object of this is to let Surtax payers know the extent to which their total tax bill will be affected, and it follows recent practice when the standard rate of Income Tax has been altered.

The proviso enables deduction of tax under P.A.Y.E. to continue to be made on the basis of the present rates until the new tax tables can be printed and distributed. Effect will be given to the new rates on the first pay day on or after 8th June, when an adjustment will be made retrospectively to the beginning of the financial year.

Clause 16 (2) provides for a reduction of 6d. in each of the reduced rates of Income Tax. The effect will be that the first £60 of taxable income will be charged at ls. 9d. in the £, instead of 2s. 3d., the next £150 will be charged at 4s. 3d., instead of 4s. 9d., the next £150 will be charged at 6s. 3d., instead of 6s. 9d., and thereafter the standard rate will apply. It is really quite simple.

Mr. Gerald Nabarro (Kidderminster)

Is my hon. and learned Friend speaking on behalf of the Inland Revenue when he says that it is quite simple, or is he taking my view that hundreds of thousands of unpaid tax collectors—the employers—will find it excessively difficult?

Mr. Simon

I am assured that they have ready computers and ready reckoners which make the task quite a simple one.

The remaining subsections of Clause 16 will make improvements, in sympathy with the reduction in rates, in the marginal provisions associated with the age exemption, the age allowance and the small income allowance. In all three cases, the relief stops at a fixed income limit; but, to avoid the sharp jump in liability which would occur if the tax were charged in the ordinary way as soon as the total income exceeded the relevant limit, there are marginal provisions.

These restrict the tax bill, in the case of age exemption, to a fraction of the excess over the limit; or, in the case of the other two reliefs, to what the tax would have been if the income had been equal to the limit, plus a fraction of the excess of the income over that limit. The effect of these marginal provisions as they stand is that a reduction in the standard and reduced rates would give no benefit to some taxpayers with incomes in the marginal bands. My right hon. Friend has, therefore, decided to cut each of these marginal fractions by one-twentieth; that is, by ls. in the £.

Clause 17 gives effect to my right hon. Friend's proposal with regard to investment and initial allowances. When investment allowances ceased to be granted in 1956, what happened was that they were, with certain exceptions, statutorily suspended. Consequently, the main provision of Clause 17, which is to be found in subsection (1), is a removal of that suspension. But, since the details of the new scheme are more favourable in some respects than those of the scheme which was in force between 1954 and 1956, other provisions are needed.

Subsections (1) and (2) of Clause 17 provide, in effect, that as regards capital expenditure becoming due and payable after Budget day, expenditure on new machinery or plant will rank for a 20 per cent. investment allowance and a 10 per cent. initial allowance; expenditure on the construction of industrial buildings will rank for an investment allowance of 10 per cent. and an initial allowance of 5 per cent; and expenditure on the construction of mining works will rank for an investment allowance of 20 per cent. and an initial allowance of 20 per cent.

Since Clause 17 removes a suspension upon the grant of investment allowances, it brings back into operation provisions that applied to investment allowances in 1954. These include the provisions for a 10 per cent. investment allowance for new farm buildings, and for a 20 per cent. investment allowance for new plant and machinery dealt with on the renewals basis.

As in 1954, there will be excluded from the investment allowances system expenditure on ordinary passenger motor cars and expenditure on second-hand plant and machinery. Such expenditure will continue to rank for a 30 per cent. initial allowance. The provisions of the 1954 Act designed to prevent the avoidance of tax by way of investment allowances will continue in operation, with certain necessary technical modifications which are to be found in the Fourth Schedule.

Clauses 18 to 21 are designed to protect the Inland Revenue against the inroads of persons who practise a form of the device known as bond washing.

Mr. John Diamond (Gloucester)

I am sorry to interrupt the hon. and learned Gentleman, but I was hoping that he would say something on the all-important fear which so many members of the business community have about the premature withdrawal of investment allowances. Will he not say anything about that, or give some assurance to the business community that if they start schemes now which do not come to fruition for, say, a year or two, the Chancellor will not carry out the promise which he made during his Budget speech to withdraw the investment allowances unless the new expenditure is incurred immediately?

Mr. Simon

I am sure that the hon. Gentleman will acquit me of any discourtesy if I do not answer that in my review of the provisions of the Finance Bill. I dealt with that matter myself in my speech in the Budget debate, and my right hon. Friend may be saying something, now that he has heard what the hon. Gentleman has said, when he sums up the debate.

I was dealing with the bond washing provisions of Clauses 18 to 21. The House is, unhappily, becoming familiar with these methods of raiding the Inland Revenue, but today I ought to explain the latest form. This is the purchase of securities, mainly British Government securities, cum-dividend—that is, in expectation of interest or dividend shortly to be paid—and their sale soon after, exdividend—that is, without the right to the dividend or interest which has, in the meantime, been paid. The dividend, which is normally received under deduction of tax, is taken by the operator who bought and sold. Other things being equal, the price of the security cum-dividend will be higher than the price ex-dividend, by reason of the fact that the former buys the right to receive the dividend or interest.

There are three main classes of person who can benefit from this situation. The first are financial dealing concerns. In their case, the difference between the price at which they buy cum-dividend and the lower price at which they sell ex-dividend represents in law a trading loss; and no account can be taken of the fact that the gap between the two prices may be virtually bridged by the net dividend. This purely technical loss is available for the relief by repayment of the tax deducted from the dividend or by set-off against other profits or income. Financial dealing companies have been formed deliberately to exploit this device; and I know that the House will agree that the operations of those who practice it must be stopped.

Secondly, benefits can be obtained from the device by bodies such as charities or superannuation funds that are exempt from Income Tax, since they can obtain repayment of tax on the "washed" dividend. Thirdly, the device could be practised by ordinary trading concerns which had losses available for relief. They could obtain "washed" dividends in order to secure the repayment of the tax deducted from those dividends against their losses. The Clauses deal with these three types of case.

Clause 18 defines the field of review as cases where there was a purchase cum-dividend and a sale ex-dividend on or after Budget day. The provisions will apply automatically if the time which elapsed between the purchase cum-dividend and the sale ex-dividend did not exceed a month. We believe that to be sufficient to deal with the ordinary type of case which we have in mind, but to guard against artificial transactions the Clauses will also apply where the time between the purchase cum-dividend and the sale ex-dividend exceeds a month but is not more than six months, if the purchase or sale was effected at prices different from the current market price, or if the sale was a prearranged transaction. These conditions are laid down in Clause18, which also contains some necessary technical provisions.

Clause 19 and the Sixth Schedule provide the remedy in the case of financial dealing concerns. Shortly, it provides that, where one of the transactions I have mentioned is carried out by a dealing concern, so much of the purchase price as can be taken on the basis of day by day accrual to represent accrued dividend is to be disregarded in computing the dealer's profits or losses. Purchase cum and sale ex-dividend, as the House is well aware, can constitute legitimate business which we have no desire to harm. Clause 19 (2) therefore proposes to exclude from the legislation transactions carried out in the ordinary course of their business by bona fide dealers on stock exchanges or bona fide discount houses.

Clause 20 provides a different remedy for bodies which are exempt from Income Tax—that is the second class I dealt with —namely, that the exemption from tax which these bodies enjoy shall not extend to that part of the dividend which had accrued when the securities in question were purchased.

Clause 21 provides a remedy in cases where bond washing might be carried out so as to secure an unjustified tax relief in respect of a trading loss. Here again, the amount of dividend accrued at the date of purchase and the tax on it will be left out of account for tax purposes. The Clause also contains provisions similar to those in last year's Finance Bill dealing with dividend stripping, to block avoidance by bond washing transactions through intermediaries.

Mr. Eric Fletcher (Islington, East)

Will the hon. and learned Gentleman be good enough to say whether he thinks that the Clauses dealing with bond washing and dividend stripping will finally check bond washing, or does he anticipate that next year further Clauses will be required to stop loopholes subsequently discovered?

Mr. Simon

I cannot say more than I said last year. namely, that we have blocked all the methods which we know of or can envisage. I certainly would not say that ways may not be found round this, or any conceivable, legislation.

Mr. Harold Wilson (Huyton)

Before the hon. and learned Gentleman leaves bond washing, may I ask whether he would recall that we raised the question of bond washing at some length on the Second Reading of the Finance (No. 2) Bill on 9th May, 1956, and that since that time we have been told by the Government that bond washing could be dealt with, first, I think, by Section 12 of the 1957 Act, and, secondly, when new methods were worked out and further measures taken, quite helpfully, by the Stock Exchange Council, in August, 1957, I think? Can he explain to what extent those two stops are now ineffective and why they are ineffective?

Mr. Simon

I think that they fit together. The Stock Exchange provisions were effective to stop the then existing methods of bond washing. The method I have described today is a way round those provisions contained in the Stock Exchange rules. It is for that reason that we have thought it right and necessary to bring in these provisions.

I was about to deal with Clause 22, which gives statutory effect to an agreement we have made with the Government of the Irish Republic to stop dividend stripping of companies in either country by a concern resident in the other country.

Part IV of the Bill deals with stamp duties. Clause 23 gives effect to my right hon. Friend's proposal to abolish the present stamp duties on sea insurance policies and to substitute a fixed duty of 6d. This, in fact, restores the duty to the level at which it stood when sea policies were first made subject to duty in 1694. It will remove an obstacle to the overseas business of the marine insurance market, and it will also give some benefit to our shipping industry and to shippers.

Clause 24 abolishes the Corporation Duty, which is technically a Stamp Duty though, in fact, it is not collected by means of stamps. The duty was imposed in 1885 expressly to compensate the revenue for non-liability to death duty of property held by bodies corporate and unincorporate which was incapable of passing on death. It was not a tax on trade or business profits, but on the annual income from property.

Because of the very wide scope of the exemptions the incidence of the duty is arbitrary and its yield has never, since the beginning, I think, come up to expectations. Even now, after seventy years, it is only about £150,000 a year, which was the figure originally estimated for 1886-87. The number of assessments made annually is about 3,500, so that the duty has a very narrow base. I am sure that the House will welcome the end of this tiresome, unremunerative tax.

I now come to the fifth and last part of the Bill. Clause 25 provides for the increases announced by my right hon. Friend in the amounts which may be deducted for Profits Tax purposes in respect of the remuneration of the directors of director-controlled companies. Whereas the present scale starts with a minimum allowance of £2,500 a year, subsection (1) substitutes £3,000. If there are two full-time working directors, the allowable amount is at present £4,000 and the subsection substitutes £5,000. For three or four such directors the new figures are £7,000 and £9,000 respectively instead of £5,500 and £7,000.

Clause 26 deals with Estate Duty on policies of assurance which the assured gave away during his lifetime. The House will recall the case of in re Hodge, which drew attention to the unsatisfactory state of the law on this subject. It was there held that Estate Duty was payable on a father's death on the full value of a policy which he had given to his son, although the policy had become the absolute property of the son more than ten years before and was by then fully paid up. Such, a rule could not be justified; and my right hon. Friend authorised me to announce an extra statutory concession last year. That was pending a review of the whole treatment of gifts of policies. In the result, as my right hon. Friend explained in his Budget statement, it is proposed that gifts of policies of assurance should be treated like gifts of any other property.

Broadly speaking, the effect will be that a policy, whether it provides for payment of a lump sum or an annuity or other benefit, will not be liable for duty if it was wholly given away more than five years before the death of the assured, provided he paid no premiums within the five years. Subsection (2) deals with cases where premiums are paid on a policy which is the subject of a gift. In effect, it secures that if the assured paid premiums within five years of his death, then a proportionate part of the policy only will be liable to duty.

Clause 27 relates to a matter which the House formerly delighted to debate at length in the early hours of the morning and, therefore, will, I think, require little explanation from me. It extends for a further twelve months, until 31st August, 1960, the arrangements originally introduced in the Finance Act, 1956, for financing the nationalised electricity, gas and transport undertakings by direct advances from the Exchequer. The Clause also increases by £550 million the limit of advances which can be made in that way.

The House has given me considerable indulgence, which I asked for at the beginning, and I am very grateful. But I ought, I suppose, before I conclude, to indicate where the main contention is likely over this Finance Bill. I confess that I have some difficulty in doing so. The Opposition did not raise any voice against the Budget Resolutions and agreed to the provisional collection of taxes on the basis proposed by my right hon. Friend; and it would obviously be chaotic to make any change now. Nevertheless, there remains the little matter of how the Opposition propose to pay for the measures to which they attach priority.

In the Budget debate I ventured to point out that the Opposition did not suggest that more should be borrowed this year. Thus, they could not have both my right hon. Friend's tax remissions and their own proposals. In particular, I challenged them to vote honestly and straight against the reduction in Income Tax, recognising that they could not have both that and the 10s. increase in National Insurance benefits financed from the Exchequer.

At that point the right hon. Member for Huyton (Mr. H. Wilson) intervened and said that that antithesis was false. He proposed that the Income Tax reduction should not apply to companies, that there should be a real drive against tax avoidance, that the Entertainments Duty should be balanced against the profits of the commercial television companies and that the Purchase Tax should be recast on the lines which he had suggested. He concluded: … it adds up to a perfectly feasible figure." —[OFFICIAL REPORT, 13th April, 1959; Vol. 603, c. 674.] I think that the right hon. Gentleman must have been rattled to have made that intervention. His proposals for Purchase Tax would, in fact, cost the Exchequer at least as much as my right hon. Friend's proposals. Again, the commercial television companies already pay Income Tax and Profits Tax, and nobody has suggested that a special tax should be put on them.

The most astonishing proposal was the proposal that the Income Tax remissions should not extend to companies. This made complete nonsense of the contention that investment rather than consumption should be favoured in the tax remissions. I ventured to point out at the time that this would not do, and right hon. Gentlemen opposite evidently agreed with me, because when the right hon. Member for Smethwick (Mr. Gordon Walker) spoke he made quite a different set of proposals. The business about Purchase Tax was quietly and sensibly forgotten, as was the idea about a further tax on television.

The right hon. Member for Smethwick suggested quite a different set of proposals— taking 1d. only off beer, which would yield £20 million, and taking 3d. less off the standard rate of Income Tax. which would cost another £40 million.

Mr. Gordon Walker (Smethwick)

I never said that.

Mr. Simon

The right hon. Gentleman certainly said that. I have verified these references. He would still have withheld the relief from companies, but he was wrong in thinking that it would have yielded as much as £63 million. With the cut in the standard rate which he proposed, the figure would be £40 million.

Mr. Gordon Walker

I assure the hon. and learned Member that I have never proposed that change in the standard rate of Income Tax. I said that the Income Tax concession should not be extended to companies, but I did not say that there should be a smaller reduction in the standard rate.

Mr. Simon

I have sent for a copy of HANSARD. The figure with the cut in the standard rate, which I repeat he had proposed, was £40 million. That again indicates that right hon. Gentlemen opposite had given no thought to the problem of how the increase in pensions which they demanded was to be paid for.

The right hon. Member for Smethwick claimed that the gap should be bridged by a capital gains tax. The gap is about £100 million. Had he and his right hon. Friends given any thought to the matter they would have realised not only that a capital gains tax would not produce regularly anything like £100 million a year, but also, and far more important, that a capital gains tax produces nothing at all—not a penny—for the first two years. Even with 1d. less off beer and 3d. less off Income Tax, and with companies still taxed at the present rate, the right hon. Gentleman has suggested where money might be found to pay for only half of the increased pensions which the right hon. Member for Blyth (Mr. Robens) specifically demanded.

My right hon. Friend the Chancellor has been good enough to hand me the relevant passage in HANSARD. I will read what the right hon. Gentleman said.

Mr. Gordon Walker

Which column?

Mr. Simon

It is column 760. It reads: This is a cheap attempt to set the benefits of the Chancellor's reliefs against the old-age pension. Otherwise, it has no meaning at all. I would answer them by saying that if there were the slightest will to do this, a way could be found. Obviously, he meant to suggest a way, and he continued: Most beer drinkers, as been said on both sides of the Committee, would be willing to forgo part of their remission if they felt that the old-age pensioners would benefit. The right hon. Gentleman then quoted my hon. Friend the Member for Louth (Mr. Osborne) as saying that he would not only have been in favour of taking only 1d. off beer but of 3d. less off the Income Tax…

Mr. Gordon Walker

That is what was said by the hon. Member for Louth (Mr. Osborne).

Mr. Simon

Why should the right hon. Gentleman have quoted my hon. Friend the Member for Louth unless he, too, were suggesting that that was a way to bridge the gap? Even if that were not so, the right hon. Gentleman still has another £40 million to find.

Mr. Gordon Walker

I hope that the hon. and learned Gentleman will apologise. I quoted the hon. Member for Louth, pointing out that he had gone even further than I went in these suggestions. I think that it is extremely wrong to try to twist a reference of that kind especially as, if the hon. and learned Members looks at the previous column of HANSARD, he will find set out properly and fully the suggestions which I made. There is no mention of a reduction in the concession on the standard rate of Income Tax. To attribute to me what his hon. Friend the Member for Louth said is improper. He should attack his hon. Friend, not me.

Mr. Simon

I think that anybody who heard the right hon. Gentleman was left in no doubt at all that he was suggesting a way of bridging the gap; but, if not, it merely means that he has another £40 million to find. It is as simple as that.

The right hon. Gentleman went on to say: If only Id. were taken off beer that would yield £20 million, but even if that were not done much could be done if the Chancellor had not extended Income Tax reliefs to companies. That would have given us £63 million, and if he had imposed a capital gains tax, as he should have done, the two together would have given enough for a very favourable rise in the old-age pension."—[OFFICIAL REPORT, 13th April, 1959; Vol. 603, c. 760–1.] All we have, then, is £20 million off the beer tax, if the right hon. Gentleman says that he did not mean to imply anything else. The remaining £180 million has to be bridged by a capital gains tax which would produce nothing this year or next year.

Mr. H. Wilson

The hon. and learned Gentleman has quoted my intervention. Being an intervention, there was obviously not time to develop the point in full. Will he tell us why he has missed out of his "midnight oil" calculation my reference to tax avoidance? We are becoming used to the Chancellor and the Financial Secretary telling us year by year of their failure to deal even with dividend stripping. Why did the hon. and learned Gentleman not deal with tax avoidance in adding up what we think should have been obtained to make the increase in pensions possible?

Mr. Simon

The right hon. Gentleman, I am sure unintentionally, does me an injustice.

Mr. Wilson

The hon. and learned Gentleman quoted my reference to tax avoidance and then produoed a table which he must have prepared in the long watches of the night. He found a gap in that table of £180 million. Why did he make no allowance in the table for the results of a drive against tax avoidance?

Mr. Simon

Because I think that it is fantastic to suggest that a drive against tax avoidance could produce £180 million in this year, or in a full year, or anything like that amount. It is fantastic to suggest that it would produce £100 million. or whatever figure similar to that which the right hon. Gentleman suggests. I say that if the retirement pensioner has to rely on that sort of finance he will have a very sorry time if he ever has to rely on pledges made to him by right hon. Gentlemen opposite. The right hon. Gentleman now has a third opportunity to explain how he would finance this increase in old-age pensions.

4.30 p.m.

Mr. Gordon Walker (Smethwick)

The Finance Bill was awaited with unwonted interest in quarters which are not ordinarily very closely concerned with it. This novel curiosity was caused not by concern about the contents of the Bill, but about its physical dimensions—how many inches thick, how many Clauses and how many pages it contained—because these were thought to be a pointer to the possible date of a General Election.

This is a long and complex Bill and it has been said that it is an obstacle to an early General Election, but if the Finance Bill stands in any way in the light of an early General Election that must not be attributed to the Opposition. We certainly want to study it very closely and to improve it, but we should be ready to expedite the passage of the Bill if, thereby, we could have an early General Election. In that case, one good—the need to scrutinise and improve the Bill —would give way to a greater good, that of getting rid of the Government. I make a clear offer that we will co-operate to get the Bill through at any speed necessary to make an early General Election possible. If this offer is not accepted and if the Session takes its normal course, then normal considerations must apply and we shall have to give very close, careful and detailed consideration to this long and involved Bill.

I should like to thank the Financial Secretary for the first part of his remarks and for his very patient, lucid and pertinacious exposition of the Bill. He threw light in dark corners, although I think that he will admit that some are still obscure and that he did nothing—and for this I do not blame him, because it is not his job—to remove from the Bill its bad features. His speech will help us a great deal, particularly in Committee, and we are grateful to him for it, but I am sorry that he made that tricky attempt towards the end of his speech to attribute to me something which I neither intended to say nor, in fact, said. I think that on reconsideration, when he looks it all up again, he will regret what he said, which was unworthy of the high standards which he sets himself, and that he will withdraw the charge which he made against me, or, rather, the attribution which he made to me.

I should like to do rather better what the hon. and learned Gentleman took it upon himself to do on our behalf—to point out the matters of controversy in the Bill. I will deal broadly with the main features of the Bill. Let me start with Part II, the Purchase Tax, which the hon. and learned Member rather skipped over. He dealt with that part of the Bill rather more lightly than other parts. In our view the Chancellor has not chosen the best way to distribute the reliefs which he felt able to give in Purchase Tax. Characteristically of the Bill and the Budget, the larger benefits have gone to those who are better off.

Despite what the Chancellor said last year, it also looks as though he is moving towards what is loosely, but, I agree, wrongly, called a sales tax, by which we mean a Purchase Tax at a low rate over a very wide range of goods in common use. We certainly oppose that, and we oppose the move towards it. We oppose that sort of tax, which we regarded as the most regressive kind of indirect tax that one can find. It violates all the good principles of taxation in that it falls most heavily on those least able to bear the burden. So far from moving in that direction, we should have preferred to have seen the whole 5 per cent. category swept away altogether.

The Finance Bill and the Money Resolution are so tightly drawn that it will not be possible for details of Purchase Tax to be debated and it will be difficult, if not impossible—I think impossible—to find ways of amending the Purchase Tax in detail. I am sure, therefore, that my hon. Friends will seize every opportunity, including this debate, to raise aspects of Purchase Tax which concern their constituents.

I should like to take this opportunity to raise an issue which concerns my own and neighbouring constituencies —the Purchase Tax on bicycles. This is an important export industry which is meeting extremely heavy competition from abroad owing to the industrialisation of previously backward countries. This competition is the worse because there is a shrinking home market which is due in considerable measure to the still high rate of Purchase Tax which bicycles have to bear. This is leading to redundancy and laying off, which is causing a great deal of human misery, certainly in the Midlands and in and around my constituency. People are being thrown out of work after they have been twenty or thirty years in the same factory and after they have acquired highly specialist skills which it is not easy for them to adapt to other uses. The 5 per cent. reduction which bicycles got is so small that it is no help to this very hard-hit industry. There is a very strong case for putting bicycles into a lower category or, better still, exempting them altogether.

There is one thing in the field of Purchase Tax which the Chancellor should have felt morally bound to do, and that is to exempt pots and pans and household goods from tax. They were brought under charge at 30 per cent. in October, 1955. The tax was levied then to raise money because the Chancellor was hard up. Now the Chancellor has reliefs to grant, considerable reliefs in the field of Purchase Tax, and it is not good enough to reduce the rate on pots and pans and household goods to 12½ per cent., the rate they are mainly bearing now. The Chancellor should take the tax off and revert to the pre-October, 1955, position when practically all of them were free of tax.

These duties were levied in his post-Election Budget by the Lord Privy Seal to finance the Income Tax reliefs given in his pre-Election Budget. That was part of a long process, which has been going on ever since the present Government have been in power, of putting charges on the people at large in order to give benefits to Income Tax payers, particularly those at the higher levels. That is carried still further in this Bill in the provisions for Income Tax in Part III. They are reactionary and unjust. The reliefs on personal Income Tax are concentrated upon a handful of people who are already rich enough. The simple and stark fact about the effect of the Clauses dealing with Income Tax is that 1 per cent. of Income Tax payers will receive 20 per cent. of the reliefs. That is what those Clauses boil down to.

What is very extraordinary about the Income Tax provisions of the Bill—this has been pointed out previously—is that those with unearned income derive greater benefit than those with earned income and that the fewer children one has the better off one is as regards the reliefs given by the Chancellor. It is argued—I suppose that the argument will be repeated—that this is a consequence of reducing the standard rate. That is no argument at all. There is no law of nature which says that this is the only way in which one can reduce Income Tax. There is an easy remedy, and that is to put up, at the same time as the standard rate is altered, the personal and other allowances.

It is also argued, very hard-heartedly —I am not sure that it was not argued by the Chancellor, but perhaps it was the Financial Secretary—that those with earned income and those with families did better last time and, therefore, those with unearned income and those without families must do better this time. It is an extraordinary argument. It should never be the case in any year that there is a discrimination against families and against earned income, yet the Chancellor has done those two things on this occasion.

I want now to say a word about the anti-avoidance measures, about which the hon. and learned Gentleman rightly said we are getting sick of hearing. We welcome the two provisions, but we have learnt by bitter experience not to take them too much at their face value. When telling us in his Budget speech about his intentions in regard to dividend-stripping, the Chancellor used a very diffident tone, very different from the tone adopted in his Budget last year about the same subject. The Government's antics over dividend-stripping over the last few years have been so discreditable that they ought to be brought together and put on the record in one place.

The story started in the Finance (No. 2) Bill, 1955, when the present Minister of Housing and Local Government, then Financial Secretary to the Treasury, said: The Bill will catch and defeat every dividend-stripping operation…the dividendstripper will be out of business…" —[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1666.] Those were brave words. His words were even braver during the Third Reading of the Bill when the right hon. Gentleman strengthened his remarks by stating explicitly that they were uttered on the authority of the Chancellor. He said: …if clever people should discover ways and means of getting round this legislation, which is squarely directed against dividend stripping, the Government will not hesitate to stop any such loophole by further legislation, and to make such legislation retrospective. "— [OFFICIAL REPORT, 13th December, 1955; Vol. 547, c. 1022.] That was a categorical, unequivocal pledge. It was accepted by the Chancellor as a categorical, unequivocal pledge when he opened his Budget last year. In one short and clear and, as we then thought, courageous sentence, he said: Accordingly, the provisions I now propose will be retrospective to 26th October, 1955 …" —[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 61.] But his hon. Friends were so moved, almost to tears, at the plight of dividend strippers being themselves stripped of their ill-gotten gains that they brought pressure to bear on him and he collapsed and very humbly ate his previous brave words.

This is a disreputable record which makes us very doubtful about how far the new measures will be effective. We think that very soon people will begin to find other ways round the law—we should not be surprised if they have not already found other ways round—and the story will go on.

I turn now from dividend-stripping to bondwashing, an old trick which we had been told had been stopped. This is the device of buying cum-dividend and selling ex-dividend. This is possible because we allow tax-free capital profits. We put a premium upon the artificial turning of income into capital gains. This is the root of all the bondwashing devices. A whole range of these devices would be stopped simply and cleanly by a capital gains tax. These transactions would not then become illegal, but would bear their proper tax. This is the right way to deal with the problem. The hon. and learned Gentleman was right in what he said. The device is also used for proper ends. One does not want to have to stop proper, decent activities because of the tax dodgers.

Mr. Simon

I do not understand the right hon. Gentleman when he says that this could not continue if there was a capital gains tax. The essence of these operations is an artificial capital loss, not a capital gain.

Mr. Gordon Walker

It is an artificial income loss. It is playing about with the difference between income and a capital gain or an income loss and a capital loss. It is trying to turn what is really an income into a capital transaction from the point of view of Income Tax law. We have allowed this to happen, but if we had had a capital gains tax nobody would have started bondwashing.

The Government are very feeble and complacent about the whole matter of tax avoidance. I thought that the hon. and learned Gentleman was rather defeatist, when one of my hon. Friends interrupted him, about the capacity of the new Clauses to prevent new tax avoidance devices. The attitude of the Government plays into the hands of the tax dodgers who will always know that the Government will not catch up with them for a year or two years. That gives them their opening; it plays into the hands of the cohorts of highly paid advisers who think up all these schemes and make a very nice income out of them.

There is only one effective way to deal with this matter which avoids retrospection, which we do not want, and that is the way that has been suggested by my right hon. Friend the Member for Huyton (Mr. H. Wilson), myself and others. The method is to take powers promptly to prevent new devices of tax evasion by an Order which should be current for one year and should lapse unless embodied in a Finance Bill or other legislation by Parliament. That would enable us to stop the run that the tax dodgers get before the Government catch up with them. If the Government are always to do it afterwards in a Finance Bill, the tax dodgers will always get a run. They are getting a run now on reversionary trusts. If the Government should win the General Election, they will bring forward a provision to stop it two or three years from now in a Finance Bill after big profits will have been made at the taxpayers' expense.

I want to say a word about things which are not in the Finance Bill, but ought to be in it. I will not talk about the old-age pensioners. The Government's sins of omission were trenchantly exposed in our debate last week.

Mr. Nabarro

A great flop.

Mr. Gordon Walker

Is the hon. Member for Kidderminster (Mr. Nabarro) going to speak in the debate?

Mr. Nabarro

I hope so.

Mr. Gordon Walker

Then his speech will no doubt be a greater flop.

One glaring omission on the part of the Government is the failure to do anything about the cinema tax. It is a bad tax, falling on a single industry and one which is in decline. It is a curious tax which falls even when a loss is being made. It is rather as though we had not only a Profits Tax but also a losses tax on companies. We put a tax on cinemas even if they are losing. It is an extraordinarily bad tax which is now hurting the industry very unfairly.

There is another omission of great importance. Nothing extra has been done in the Budget or in the Finance Bill to attract or direct new industries to the pockets of heavy unemployment. This is particularly startling in connection with the Government's new cotton plan, which is a plan for restriction and for causing redundancy. There is no provision at all and no supplementary provision for alternative expansion which would provide new employment. Without this the Government's scheme is a very dangerous one.

There are in the Finance Bill what I might call unwritten clauses, clauses which are presupposed by the Bill and without which the Bill would not be possible. One is in respect of the increase in prescription charges two years ago, imposed by the Prime Minister when he was Chancellor. That was done in a period of economic stringency to raise money. Now there is money to spare, and the removal of those charges should be a first priority for all of us in all parts of the House, and it should have been taken as a first priority by the Chancellor. It is characteristic of the Chancellor that he is keeping on charges which fall with extreme severity on the poorest and on the most sick in order to distribute reliefs which go very largely to Income Tax and Surtax payers.

Another unwritten clause relates to the increase twelve months ago in National Insurance contributions. It was a flat poll tax, raising £111 million in a year, on employees, again falling heaviest on the poorest. I have worked out the combined effect of the increase in the National Insurance contribution a year ago and of the relief in Income Tax in the Finance Bill for a couple with two children, one under 11 and one over 11. I have worked it out for three income levels. Those earning £12 a week are is. 7d. a week worse off as a result of the net effect of these two things. Those earning £15 a week are 5d. a week worse off. Those earning £40 a week are 13s. 3d. a week better off. That is the net effect of those two operations taken together.

If we take the whole of this year together, of which the Budget and the Finance Bill are a culmination, the result of the Government's fiscal policy has been a deliberate major redistribution of income from those who can least afford it to the richest in the community. This is typical of the social injustice of the Budget embodied in this Finance Bill—social injustice which we will do our best to remedy in the Committee stage upon which we are soon to enter.

4.50 p.m.

Sir Alexander Spearman (Scarborough and Whitby)

The Budget proposals set out in the Finance Bill have aroused less substantial criticism than any Budget I can remember in peacetime. Even the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) has not made use of his vivid imagination but has rather displayed his undoubted wit than his intelligence in his criticisms.

As far as I can remember, there has been no suggestion that this Budget will lead to a disastrous inflation or to heavy unemployment. Of course, there have been some doubts expressed about the extent of the surplus that my right hon. Friend has chosen to retain, varied by some anxiety about the amount of money he has committed himself to borrow, and, of course, there have been inevitable criticisms of the direction in which the reliefs have been given. It is on these points that I will make a few comments.

I do not believe that the extent to which the Chancellor of the Exchequer balances expenditure with revenue is very important. I can easily imagine a state of affairs where there was a substantial Budget surplus and a great measure of inflation; in fact, that happened on more than one occasion during the time of the Socialist Government. The balance which is vital is between the amount that people are likely to spend and the amount of goods available for them to buy, and if that balance is not retained then we have either inflation or mass unemployment.

I think, therefore, that it is the prime job of the Chancellor to get that balance either by curbing expenditure—not merely Government expenditure but all our expenditure—or by releasing it. That is not an easy balance to estimate, even for my right hon. Friend with all his official advisers. For those of us who have no access to official information it is a very hazardous balance to estimate, but I have ventured to make my guess and I would say that my right hon. Friend has got it just about right. Very hesitatingly and tentatively I will give the House the figures on which I calculate that, so that hon. Members can judge whether or not there is any justice in my claim.

I think it is reasonable to expect that industrial production this year could go up by about 5 per cent. It is reasonable to think that non-industrial production can go up by 2 per cent. Incidentally, hon. Gentlemen opposite sometimes forget what a big part of production that is. In round figures this would give £700 million more of goods. Obviously, if production goes up, wages must go up, and if production goes up, stocks are likely to go up, and if production goes up, it is vital that exports should go up. So allowance must be made for this, and I have estimated a round figure of £450 million, which leaves the Chancellor with £250 million available to release purchasing power to that extent. I may say that with the help of some academic friends, who know much more than I do, I made these calculations before the Budget, so I have not fudged the answer.

On the other hand, my right hon. Friend has released purchasing power of about £366 million. Assuming that saving follows the normal pattern, I think it is fair to assume that about £107 million of that would be saved. In making this calculation I have assumed that companies continue to save about three-quarters of the relief they get, that private people save about 10 per cent. of the relief, and that about half the post-war credits are saved. That may be rather rash. On the other hand, if less than that is saved directly, probably less will be spent on hire purchase, so that it may come to about the same thing.

If we deduct £107 million from £366 million it means that the Chancellor, in this Budget, has released purchasing power of about £259 million, which is about the amount I estimated he had available. If, however, the Chancellor had released that purchasing power in different directions, to non-savers, the position would have been very different. If, for example, my right hon. Friend had used it all for reducing Purchase Tax or had done what the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) has just suggested, had raised allowances and things of that nature, the money would not have been saved and, without danger of inflation, he could only have afforded far smaller reliefs. Indeed, the amount by which the Opposition have suggested pensions should be increased would alone take practically the whole of the amount which I think is available, leaving the Chancellor with hardly any other remissions of taxation possible.

Now I come to the choice of what my right hon. Friend should do. The object of the Budget is not so much to help those who need it most, but to strengthen the economy. I do not think that the Chancellor should appear at Budget time as a kind of Father Christmas. What we want is a Dr. Amory, who will come along with a soothing syrup, if the economy is in rather a poor way, or with a stimulating tonic if the economy is strong enough to benefit from it. After nearly one and a half years of his management I have no doubt that the economy is in a state to benefit from that tonic.

If the economy is strong then benefits to the pensioners and others will all follow—at any rate, if we have a Conservative Government. If the economy is weak, any benefits they are given will become useless, because they will be mopped up by increased prices. I think that the Chancellor put the true object very clearly in his Budget speech when he said: I have no doubt whatever what the first requirement is today. It is an improvement in the competitiveness of our economy. All our hopes for the future depend on this." —[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 47.] I think that the hon. Gentleman the Member for Birmingham, Stechford (Mr. Roy Jenkins), who, in my opinion, always makes valuable speeches—I hope that this will not do him too much harm—agrees, because he said on 9th April, that the Budget was more important for the increases in the standard of living which, if it directed the economy properly, indirectly it could make possible than for any direct benefit which it gave away.

I should like to say a little about investment allowances, which have been referred to this afternoon. I am very glad that the Chancellor reintroduced them, because I think that they are a very useful addition to our planning mechanism. It seems to me that when there is spare capacity, it is the Government's job to increase and accelerate their own investment—not to keep it necessarily constant —but, when there is spare capacity, to push it up and encourage others to do the same, and, when deliveries are lagging a long way behind orders, then to remove this special stimulus.

I was very glad that my right hon. Friend said in his Budget speech that in different conditions it would be appropriate to reverse the action that he was now taking. Hon. Members opposite are apt to say that we on this side of the House do not believe in planning. That is really nonsense. Of course Governments must plan. That is what they are for. The difference, I think, is this. We on this side do not believe that it is practical to exactly plan what we produce, where we produce and who produces it.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), in the Budget debate, expressed some anxiety about the amount that my right hon. Friend had set himself to borrow. I hesitate to differ from my hon. Friend, who has such experience in the matter, but I do not believe that his anxiety on that score is justified. In 1958, the Treasury was able to repay the banks £250 million. It has not that to do this year. I believe that the banks today are quite confident that the Government can safely borrow from them, that is, by creating Treasury bills, £150 million, without dangerously increasing the supply of money. That would leave only about £150 million to be borrowed in the market from the public which, I think, is a very feasible proposition.

I should like to support that by quoting an article in the Financial Times by Professor Paish, on 10th April, in which he said: Whereas last year the Government reduced its debts to the banking system by about £250 million, this year it should be able to increase them by £150 million or so without causing the quantity of money to rise proportionately faster than real national income. The extra borrowing required from the public should therefore not exceed about £150 million, which should easily be made available by the reduced capital requirements of industry. Now, Professor Paish, as is known by all those who have studied his writings, has always been a very strenuous opponent of any inflationary measures. Those who follow his writings will also know that he has the advantage of being nearly always right in what he predicts. That cannot quite always be said of other economists, or even of politicians!

Finally, I should like to say something about the prospects of the future. I believe that a case can be made that the fundamental economic position of the country today is stronger than it has been not only since the last war, but since the First World war. This is partly because of the fortuitous circumstance that in the last war, unlike the First World War, we tremendously developed our vital engineering industries. But we have not yet been able to take full advantage of that expansion. We could not do it at first because, until 1952, savings were quite inadequate. I suppose that hon. Members opposite will say that it is just a coincidence that savings started rising sharply in 1952 and have gone up regularly and substantially ever since.

The second reason we were not able to take full advantage of that was, I think, the excess demand that existed nearly to the end of 1957. My right hon. Friend the Lord Privy Seal nearly cured that excess demand in the middle 1950s, about 1954, but he underestimated the extent of the stimulus to industrial investment that would be caused by the Conservative victory at the General Election. He therefore had to have his rather unpopular October Budget, which I believe, although unpopular, was a good Budget. The two things are not quite synonymous. I think that Budget improved the economy of the country a great deal and would have cured the situation but for the unhappy dislocation caused by Suez a year later.

Now we have got rid of excess demand. We have a balance and if there are no international complications, which no one here can exactly foresee, and if my right hon. Friend is still handling our affairs—and I think that that will be shown to be the wish not only of everyone on this side of the House but of a very substantial majority in the country—subject to these two qualifications, the prospects for the Budget this time next year are very rosy indeed.

5.8 p.m.

Mr. H. Rhodes (Ashton-under-Lyne)

To the extent that the hon. Member for Scarborough and Whitby (Sir A. Spearman) mentioned that the inevitability of increased production means raising wages, I shall follow him in the course of my remarks. But when shall we concentrate on production out of productivity rather than production by itself and inevitable wage increases?

Last November, I was in Hong Kong, a place which has been very much talked about during the last two or three years. In Hong Kong there are some of the finest managers I have ever known. The best manager I met there was a gentleman who has many manufacturing interests. I asked him. "Where are you looking for machines for the present?" He said, "To Japan". I said, "And in the future?" He said, "To Western Germany". I said, "Where does China come in, in all this?" He replied, "Well, for a long number of years China will be able to make the machines she needs before productivity is important." It was interesting to note that that manufacturer was not thinking about this country for his machines for the future.

I was interested at the week-end to see a picture in the Observer or the Sunday Times, of the Prime Minister looking at a modern machine in a Lancashire cotton factory. It was the showpiece of the factory and it was made in Switzerland. What a commentary! If we carry on with the same type of economy that we have had during the last few years, we are heading for trouble in terms of productivity.

The pattern of boom and balance of payments crises, the taking off of good facilities for credit, interest rates up and the rest, seem a natural kind of sequence. Then, suddenly, there is a shriek from industries affected by competition or the difficulties arising out of Government action. So the time comes when we get a slackening of restrictions. Hire purchase is allowed on easier terms. Income Tax is reduced and we help along a consumer goods spending spree.

Unless steadily, all the time, there is an improvement in productivity throughout all our industries manufacturers are tempted to span from boom to boom by generating political action and pressure for the Government to do something about it. We have that experience in the cotton industry at present. I shall come to that matter later. The basic truth is hidden while that process goes on. As crisis succeeds crisis, we shall have to buy ourselves out of our difficulties at too high a price. Of course, some people will not invest at all.

I well remember, when I started my business, going to an elderly gentleman who, I suppose, was about the same age as I am now, and asking him for a bit of advice about buying a machine. "Oh" he said, "You don't want to bother about buying new machines if you can get your labour cheap enough." "But, Sir," I said, "What is all that material you have got in your warehouse?" He said, "It is red flannel." I said, "Red flannel is becoming out of date." "No," he said, "depend on it, women will come back to red flannel for their bloomers." So far as I know they never have done so. He is long since dead and so is the firm.

An Hon. Member

He made a bloomer.

Mr. Rhodes

Is the aim of the investment allowance to stimulate investment so that people buy machines for the sake of buying machines? Is the aim to help the engineering industry to get a full order book so that workers will have wages, so that they can stimulate the consumption of consumer goods? If that is so, let us start to think out this problem afresh, as any investment we stimulate should result in the installation of machines with the highest productivity. If, as many economists have stated, under-employment in many factories and industries is 15 per cent. below capacity, for what do we stimulate industry to invest in unless it is in machines of higher productivity?

Is not the easy way out for manufacturers to go to the Government and ask them to increase purchasing power, then to swing back into production the machines which exist, and carry on for another spell? There is a reckoning coming to this because, whether we like it or not, we have problems like the Common Market coming along, which, if we are wise, we shall foster and prepare for. It can be that money has been spent on the wrong machines, anyway. Some hon. Member might say that people who are spending the money surely ought to know the best way in which to spend it, but that does not follow. Repeatedly, in the House, we have been told that many plants in Lancashire with new and up-to-date machinery have been stopped. Either the machines were wrong, or the management should not have been in management but in something else, or their judgment was wrong.

Mr. Harold Lever (Manchester, Cheetham)

Does it not also mean that the industry in question, because of world economic circumstances, has to shrink, no matter how ably it is managed or how efficiently it is equipped?

Mr. Rhodes

That is true, but, on the other hand, the criterion for being able to manage a business well is surely being able to acquire the machines which are to give the highest productivity for the firms which survive. That is precisely what has not been done in many instances in Lancashire.

In these methods of stimulating investment there should be a productivity criterion. If we are encouraging people to buy machines which are no better, or very little better, than they were years ago, we should be thinking out ways in which we can stimulate improvement of the machines. That is why I come back to the question of a productivity criterion. I think that I have demonstrated that it is possible, by certain steps both in management and the introduction of high production machines, to take care of the increase in wages in the price of commodity. Surely, with an intelligent policy, it can be done generally.

I am speaking from some little experience of this matter. I beg the Chancellor to look at this question. If we need a 2½ per cent. increase in productivity every year to offset inflation and the possibility of a yearly financial crisis in balance of payments, we ought to be stimulating people to produce the machines that will give us that kind of productivity. I think that it can be helped by an overhaul of the depreciation allowance generally.

In my industry I am allowed, basically, 10 per cent. for wear and tear. If I run my machinery round the clock—which I do in the case of more than half of it—I am allowed 12½ per cent. It is wrong that the Inland Revenue should not have more resilience in assessing the depreciation allowances on factories which are working the clock round and have a high productivity into the bargain with new machines.

Unless we are able to change this and able to decide in a business, unless we are able to acquire from anywhere in the world machines which will give us over a period of years the increased productivity which will match the risk of inflation, we are bound to lose ground all the time and in many industries we shall eventually arrive at the point where the Government have to step in in a big way to support or encourage, or to give away money to try to get them on their feet again.

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

I am grateful to the hon. Member for giving way, because I am very interested in what he has said and I agree almost entirely with it, I agree with what he has said about the need to be able to write off a machine over its life, however short that may be. The hon. Member will agree that the obsolescence allowance covers that point substantially.

Mr. Rhodes

Yes, I am not disputing that and I am not denying that relief in the form of the investment allowance is very useful. It will he of some benefit. If it is comforting to the right hon. Gentleman, I do not think that there is any doubt that some stimulus has been given to the manufacturing of capital goods since the provisions were announced in the Budget.

Before we reach the point where we enter the Common Market or Free Trade Area and measure our efficiency against the best countries on the Continent, I sincerely hope that we shall have an assessment of productivity in every one of our industries, that assessment to go through to the Board of Trade and be available to the Treasury when these sort of provisions are being thought of and introduced.

I am certain that to go on as we are, with investment allowances on and investment allowances off, with the stimulus to buy on one year and off the next year, is wrong. There is nothing like constancy to bring about the introduction of better machines into a factory. If we did not have some alteration in our factory in any year the workers would think that there was something wrong with us and that we were becoming inefficient. It is easier when one introduces them steadily throughout the years. I have found that workers are as keen as anybody to adopt better methods and to adopt or accept machines which achieve higher productivity, but they cannot be expected to do it spasmodically. It has to be done steadily all the time, with the workers being kept in the picture.

I ask the Chancellor to think out, in the months that lie ahead, this question of encouragement for investment. Investment in what? Is it to be for the same sort of productivity as before, or is it to be aimed at taking up the increase of costs in an inflationary world?

5.15 p.m.

Mr. Stanley McMaster (Belfast, East)

I should like, first, to crave the indulgence of the House on this, the occasion of my maiden speech. I have been warned that I must not be controversial. Therefore, I cannot comment on the fact that when I was being shown round and welcomed in the House—and I am very grateful for the welcome which hon. Members from both sides gave me—I found, on a shelf in the Library, books on slavery and Socialism side by side.

I should like to follow in the footsteps of my predecessor, Colonel McKibbin, who was well known both in his constituency and in the House of Commons for his interest in the position of public service pensioners. Therefore, in speaking on the Second Reading of the Finance Bill I should like to press the Government to make, either by way of Amendment to the Finance Bill or, if this is not the appropriate occasion, by new legislation, permanent increases in public service pensions. I should widen that, perhaps, to include such deserving classes of people as school teachers, hospital staffs and others who have dedicated their lives to public service. They find it very difficult to live on their small pensions, particularly those who retired some years ago. The review of their pensions is very long overdue.

I am glad to report to the House that the Finance Bill was very well received in Ulster. It marks, we believe, the beginning of a period of recovery and expansion from the recent trade recession and the currency crisis which accompanied it. We have had now a year of stable prices, and this is the foundation stone of expansion. The Finance Bill provides the necessary incentive. It is already leading to increased consumption, which, in turn, will lead to increased production and a better standard of living for everyone.

I should like at this juncture to make special mention of the position of shipping companies. I was disappointed that the Bill did not contain further tax concessions to the shipping industry. There is a very real need for such investment concessions. Our shipping companies have to face fierce competition from fleets which fly flags of convenience. The House has often heard speeches on this subject, and I do not intend to go into the economics of it today. Such fleets have shown a very rapid increase over the last six years and shipping companies in the United Kingdom must build new, faster ships of larger capacity which can compete economically with overseas shipping companies.

In that context, I am thinking especially of the Belfast shipbuilding yards. We have in Belfast the largest and best equipped yard for producing ships in the United Kingdom. We produce particularly passenger liners, large oil tankers and cargo ships of all types and capacity. Yet serious unemployment is threatened there. Unless there are more orders for new ships in Belfast there will be more unemployment in our shipyards. This is an excellent opportunity for the type of investment relief which I have just mentioned.

There is a pool of skilled craftsmen in Northern Ireland. And in spite of the good news of the past few months, I regret to say that there is still very heavy unemployment in Ulster. Messrs. Short and Harland, to whom the order for the Britannic has recently been given, and who are developing the important new vertical take-off aircraft, have recently announced that they will have more redundancy.

How better could these highly skilled men be employed than in developing new industries and expanding and modernising the traditional industries of Ulster, such as the shipbuilding, linen and rope industries, to mention only a few? Capital expenditure is a long-term project. I should like to refer to the Budget speech of my right hon. Friend the Chancellor, when he said: The special stimulus to investment which these allowances will provide" — referring to the investment allowances set out in Clause 17 of the Bill— is desirable in present economic circumstances. In different conditions such a special stimulus may be no longer justified, and then it would be equally appropriate to reverse the action I am taking now." —[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 60.] This statement of policy was repeated later when, on 13th April, my hon. and learned Friend the Financial Secretary to the Treasury said: My right hon. Friend, therefore, preferred the method of investment allowances. He believes that they may prove a useful short-term regulator." —[OFFICIAL REPORT, 13th April, 1959; Vol. 603, c. 666.] In this context, I should like to press my right hon. Friend to reconsider his policy in this matter. I should like him to indicate to the House that the new level of investment allowances will be maintained. Nothing could be more harm than using this branch of taxation policy as a tool for economic control, to be turned on and off at a moment's notice in an attempt to meet some periodic trade fluctuation. I would direct my right hon. Friend's attention to opinions expressed, amongst others, by the editor of the Financial Times. In an article on 15th April the editor expressed the opinion that there is a three-year delay before the effect of such a change can affect any taxpayer's tax liability. Therefore, the most that such tax changes as are contained in Clause 17 of the Bill can do is to affect investment in stockbuilding, or minor investment policy.

No major investment scheme, even if it is a marginal scheme, can be affected by such an uncertain and perhaps short-term change. Such reliefs as are contained in Clause 17 must be reasonably permament. I agree with the hon. Member for Ashton-under-Lyne (Mr. Rhodes) in this matter, for it is very important to realise that investment expenditure is the most desirable form of expenditure there is and should be given every encouragement by the Government.

Subject to these remarks, I join with my hon. Friends in agreeing that the Bill should be read a Second time.

5.35 p.m.

Dr. Barnett Stross (Stoke-on-Trent, Central)

It falls to me to congratulate the hon. Member for Belfast, East (Mr. McMaster) on passing so gracefully and easily through an ordeal which has its terrors for us all. I am especially glad to do so, because I had some knowledge of Colonel McKibbin, the hon. Member's predecessor, who graced this House and was so well thought of and popular with us all. It fell to me to advise him on the last hour that he was in this House, because of my specific medical knowledge, and I should like to say how much we all deplore the fact that he is not with us now.

It is a much more pleasant thing for me to welcome a new Member from Northern Ireland. Obviously, he shows deep interest in the affairs of his constituency and Northern Ireland. We sincerely hope that we shall very often hear speeches of this type from him. Lastly, I would tell him that, as a Socialist, I am delighted to be associated with the abolition of slavery.

The Financial Secretary told us that it was not an easy matter to introduce a Finance Bill, even though he is already experienced in it. The birds of the air which he chose to hold him up did their duty very well, except during the last few yards of his descent. If he feels a little bruised because he did not make exactly a three-point landing he must blame himself and not us on this occasion.

The Bill contains many Clauses. and we are not all either expert in or interested in them all. I am especially interested in Part II, but I must make a passing reference to dividend stripping because, if the Chancellor listens to my pleas with regard to Part II, I hope I can persuade him that he owes me a debt, and that he will, therefore, listen carefully to me.

We have had some discussion whether we have been losing £2 million. £10 million or £12 million each year through dividend stripping. It so happens that I was made the executor of an estate, following the death of my eldest brother. These family businesses are often hard-pressed to find the sum asked for in death duties, especially when they have ploughed back their profits instead of distributing them. As the Financial Secretary knows, if they do not distribute they do not have to pay Surtax; instead, they pay the standard rate of 8s. 6d.

In this case, as in so many similar cases, a vast amount of money had been saved by way of undistributed profits, and it was not easy to find the very large sum required for death duties. It was put to me from a certain source that I could legally overcome this difficulty by participating in what I now know is technically called dividend stripping. This was three or four years ago. I was asked to sell the business of which I was executor to a certain organisation, who would sell it back to me later.

I am not sure how much the organisation was to help itself too in the process; I believe that it would have got about £50,000 for the transaction. I should have been able to benefit the estate by about £300,000, tax-free. I thought that that was a shocking state of affairs, and I did not have much difficulty in resisting the temptation. Having listened this year and last year to discussions on this problem of dividend stripping, and having a favour to ask of the Chancellor, I said those few words to create a little good will.

My interest in Purchase Tax is fairly narrow. Its diminution and simplification is desirable from every point of view, and we all support it. Disagreement arises when we find a number of articles lumped together in one category. We are not all in agreement as to the correct procedure. We feel that some articles should be taxed if money is required by the Chancellor—as it always is—but that other should not be taxed At any rate, we feel that in the same group there are variations of worth as between the different articles.

The change in the rates of Purchase Tax which have benefited every one to some extent do not leave me content. For example, the tax of 15 per cent. is reduced to 12½ per cent., but it still includes pottery. It is no secret that my constituency is deeply interested in pottery; indeed, it contains the largest section of people living together anywhere in the world who make pottery. I am also interested in the category in which the rates are reduced from 60 per cent. to 50 per cent.

Gramophone records are included with instruments and other articles, and thus they gain only the benefit of a 10 per cent. reduction. It seems a far cry from pottery to gramophone records, but they are similar in certain respects. They are part of the secondary if not the primary arts. Pottery includes pots, vases, jugs, and utensils generally. It is a great craft. Equally, the appeal to the ear caused by certain types of gramophone records brings them within the realm of the arts at least with a small "a" if not with a capital "A".

Three or four years ago, when the present Leader of the House was Chancellor of the Exchequer, we put up as good a show as we could against the imposition of a 30 per cent. tax on pottery. So far as I know, that was the first time in history that it had happened. After he had listened to all those Members representing North Staffordshire constituencies —and I beg the Chancellor to believe that I am only firing a raking shot in this matter we shall have to discuss it again in fuller detail later—the Chancellor used a very strange phrase. He congratulated us on our successful speeches. When we asked what he meant, and if he meant that he would forgo the tax, he explained that he could not do that, but that he had no logical defence of what he was doing; he simply had to have the money. He required the country to have £7 million less, and he was going to take it away.

It is reasonable for me to point out to the Chancellor today that if it was proper to deny the people £7 million by taxing pottery when he needed the money, he cannot put forward that excuse now for retaining a 12½ per cent. tax, either on pottery or on carpets.

Mr. Nabarro

I am keenly interested in the way in which we have associated ourselves, one with the other, over the last nine years in the question of Purchase Tax on pottery arid carpets respectively. Will the hon. Member tell me why there is a case for pottery being free of Purchase Tax and not a case for carpets? Surely if one is taxed the other should be, together with pots and pans. They all have the same degree of household essentiality.

Dr. Stross

I am a little astonished that the hon. Member should have made that mistake. To his question about carpets, my answer is "Yes", but, as regards certain other household articles, he will, if he listens to my speech, understand where they resemble the articles for which I am pleading and where there is a difference. He will have noticed that, in my opening remarks, I spoke of the arts.

I can say the same of carpets, their design, the affect they have on people's lives and the joy they bring, apart from their utility. I do not know as much about carpets as the hon. Gentleman does, but he will, I am sure, agree with me that carpets at their very best are wonderful things in bringing consolation and pleasure to everyone who uses them. There is, therefore, a very special argument about both carpets and pottery, if the carpets are as good as the pottery.

I have just pointed out that there can be no reason, at a time when £366 million is not taken from the public, in a good year, a year in which the Chancellor can be generous, for still fumbling at our pockets for this miserable sum of money. We have enough troubles without having the Chancellor as a person hostile to the industry. We face serious competition from what I call the low-cost producing countries like Japan and, to a lesser extent, Italy. China, too, is coming into the market in a big way, possibly in the near future.

We face competition also from new materials like plastics which, at their best, are really not very bad, although no one could possibly compare them, and perhaps never will be able to compare them, in either shape or decoration with our products. None the less, they do compete.

I hope that the Chancellor will not rely upon the fact that the industry is doing fairly well at the moment for refusing our plea that there should be a complete abolition of the tax on pottery.

The hon. Member for Kidderminster (Mr. Nabarro) asked me a question about carpets. Pottery is an indispensible item in the household.

Mr. Nabarro

So are carpets.

Dr. Stross

I am glad to hear that. Pottery certainly is. We must have pottery for the purpose of eating, if not for decoration; we must have things like jugs, plates and pots. It is not, however, because of its utility that we think highly of pottery. When I say "we", I mean the world generally, not only today but through all the past in every country of the world where pottery is made.

Human beings must have certain special needs satisfied if they are to retain a feeling of stability and comfort in their lives, and those needs are satisfied by major or minor works of art. Pottery is not to be despised for the contribution it has made in giving people pleasure. I will put it in this way. The soft, lustrous glazings which we deploy to cover pottery, the curved reflections, the smooth sleek surfaces and the light they reflect, are not unlike, for the mass of people, the characteristics of marble which gave pleasure to the few in bygone days. The use of marble in creating images and decorating temples, churches and palaces is not dissimilar in essence or quality from the use of good pottery. I hope that I am making myself understood.

I suggest that there is a twofold need for pottery. I say this also for carpets, and I hope that the hon. Member for Kidderminster entirely agrees with me. There is a twofold need, the utilitarian need and another need which is equally important. We are able, with both carpets and pottery, through their iridescent colours and wide variety of remarkable designs, to add much to life, and an extremely civilised person like the Chancellor should bear things like this in mind when he thinks of taxation.

If our civilisation were to perish, as it may, in a million or two million years. if Europe sinks beneath the sea and then ultimately rises again millions of years thereafter. archaeologists, if there be any such then, will judge our civilisation, as ali civilisations in the past have been judged, by the pottery they dig up. Apparently, pottery is virtually imperishable and lasts longer than almost anything else.

Incidentally, I hope that, before Britain sinks beneath the sea, we shall change the pottery we use in this building. I should hate this Legislature to be judged by the rather mean, utilitarian stuff which, because of cost, we still use in here. It is time that the Chancellor gave some personal thought to this and nudged someone's elbow so that we might have some better and more delectable pottery to use. Certainly, a craftsman in my city would not look at it twice. He would understand exactly why we use it. He would say. "They cannot afford anything better, apparently" and he would think it of no value whatever.

Technically, the industry is probably in as good fettle or better than the industry in any other part of the world. It is very highly rationalised, although the prime tool is still the hand of the potter and always will be. One cannot modernise the industry fully and no one will ever he able to do so. any more than anyone can manufacture by machine a beautiful and valuable Eastern carpet. I hope that the hon. Member for Kidderminster will agree with me when I say that his area and mine employ craftsmen and will always do so.

We feel that our future lives lie in quality. We do not think that we shall be able to compete with the low-cost countries at all in the future, even though we are far in advance of them technically and are able to use the machine more than they can, employing semi-automatic and sometimes completely automatic processes, and techniques of firing which are much more economical than theirs.

We are fighting a losing battle in that respect. We aim, therefore, at the highest possible quality, but we want to sell a great deal of it all over the world. A question was asked the other day about selling to the Soviet Union. The manufacturers in the City of Stoke-on-Trent, having looked at their industry, reported to me the other day that they could sell £750,000 worth to the Soviet Union this next year. We should like to do that.

We used to sell a great deal of pottery to Russia at one time, beginning about 200 years ago when, Catherine the Great, I think it was, ordered a great service from Wedgwood. We should like to do so again. We should be well advised to offer only the best and most expensive, I think, because we cannot compete with the ordinary goods which the Russians make for themselves. Cheap pottery, second-rate pottery. anyone can obtain anywhere in the world. I feel that North Staffordshire, like Lancashire, must take good care that, in rationalising its industry, it aims at high quality and high export values.

I am empowered to say to the Chancellor that, if I have not persuaded him of the merit of the case I am putting, we should be very happy if he and the Financial Secretary would come as guests of the Lord Mayor of the City of Stoke-on-Trent at any time. We should be delighted to entertain them in our banqueting hall in one of the town halls in my constituency, the better one, and feed them from the finest pottery there is in the world. We have a wonderful dinner service for 450 people which we regard as the finest collection of its type in the world. That invitation stands. if the right hon. Gentleman cares to accept it. I shall never have to speak to him about the Purchase Tax on pottery again.

Gramophone records appeal not through touch or sight, but through the ear. Of course, a reduction of 10 per cent., from 60 per cent. to 50 per cent., has meant a little over £500,000 by way of benefit to the industry. If I remember aright, in the last full year, about £6 million was collected in Purchase Tax. In the year before that, it was £4.8 million. Therefore, a 10 per cent. reduction means a little more than £500,000.

Naturally, one is glad of this. However, unlike the pottery industry which, at the moment, despite a depleted working force as a result of previous actions by the Government, is thriving, the gramophone industry is not. I noticed in the Press last night a short paragraph stating that, at present, taking January and February as two typical months, sales were down by 19 per cent. compared with last year.

I gather that this means that the industry is selling about £ 1 million a month less than it was selling last year. That is a rather serious matter. Workers have been laid off in one of the great firms and in another they were being kept on three weeks ago, without work to do, in the hope that there would be some real benefit from Purchase Tax reductions which would make it possible for them to be fully employed again.

I shall be brief in my arguments now because, as I have said, I, together with my colleagues not only on these benches, but on the benches opposite, in great force, may have to press many similar and different arguments on the right hon. Gentleman later. I will add that we probably make the best records in the world and we have, I think, the greatest share of world exports.

We behave rather like the Soviet Union does towards gramophone records. The Russians also divide theirs into popular records and classical records and they, I believe, put a tax on the popular ones while allowing the classical ones to go free. We do something similar, but we leave it to the manufacturer himself.

Mr. Nabarro

I take the hon. Gentleman's point and, of course, it has been advocated over and over again in trade circles, but how does he propose to differentiate between the two, classical records, on the one hand, not being subject to tax, and popular ones, on the other, being subject to tax? For instance, into which category would "My Fair Lady" fall?

Dr. Stross

I was coming to that. I should not dream of attempting it and no Chancellor should. One must not do it. It is quite wrong. Any Chancellor who did would be bound to be blamed. It is unthinkable that a Chancellor of the Exchequer should be an arbiter of taste. Can one imagine what would happen to him? Of course he must not do it. I was saying that the Russians do it, but we must not.

We do it in this way. The manufacturer makes most of his profits from the popular ones, sometimes the very popular ones—the "smash hits"—and he uses those profits to enable him to carry on with the more expensive productions of classical records, recordings by symphony orchestras, recordings of operas, and the like. An opera costs £20,000 to record. A symphony costs £7,000. There is not the profit in those that there is in the popular hits. Therefore, in effect, the trade in this country differentiates by using the profits from the one to help with the other, the prestige record, which we really must have and which the industry must make because that is what we export, particularly to the United States.

Then it is lucrative and well worth while. I think that I have answered the hon. Member for Kidderminster in two ways: first, by saying that the trade is handling this matter very well; and, secondly, that the Chancellor should not fall into the trap of trying to distinguish between one and the other. He must do it for all or not at all.

I suggest that instead of taxing music on the disc it might well pay us to do the exact opposite. Either there should be no tax or a subsidy for records. Here, I would differentiate. I would subsidise those which we export, particularly as three out of four records that we export are classical records. I should like briefly to give my reasons. First, I will give an example. I heard Sir Malcolm Sargent say to a group of people that he had recently received a letter from a Japanese friend in Tokio, who described an experience which he had just had when he went into a tea room in Japan. Tea rooms in Japan are like our coffee houses. Young people go into them, like our young people go into coffee houses, and sit for quite a long time drinking their cup of tea. He said in his letter that he had seen a tea room packed with people listening spellbound to a British record of the London Symphony Orchestra rendering the "Messiah," with the Huddersfield Choir singing it.

I think that that is a very interesting example of the influence of our music on people abroad. The "Messiah" was being sung by the Huddersfield Choir which is a quite good choir, unfortunately not by the Hanley Ceramic Choir —[An HON. MEMBER: "How very condescending."] It is not condescending when we remember that Sir Thomas Beecham took the Hanley Ceramic Choir with him all over the world before 1914 and that we were able to beat the Welsh at choral singing, even though, in the early days, we were stoned out of Wales for winning the first prize. North Staffordshire knows how to sing, and I am prepared to prove it.

I am advised, and I think that this is true, that so important is the gramophone record considered to be among the Negro population in places like Central Africa and South Africa that a person is not considered to have "arrived" and is "non-U" unless he has a gramophone and records. Once a person has a selection of records and a gramophone, then he is a very important person in the village or in the tribe. The Chancellor knows that our music is advancing all over the world. It is welcomed in China. I know that Chou En-lai, a very important person in China, welcomes people who are connected with the gramophone industry. If they go to Hong Kong, he invites them over the border. I am told that this is because he worked for Electrical Musical Industries, and he has never forgotten that.

There is no antagonism towards our music anywhere in the world and it has a tremendous influence. We should encourage it in every way and ensure that nothing that we do stops it spreading throughout the world. The world is divided into two committed halves and a large group of uncommitted people. The two committed halves, East and West, have quarrels with each other and their quarrels express themselves through the expenditure of a great deal of money.

The Chancellor of the Exchequer has to find a vast amount of money through the taxpayer for our defence. If we are looking for weapons. is not music an interesting weapon to use? It is very cheap and everyone welcomes it. We do not mind a counter-attack from the other side. There is nothing wrong if we put up Purcell, Handel, Beethoven and Bach. We do not mind being attacked by Mussourgsky and Tchaikovsky. It would he rather fun.

Is it not possible to go so far as to say that all forms of music attempt to be universal, but our Western form is the most successful that any civilisation has known, and has become a universal language? It is not our fault that in Britain we speak it so very well. We are very good exponents of this universal language. We have great symphony orchestras, and opera singers. Should not we encourage it in every way? Should not we stop taxing it if it is a universal language? It is even possible to argue that it is a language of peace, because everyone can speak it and everyone likes it.

The Chancellor of the Exchequer is gladly a patron of the arts. He finds money for the arts and subsidises them. I think that he probably hopes to do more for the arts in the future than he has in the past. We all hope so. If he does not do so, then another Chancellor will have to do so, because Britain is beginning to demand it. It seems absurd. however, to subsidise the arts in one way and to tax them in another. We cannot all go to the Festival Hall. or to the Albert Hall, but people can buy records and get perfect renderings of what fortunate ones are able to hear directly for themselves. Therefore, I think that I have made a reasonable plea to the Chancellor to remit taxation on the things about which I have been talking.

6.7 p.m.

Mr. John Arbuthnot (Dover)

On behalf of my right hon. and hon. Friends and myself, I should like, first, to join with the hon. Member for Stoke-on-Trent, Central (Dr. Stross) in congratulating my hon. Friend the Member for Belfast, East (Mr. McMaster) on his maiden speech. It showed clearly that he has studied closely the problems of his constituency. and his fluency in presenting them to the House will make us listen with attention to him in future. We shall all look forward to further speeches from him about the problems of Northern Ireland, and we are glad to have had the opportunity of listening to him on this occasion.

I should also like to take this opportunity of congratulating my hon. and learned Friend the Financial Secretary and of thanking him for the clarity with which he has explained the intricacies of the Finance Bill. It is not a long Bill this year, but it is certainly one some of whose Clauses would have been somewhat difficult to understand without the clear and lucid explanation of my hon. and learned Friend.

Any Chancellor of the Exchequer would have had a difficult task in the sort of circumstances in which my right hon. Friend found himself in the preparation of the Budget which has led to this Finance Bill. His problem has been to find his way between twin rocks, each of which is equally dangerous. If he remits too little he will fail to stimulate the economy, which will result in unemployment which all of us want to see reduced to the very minimum. On the other hand, if my right hon. Friend remits too much the demand for home consumption may be such as to upset the balance of payments and cause a decline in the value of the £ and possibly, if excessive, even a flight from the £. I believe that the Chancellor has judged the position about right in the figure of £295 million which he has found himself able to remit this year, rising to about £366 million in a full year. In the words of the advertisement, it is "not too little, not too much. but just right."

My right hon. Friend took as the theme for his Budget, and hence his theme for the Finance Bill, the improvement in the competitiveness of our economy. I should like to discuss for a moment where the reductions in taxation have been made and whether, if they had been made in other ways, further stimulus could not have been given with even better effect. In his Budget speech, my right hon. Friend himself indicated that taxation was still far too high. In that I am sure that all Members on this side and, I think, the country in general will be in full agreement with him.

Industry finds itself still unable to give a real incentive for extra effort, particularly in the higher managerial grades. It is difficult, for example, to make it worth somebody's while to move, say, from the country to London where prices are higher except at an excessive gross cost. It is only when we can reduce taxation still further that that cost will become more reasonable.

We are in the dilemma, however, that taxation can probably only be reduced further if we make sure that there is a corresponding increase in savings. Improved savings are an essential part of giving any Chancellor of the Exchequer the power to be able to reduce taxation and still to be able to meet the nation's financial commitments. It seems to me that in a year when my right hon. Friend feels able to make substantial reductions in taxation, there is a great opportunity further to stimulate personal savings.

My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) pointed out that three-quarters of the remissions in taxation that went to companies were saved and that only one-tenth of the personal remissions of taxation went into savings. I would not differ from that assessment. Admittedly, savings have been running at a very high level in recent years and steadily improving, but it disturbs me that these savings have been so much less by persons than by industry. We ought to do as much as we can to stimulate personal savings.

I doubt very much whether it is a good thing in the national interest that an industry on the decline—and I was interested to hear what the hon. Member for Ashton-under-Lyme (Mr. Rhodes) had to say about the factory that made red flannel should be encouraged to save and to put further plant into a dying factory. That is what the investment allowances will encourage to happen. I would have preferred the money to be distributed to shareholders to reinvest in the way which they, as independent observers, thought best. If shareholders were re-investing in a growing industry, the money might be more usefully employed to the national advantage. Therefore, I would have liked to have seen greater measures in the Bill to encourage personal savings.

In particular, I should like to make these suggestions. I realise that two of them are too large for this year's Bill, but I hope that my right hon. Friend will be able to consider them for possible inclusion in the next Finance Bill. My first suggestion is the removal of the 2 per cent. Stamp Duty on share transfers. There is no Stamp Duty on share transfers in the United States. My right hon. Friend may object on the ground that it would be difficult for him to remove the 2 per cent. Stamp Duty on share transfers at a time when the Stock Exchange is standing at very nearly the highest point on record. On the other hand, that is equally true of the production of motor cars and television sets, and yet my right hon. Friend was able to remit 10 per cent. off the Purchase Tax on these items.

The other suggestion for a future Finance Bill is the exempting from Income Tax of the first £15 of interest from investment in industrial equities. I realise that this might be thought to conflict with the Government's natural anxiety for potential savers to put funds into Government securities, some of which already have this tax advantage. The overriding factor, however, is that today too few people are shareholders. If we are to succeed in giving a galvanic expansion to our economy, it is vitally important that we should increase the number of holders and that the "cloth cap" investor should be encouraged, so that he no longer regards the Stock Exchange as the rich man's gambling casino, which is the way he is apt to regard it at the moment.

Mr. John Rankin (Glasgow, Govan)

What is it?

Mr. Arbuthnot

The hon. Member asks, "What is it?" He, too, has been mesmerised by the same idea, which needs to be dispelled from others besides himself, because it simply is not true. It is the means by which savers can be assisted to put funds into industry to enable production to expand and flourish, which is vital for the wellbeing of the country.

Mr. Rankin

Is the hon. Member suggesting that the Stock Exchange is a sort of philanthropic institution filled with altruistic ideas?

Mr. Arbuthnot

I am not suggesting that the Stock Exchange is a philanthropic institution. What I am suggesting is that it is vital that the savings of the people should go into helping industry to expand rather than be squandered on the dogs, the football pools and other like amusements.

Pursuing the same line of thought, I now come to a minor suggestion which, possibly, my right hon. Friend might feel able to include in his Bill this year without much cost. We have seen a fairly considerable expansion in unit trusts, an expansion which we all welcome. One of the difficulties, I understand, under which managers of unit trusts labour is that they have to draw their remuneration from net profits after tax rather than being allowed to draw their remuneration from gross profits. If my right hon. Friend felt it possible to allow them to draw their remuneration from gross profits, this might well be a further stimulus to their activities, which have a marked effect on investment in industry by the smaller investor.

Before leaving the question of encouraging the small investor, which I regard as essential if we are to hold our own in this increasingly competitive world, I would again urge upon my right hon. Friend a further step to which I drew his attention last year: the interest from saved income should be regarded as something meritorious and to be encouraged, something that should be given a savings income allowance in much the same way that an earnings income allowance is given on earned income. Unless we can increase personal savings, we cannot reduce taxation further, and the reduction of taxation is essential if we are to give production and exports the dynamic drive that is needed.

I turn now to another field, the cinema industry. I have in my constituency some cinemas in rural districts which are finding it extremely difficult to make both ends meet. I know that my right hon. Friend did much in his last Finance Bill to encourage the cinema industry and that, in fact, he saved many cinemas from going under altogether, but competition against the cinemas is steadily increasing, in particular from television. Cinemas would appear to be the only industry now subject to Entertainments Duty. Many of them are closing down.

Has the time not come when something further ought to be done about them? My right hon. Friend would then rely upon reaping the revenue rewards from the direct tax on profits to which most other industries are subject, rather than from this additional burden of the Entertainments Duty. If my right hon. Friend felt that complete remission of Entertainments Duty was too expensive—and I quite see that there may well be no justification for removal of Entertainments Duty in the case of some of the expensive Mayfair and West End of London cinema seats—I wonder whether he would consider adopting what I believe is the practice of the United States, where seats costing over a dollar, or 7s. 6d., are subject to a flat rate of Entertainments Duty. This might let out the cinemas in the rural areas and those which do not have the large revenues from their seats which some of the more prosperous cinemas have.

I turn now to Income Tax. Had my right hon. Friend given the additional incentive to personal saving that I have suggested, it might well have been that he would have been able to reduce the standard rate of Income Tax by 1s., rather than by the 9d. which he found possible. Of course, he will come back at me and tell me that I am being illogical. He will say that I start off by saying in one breath that the total amount of the remissions which he has given are just about right and then I urge upon him further reductions in taxation in particular fields. He therefore comes back at me, not unnaturally—and I believe that I am reading his thoughts in advance—and asks me what I would trim from the remissions which he has made in order to find the extra money for which I am asking him. I am therefore going to put my neck out and make one or two suggestions.

First, the beer duty. I am glad that my hon. and learned Friend the Financial Secretary put first the argument about the protection of the Revenue. I wonder whether we could not have done without the reduction of the beer duty for a little bit longer in order to stimulate personal savings. I myself believe that we could. Then, investment allowances, which will no doubt be helpful to industry; personally, I would rather see the initial allowances and the depreciation allowances stepped up to such a point, as I think I suggested last year, that any business was allowed to write off the cost of any new plant and machinery at any rate which it liked, provided that it did the same thing in its own accounts. I would see that pushed to 100 per cent. before embarking on investment allowances. That proposal would have meant that over the long term there would have been no cost to the Revenue.

On Purchase Tax, I wonder whether motor cars and television sets could not have paid the additional Purchase Tax for a little bit longer in order to have allowed the money for a stimulus to personal savings this year.

Having said all that, I should also like to say how much I congratulate my right hon. Friend on the total level of the remissions which he has been able to make. I think we all recognise the fact that he has only been able to take this decreased amount out of the pockets of the people because of the sound finance which he and his predecessors have pursued in the past. It is only because of restraint in the past that my right hon. Friend is now able to make these welcome reductions in taxation.

Particularly welcome is the reduction in the duty on vehicles, which will be of special help to the bus companies, and we think of those in rural areas, which are having a specially difficult time. The removal of the Purchase Tax on the chassis of commercial vehicles was a good move. Especially welcome is the reduction in the Income Tax, which will have far wider repercussions than affecting only those who pay Income Tax. A reduction in Income Tax gives an added stimulus to industry, which affects the whole of our economic life and, in consequence, affects every member of the community, whether tax-paying or not.

I do not believe that my right hon. Friend the Chancellor has yet been thanked from any quarter of the House for the removal of the Corporation Duty, which has been an annoying little duty, which has not brought in a very great deal of Revenue. I should like to remedy that omission and express our thanks to him for removing that duty, and also to thank him for a Clause in the Finance Bill which puts right the inequity which was disclosed in the Hodge case. That was a singularly unjust situation, which we brought to his attention last year, and which my right hon. Friend then promised he would rectify. He has put matters right in this Bill and we are grateful.

I should like to thank my right hon. Friend for this Finance Bill, which will give an opportunity to our industries to modernise. We must be mindful, however, that though my right hon. Friend has been able to take £295 million less out of our pockets this year and £366 million in a full year, this Finance Bill is not the harbinger of a spending spree. The continued stability of the £ must be the main concern of all sections of the community, and this Finance Bill, I suggest, is sufficiently sober to do nothing to disturb the stability of the £, but is also sufficiently stimulating to play a vital part in discouraging continued unemployment.

6.29 p.m.

Mrs. Eirene White (Flint, East)

The hon. Member for Dover (Mr. Arbuthnot) touched on so many points that he could hardly expect me to follow him on all of them. I will not linger in the financial jungle in which he himself wandered for some part of his speech, except to say that, frankly, I would not wish to see in this country the stock speculating mentality which prevails in the United States of America, with or without Stamp Duty on the transfer of shares.

I will not venture into the more technical and financial Clauses of this Bill, and I am thinking particularly of Clauses 18 to 21, although I think that some of my hon. Friends will have something to say about them. They are the ones which deal with "washing" and "stripping". I could think of an even more indelicate metaphor, but I will not offend your ears, Mr. Deputy-Speaker. Where these practices are concerned, those of us who are lay Members of the House, and I am sure that I can speak for a great many members of the general public, are becoming tired, year after year, of having excuses made by the Chancellor of the Exchequer for not having quite caught up with the extremely ingenious and pertinacious gentlemen who find ways of diddling the Revenue.

I should like most strongly to reinforce the plea made by my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) that we in this House of Commons should now agree that this is not the best method of dealing with this type of practice. To give credit where it is due, I believe that it was my hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever), who has great knowledge of these matters, who first suggested that the only way in which the Revenue can be protected is not by Clauses in a Finance Bill but, as my right hon. Friend the Member for Smethwick reminded us today, by changing our procedure in these matters, and by making it possible to pounce at once when the Inland Revenue discovers that people have found yet another loophole. The Revenue officers, after all, are usually very close behind these gentlemen, if not ahead of them, in seeing what can happen. We owe it to the country and to the tax-paying public to see that we face the situation and adopt an intelligent, sensible and honourable procedure for dealing with this kind of matter.

We were deeply disappointed when, after the suggestions which had been made several times in this House previously, this year the Chancellor once again had to bring forward Clauses in his Finance Bill which do not make precisely that kind of fundamental change in the procedure which is the only way satisfactorily to deal with his type of thoroughly unsocial activity. I hope that we shall not be disappointed again, because by next year we shall, I trust, have another occupant of the Treasury Bench who will deal with this matter.

Had he been here, I would have congratulated the hon. Member for Belfast, East (Mr. McMaster) on his appearance. I was born in Belfast many years ago, and I take an interest in anyone coming from there—although I do not share their policy, needless to say. I withdrew early enough in life from that city not to be contaminated.

To commit an Irishism, I am most interested in what is not in the Finance Bill, and which, most surprisingly, was not even mentioned in the speech of the Chancellor of the Exchequer when he introduced his Budget. Nor was it mentioned by the Financial Secretary today. I refer to the complete omission of any reference to Entertainments Duty.

We have had references made in this debate already to the position of the cinema industry. Hitherto when I have spoken in this House, as I have on a number of occasions, on this industry I have always tried to preserve a reasonably objective attitude. I have not tried to make party politics out of it, because up to now, on the whole, I have seen no cause for it, although one may have disagreed with the measures or extent of the measures taken by the Chancellor of the Exchequer.

However, this year I must say I find it very hard to control my indignation, because I think it really is something which is beyond reason, when one looks at the position of this industry, that the Chancellor has not even made any reference to it or given any explanation of his failure to remove this one remaining imposition of Entertainments Duty.

It is the only form of entertainment which is now directly taxed in this way. We now have a great variety of entertainments which are completely tax-free. I think that the exhibitors have been reminding Members of this House that not merely are the theatres, we are happy to say, tax-free, but horse racing, dog racing, billiards halls, boxing, car racing, ice skating, tennis, cricket, and all the other sports are tax-free; but the cinema industry remains taxed, although it is quite clearly in a state of extreme difficulty in its competition with television.

The Chancellor has said that the reason why the cinema industry is in a decline is that people's taste is changing. One does not deny that there is competition with television, but the hon. and learned Gentleman who moved the Second Reading of the Bill, in dealing with another industry, passenger transport, agreed that what is being done for it would not solve the problems of that industry but that cutting its costs and so on would be of great assistance to it. Precisely the same argument applies equally, of course, to the cinema industry.

I am very much disturbed at the suggestion which has been made in some quarters that this omission this year is deliberate, in the sense that the Chancellor this year, whatever might have been the position in former years, was quite clearly financially in a position to do something about the industry had he so wished. For other reasons, he decided not to do so. It is suggested that he was deliberately concerned with causing a contraction of the industry as speedily as possible, which, of course, in blunt terms, means that the larger firms, the large circuits, which have the resources behind them to rationalise themselves, will do so, but that the smaller exhibitors will go to the wall.

Mr. Arbuthnot

I wonder if the hon. Lady would tell the House what is the evidence for that rather unworthy imputation.

Mrs. White

What I said was that it has been suggested in this House and by the trade that this is the only possible explanation why this year the Chancellor has done nothing about the industry.

Looking at it from the fiscal point of view, it would be an occasion when tax remission clearly would be called for.

There is, of course, another reason which one may bring to mind, which is that when it is quite clear, in the state of the industry, that tax remission for this industry could not very well be passed on, or at any rate, not to any great extent, to the public, because the industry could not afford it, there is no obvious vote-winning quality in a reduction of entertainment tax for the cinema, as, presumably, the Chancellor believes there must be in the reduction of the duty on beer.

When these matters were being discussed in the trade some months ago I suggested then that I thought it would, perhaps, be too much to hope from the Chancellor in an election year that he would remit the tax when he would not get very much in the way of votes in return. I did not know then that he was going to be the beer drinkers' friend, but I must confess that as we came nearer to Budget time and it became obvious how much the Chancellor was going to have to give away, it seemed to me incredible that he would not do something for the cinema industry.

What is going to happen now, of course, is that we are going to have the closing of cinemas all over the country, and they are going to close in the very places where the social amenities are probably fewest, in other words, in the smaller places, in the rural areas, in the mining villages in South Wales, County Durham and elsewhere. I have had correspondence from many of them. Those are the places where, on the whole, the circuits have not prevailed, and where the smaller cinemas will simply go out of business. What the Chancellor is doing is once again favouring the big businesses against the small. He gives to him that hath. Socially the weapons which he has employed are completely unselective.

I will not go into detail, because I hope that we shall have opportunities to do so in Committee, but I emphatically protest at the Chancellor so completely ignoring the British cinema industry. Hitherto I have not been party political in the matter, but I remind the House that when they had an opportunity to do something for the production side of the industry, my right hon. Friends showed very keen interest in it and set up various institutions which have been of extreme service to the production side of the British film industry. It is clear that we cannot sustain production without a reasonable basis on the exhibition side, and the present Government have lamentably failed to take adequate action to ensure the health of the exhibition side. They could have given some leadership to the industry, as my right hon. Friends did, and they could have used the abolition of duty as a lever to secure some of the reforms on the exhibition side of the industry which are very much needed and which will now simply be left to the favourite device of the Tory Party—the free play of the market—with most unsatisfactory results.

I turn to another aspect of the Bill in which some of the same considerations arise. I refer to the methods chosen for dealing with Purchase Tax. Here again, we feel that the Government are using a blunt and unselective instrument. We have the four categories of tax instead of the larger number which previously prevailed, and it seemed to me that in his Budget speech the Chancellor was very complacent about the present rate and structure of the tax. He congratulated himself on making the tax fairer and simpler to administer and said that it would enable any future changes to be made with the minimum disturbance to the trade.

The Financial Secretary had nothing to say about the Purchase Tax except what is printed in the Bill. I believe that the. Treasury is complacent about it. In this search for simplicity what happens is that one makes these bulk changes of entire classes of tax at one time and, as a result, produces some very unsatisfactory results. Some of the changes made are so small on individual articles that they have no significant effect on the customer. This, again, is the effect of using a blunt instrument. The 15 per cent. rate of tax is reduced to 12½ per cent., but this has little effect on individual articles. I will not deal with individual articles in this debate.

Mr. Nabarro

It would be out of order.

Mrs. White

I realise that I can discuss them only within the ambit of a class.

There are some changes which are so small in shillings and pence that they cannot be passed on to the customer. The Chancellor is therefore sacrificing revenue for very little result. On the other hand, the effect on other articles, which are included in the category which used to be taxed at 60 per cent. and is to be taxed at 50 per cent., is considerable. The tax on them is reduced by an amount which some of us believe to be over-large. This is a result of the proposed changes, which are completely undiscriminatory.

There is a strong case, which was made eloquently and at length by my hon. Friend the Member for Stoke-on-Trent, Central (Dr. Stross), for reduced taxation on gramophone records. They are included in a category which also includes motor cars. I was interested to hear the hon. Member for Dover making a point which was made by some of his hon. Friends in the Budget debate and with which I agree—that this was not the time to reduce this higher bracket of Purchase Tax by as much as 10 per cent.

In my constituency we have a very large steel-making firm, and the one section of the steel industry which, in spite of the general recession in steel, has been flourishing in the last year or two is the sheet steel section of the trade, which makes sheet steel for motor cars. Motor cars form one of our important exports and manufacturers should be encouraged to export them. Moreover, we have not room on the roads in this country for many more cars. Surely it is wrong to suggest that in this year, in which there were so many other things which the Chancellor might have done, he should have chosen this bracket for the largest reduction in tax. My right hon. Friend the Member for Smethwick (Mr. Gordon Walker) was only too accurate when he said that this was a regressive tax.

In a Budget which did a great deal for unmarried Income Tax payers with unearned incomes, it is particularly unfortunate that so little has been done for people who do not pay Income Tax but who pay considerable sums, in relation to their incomes, in indirect taxation on necessities. We therefore very much regret that the Purchase Tax adjustments were made so that virtually none was made to the customer buying articles in the lowest group, which includes a large number of household necessities. I hope that we shall have an opportunity to discuss that group when the appropriate time arrives.

In the other groups I can think of various articles on which, for social reasons, I believe that we should be paying a much lower rate of tax. Again, presumably because of his philosophy of simplifying the tax and, as my right hon. Friend said, bringing it nearer and nearer to a sales tax, the Chancellor does not wish to discriminate. We can do nothing about it, because the Bill is too tightly drawn, I understand, for us to discuss individual items except within the compass of a whole group. We are therefore left with certain most undesirably heavy taxes on some items on which I think the tax should be reduced.

For once, possibly for the only time in my life, I am in agreement with the hon. Member for Kidderminster (Mr. Nabarro) that carpets bear an unreasonable rate of Purchase Tax. Anyone who knows anything about young people trying to furnish their houses knows what a fantastically heavy sum they have to pay for carpets. The reduction made in the Budget in the tax on carpets is so small as hardly to be noticed. There are a number of other points of this kind which I should like to be able to discuss, but the Chancellor prefers his unselective reduction, with no social criterion as far as one can see and with the top bracket benefiting, to my mind quite mistakenly, from the largest reduction.

Mr. Nabarro

The hon. Lady mentioned carpets. That brings me to my feet. She will in equity concede that when the Labour Party left office the Purchase Tax on carpets was 33⅓ per cent. We reduced it in 1957 to 30 per cent., then from 30 per cent. to 15 per cent., and this year from 15 per cent. to 12½ per cent. A reduction from 33⅓ per cent. to l2½ per cent. in a relatively short time is pretty good going.

Mrs. White

I agree that it was most desirable to reduce the tax on carpets, and I would never have wished it to be as high as it was, because I think that the purchase of carpets is a particularly heavy burden for young people who are trying to furnish a house.

There are many other points which I should like to mention but we shall have other opportunities of mentioning them. In concluding on Income Tax reductions, I repeat a statement which I know has been said many times but which, I think, bears repetition because it is a matter on which we feel very deeply. I refer to the inequity of the small remissions for those who have family responsibilities. That seems to me to be quite wrong when the Chancellor is making these considerable remissions to people with higher incomes. In speaking of this, we must also remember the considerable remissions to Surtax payers made not long ago.

In my opinion, the Chancellor should have been very much more generous in the provision of earned income allowances and personal allowances in order to help those at the lower end of the scale. It could perfectly well have been done by a readjustment. The biggest single cut in Income Tax since the war—1s. off the standard rate—was made by a Labour Chancellor of the Exchequer, but it was accompanied by adjustments both at the Surtax end and in the earned income allowances. We believe that that method of approach is socially very much more justifiable than that which has been chosen by the Chancellor this year.

6.55 p.m.

Mr. Bryant Godman Irvine (Rye)

There were matters in the speech made by the hon. Lady the Member for Flint, East (Mrs. White) to which I could not give my approval, but I hope she will acquit me of any discourtesy if I do not follow her arguments. I was no more persuaded on this occasion that the Chancellor should have taken some tax off the cinemas when I heard her pat the case than I was on earlier occasions when the case has been put by representatives of the industry in this House and elsewhere.

I shall confine my remarks to cider. I regret that it has not been mentioned in the Budget. I was hoping to be able to make my observations in the presence of the Chancellor because I thought his constituents might be more interested in the subject on which I want to address him than perhaps the constituents of the Financial Secretary, who is at the moment the only representative of the Treasury on the Government Front Bench.

The subject was raised in the Budget in 1956, when the present Prime Minister was Chancellor of the Exchequer. He altered the basis on which cider was taxed. He said that he wanted to bring into the taxation system the sophisticated products made from a wide variety of fruit and vegetables. I know nothing about beverages produced from vegetables, and anything that I have to say has no relation to them. The beverage in which I am interested is produced entirely from apples which are grown in this country.

When the then Financial Secretary, now the Minister of Housing and Local Government, dealt with the matter on Second Reading he brought with him a specimen to show the House what it was he had in mind. He said that he brought the specimen to convince the House that there were such articles which at the time had an uncovenanted advantage, and stated that the Revenue would suffer if we were to take no action to make sure that they were for duty purposes on the same basis as other British wines. He said that he was hoping that in a full year this would produce £400,000.

As far as I know, my hon. Friend the Member for Ashford (Mr. Deeds) is the only other hon. Member who is interested in this matter.

Mr. Nabarro

I am interested in the matter. Is my hon. Friend so presumptuous as to suggest that apples are not grown in Worcestershire?

Sir Archer Baldwin (Leominster)

Perhaps I might tell my hon. Member that I grow seventy tons of cider apples a year.

Mr. Godman Irvine

I apologise to hon. Members who have apples grown in their constituencies. As far as I know, the only other hon. Member who has tabled Questions on the subject to the Treasury is my hon. Friend the Member for Ashford. I am well aware that apples grow in Worcestershire, Herefordshire, Gloucestershire and many other places. The fact remains that the hon. Member who has shown the greatest interest in the subject is my hon. Friend. As far as I am aware, only three people have been hit by the tax. Two of them are in my hon. Friend's constituency and one is in mine. In those circumstances, I hope that other hon. Members who have apples grown in their constituencies will forgive me for not including them in my remarks.

The Questions which have been tabled have produced no answers giving satisfaction. The answers have indicated that the information is not available. The information available to me could easily be obtained by a little research, and it is not by any means beyond possibility that the Treasury could give us the information if it were so minded. I see that the Economic Secretary has now taken the place of the Financial Secretary on the Government Front Bench, and I urge him to be good enough to ask the Chancellor to ascertain whether there is any way in which it would be possible to find whether the tax has produced £400,000 in a full year, or whether the sum is nearer £4,000, which is my estimate. If the latter is the case, there is a very strong argument for a review of the matter during the proceedings on this Finance Bill. One thing which can be said without any doubt is that the product which was produced in the House was not touched in any way by the measures then taken. Therefore, I urge that the information should be made available. If my estimate of the situation is the right one, the matter should be looked at again.

My constituent wrote a letter to the Financial Secretary on 27th February of this year setting out his company's production figures yearly from 1949. I do not think it necessary to offer the figures for consideration by the House, but I ask the Economic Secretary to turn the letter up again and he will see the steady progress made by the company, which compares very favourably with the company which produced the article exhibited in the House, until the tax was introduced in 1956. There was then a very steep decline, which shows that very real harm was caused.

Some of my constituents have been wondering why the Chancellor has not selected diesel oil for a reduction in tax but has reduced the tax on beer. I was satisfied by the argument put forward by the Paymaster-General, that when there was a tax reduction to be made an article was sought which had no element of import in its production. Cider has no element of import in its production. The apples available in my constituency and elsewhere are put direct into the product. There is no possibility of any of the three firms which I and my hon. Friend represent, at any rate in the near future, using imported apples in their product.

In 1956 when the tax was introduced the firm of which I have spoken was using 2,700 tons of apples. Its consumption of apples went down in 1958 to nil. It estimates that but for the tax it would today be using 7,800 tons of apples. I had hoped that if the Chancellor had been here the possibility of making a small contribution to solving the problems of the horticultural industry would have struck a responsive chord in his heart. I hope the Economic Secretary will bring the matter to his attention, and that if an Amendment is tabled it will receive his careful attention.

7.3 p.m.

Mr. John Diamond (Gloucester)

The hon. Member for Rye (Mr. Godman Irvine) speaks with great authority on a subject about which, I regret to say, I have comparatively little knowledge. I look forward to his Amendment, and I hope it may be possible for me and many of my hon. Friends to support him in pressing what seems to be, on the case he has made out, a very good point.

It is a good thing in a debate on a Finance Bill, if one is seeking for concessions, to try to pick out those things upon which both sides of the House agree. If we can find agreement on both sides we can hope to impress the Government Front Bench with the strength of our case. What has been mentioned particularly this afternoon, on both sides, has been the sad omission of relief to cinemas. The cinema tax should have been abolished a year ago on merit on the ground that it was no longer a profitable industry. The case against the tax was met halfway by the Chancellor when he accepted the argument, but did not have the money to go the whole way. Therefore, there was no case this year for not meeting it in full.

If any further evidence is needed of the lack of argument left to the Government Front Bench, it is the few words used by the Financial Secretary when he said he could not understand how it could be argued that we should turn to the television industry to make good the loss of revenue from cinemas. He pointed out that that would be selecting one industry in particular. That is exactly what is happening to the cinemas. The Government selected one industry virtually alone to bear an entertainments tax which has gradually come off all similar entertainment industries.

The profit from cinemas has gone into television because the habit of taking entertainment has gone from cinemas to television. There could be nothing more logical than that the tax should follow the revenue, and nothing more illogical than that an industry which is making a loss should have to bear the tax because the Treasury cannot keep up with the times, whereas the industry which is taking its place, and making enormous profits, should escape a special tax which could well be afforded on financial grounds because of the profits being made.

It could well be afforded on other grounds. The Government Front Bench could say, on behalf of the Conservative Party, to the programme contractors, "If it had not been for us you would not have had the opportunity to make these vast profits". It would be an easy matter to agree to contribute a special tax raising £10 to £12 million a year to replace the tax on the cinema industry which is now completely out of date. There is agreement on both sides of the House that there should have been complete remission of the tax on cinemas.

As to the second item of agreement, there is, as I was glad to hear from the hon. Member for Dover (Mr. Arbuthnot), some agreement that there should be granted to all taxpayers running businesses and owning plant the right to depreciate that plant at whatever rate seems to them best. I made this point in a Budget speech a year ago, but it does not hurt to say things twice or even three times. One has to wait a year or two before the Treasury ponders what one says and produces it out of the machine. In my 1945–1951 days I found that it took, on average, two years for a suggestion, provided that it was a good one, to mature and come to fruition. Therefore, I am patient in repeating what was mentioned only a year ago.

It is in the Conservative philosophy to allow a businessman to run his business his own way. It is in the tax system philosophy to allow the taxpayer to run his business his own way. Depreciation of plant is the only area in which the Inland Revenue attempts to interfere with the businessman and says, "You shall not do what you want to do in terms of running your business as you think fit. For Income Tax purposes you will write off or depreciate your plant and other assets over the life of the plant at the rates to be agreed."

It is within the Conservative philosophy to give complete freedom to the business owner. It is within the philosophy of the tax system to give the taxpayer the right to run his affairs his own way. It is also entirely within the economic desires of the country to give encouragement to those who want to change their plant fast and frequently and that they should be given fiscal inducement to do so by allowing them to write off their plant as fast as they wish. This is not a revolutionary experiment. It has been tried with considerable success in Sweden and perhaps elsewhere. There would have to be certain provisions to protect the Treasury in the first year or two. Once the system was under way, it should be of benefit to industry and do no harm in the long run to the Revenue.

Mr. E. Fletcher

I am listening to my hon. Friend's argument with great interest and sympathy. Would he apply this philosophy to all capital goods bought by any industrial or commercial undertaking, or confine it to plant and machinery?

Mr. Diamond

Instead of the present method of giving capital allowances, I would give the taxpayer freedom to depreciate at his own speed, not at a dictated speed, a condition being that his own speed was the speed at which he wrote off the assets in his balance sheet. If he chose to write them off very fast because he was in an industry where the assets ought to be renewed very frequently, good luck to him. That would be good economics, because the Revenue would gain in the long run. It would save a lot of trouble and would be consistent with the general philosophy of leaving it to the taxpayer to run his own affairs in his own way.

Mr. H. Lever

Do I understand my hon. Friend to advocate that a businessman should be allowed to depreciate his plant and machinery 100 per cent. in the first year of acquisition, if he thinks fit, thereby financing it as to half from tax relief, even though he then continues to run that machinery for another thirty or forty years without a change? Is that likely to be tolerable to the Inland Revenue, or calculated to encourage prudent investment?

Mr. Diamond

I know that my hon. Friend listened most carefully to everything I said, and, therefore, he will have heard me say that in the first year or two there should be some protection for the Revenue. It would be an unusual case for a businessman to be such a lunatic as to write off 100 per cent. in the first year in the case of plant which would last forty years.

Mr. Lever

Why not?

Mr. Diamond

I doubt if the plant would last for forty years. Let us suppose there is such an extreme case. It is true that it does not take us far with the general argument, but supposing this had happened, the situation would now be that the business would have considerable reserves in hand with which to expand when a period of expansion was called for.

Mr. Lever

At cost to the Revenue.

Mr. Diamond

It would cost the Revenue nothing in the long run. My hon. Friend has missed the point. To give allowances earlier, as we do in the case of the initial allowance, costs the Revenue nothing, except possibly interest on the money over the period in question. There is no cost to the Revenue except in the earlier years, and it has been shown to be a considerable benefit in other countries.

I have mentioned this point because it came from the other side of the Chamber, and it does no harm to concentrate on matters on which one might reach agreement and get the Treasury to move, rather than for each one of us to air our individual views, which might not make much progress.

There was also a powerful speech made by my hon. Friend the Member for Stoke-on-Trent, Central (Dr. Stross), in which he dealt first with pottery and later with gramophone records. Everything that my hon. Friend said about gramophone records would apply a fortiori to musical instruments. I was sorry that there was nothing in the Bill to relieve completely the tax on musical instruments. This point was debated at length last year and, therefore, I will not delay the House on it again now.

There are powerful arguments in support of this request. Everything that my hon. Friend said about records must apply even more to the performance of live music, even more to the difficulties put in the way of children learning to play musical instruments, and perhaps even more to executives who have to play musical instruments to earn their living. It is nothing less than a tax on culture. It brings in little and it ought to be abolished. We ought not to tax books or musical instruments.

It is delightful to us all to hear the Financial Secretary remind us of most of the Greek we had forgotten, or the Greek references that we have mostly forgotten. It is delightful to have such a cultured man taking our money from us—in some cases, of course, doing the reverse. I cannot understand why there is not pressure from a man like the Financial Secretary, and from the Economic Secretary and others, on an occasion when it is possible at small cost to do so, to widen our horizons by abolishing the tax on musical instruments.

Now I come to the essential policy imbedded in the Finance Bill, of which the Chancellor spoke so well, namely, the encouragement of our competitive position. The Bill seeks to give effect to that desire, one which I am sure we all accept. The right hon. Gentleman has done two things to give effect to his desire immediately to improve our competitive position. As the Chancellor pointed out, there are unused resources and assets in men and equipment and it is out of those unused resources that a great deal of additional production can be derived at no substantial cost. In short, it is out of increased productivity that we can improve our competitive position.

Two things, therefore, the Chancellor has done. In the first place, he has turned to the nationalised industries and is pouring into them this year a sum of approximately £650 million. That ought not to be overlooked. It ought, in fact, to be underlined that a Conservative Chancellor naturally turns first to the only method open to him of encouraging production immediately, by arranging for £650 million to be spent through the nationalised industries, whose policy of investment he can control.

It should be underlined that he does that, and that this Bill includes one short Clause to increase lending to certain of the nationalised industries by £650 million. It ought to be underlined that after eight years of power the Conservative Government are so satisfied with the wisdom of the principle of nationalised industries that they seek no longer to denationalise any industry and turn first, when the country is in need of increased production, to the nationalised industries, and to feed into them the substantial sum of £650 million.

The logic of the argument of the Chancellor is impeccable. The only difficulty I find with it is understanding why the right hon. Gentleman stopped short. What was the reason why he did not suggest any more nationalisation to enable him to do exactly what he wished, to encourage the productive capacity of the country? Perhaps the Chancellor felt that the Finance Bill is not, after all, the ideal medium for such an approach and, therefore, was condemned to leave it to a later stage notwithstanding, as he has shown by his speech on the Budget, that he is wholly satisfied that the best and quickest way of encouraging the productive capacity of the country is to use the nationalised industries. And what an important sector the public sector is, when he needs to do that.

The second thing which the Chancellor has done is to restore the investment allowances at the expense of the initial allowances. There will be an opportunity to debate this matter in detail during the Committee stage, but there are certain points which I hope will be regarded as of sufficient importance for the Economic Secretary to deal with them tonight.

The first is the question of timing. We all accept the fact that an improvement of our competitive position is urgently required. We all accept the fact that it is necessary, therefore, to increase investment now. We all agree that investment allowances have some effect, though a limited effect, in this and that therefore there should be encouragement for schemes for additional capital to be brought in as quickly as may be. It is clear, however, that major schemes cannot be put forward in the twinkling of an eye.

Indeed, the Bill does more than it need do in that respect, because if, in those schemes which have been slowly maturing over the past two years—and many schemes may take that time to mature—the final order for incurring expenditure happens to be given after 6th April, those schemes will gratuitously find themselves in receipt of an investment allowance, of a small subsidy as it were, which they were not expecting.

I draw the attention of the House to this point, because I am seeking an extension at the other end. In short, when, as the Chancellor warned us he will do, he decides to withdraw the investment allowances, I hope very much that he will give a full warning period, or that the withdrawal will take place in such a way that any schemes which are in mind, on paper or in the course of preparation, or have finally reached the stage where expenditure has been literally incurred within the meaning of the Section, will, nevertheless, attract this small subsidy, provided that they are completed within a reasonable period having regard to the size of the scheme.

A scheme involving a few hundred pounds presents no problem. A scheme involving tens of thousands and millions of pounds, which is one which we want to encourage and which has the greatest effect on our industrial capacity, as the Economic Secretary well knows from his engineering experience, takes time and, therefore, ought to be given time to mature.

It would he a great pity if the present feeling were allowed to continue. I assure the Economic Secretary that many businessmen feel that the investment allowances, having been introduced, then withdrawn and introduced again, and the Chancellor having said that he will withdraw them again very quickly unless people make use of them, are no longer sufficiently attractive to make it worth while their going to the considerable trouble of considering new and vast development schemes which the economy of the country urgently requires. I hope that the Economic Secretary will have some sympathy with what I am saying and will enable us to hear something about this this evening.

May I say, finally, on the question of investment allowances, that I hope the Economic Secretary will consider both the size of the investment allowances, the need to withdraw the initial allowances completely to the same extent, and whether or not it would be right that the investment allowances, where they are to be withdrawn, should be withdrawn completely. My view is that they should not be withdrawn completely. There should be some encouragements of this kind so that it may be known that there is, if not the fully subsidy, at least a small subsidy. We cannot go on any longer with an in-and-out investment allowance as we have done in the past and are to do again. I do not think that it is any longer sufficient encouragement especially when one bears in mind that during a period of deflation the investment allowance merely makes up for the deflation that is being suffered.

I cannot but feel that both with regard to the lack of further investment in the nationalised industries and the overcautious approach to the investment allowance, and certainly with regard to the manner in which step by step, always late, the Chancellor has removed restrictions which were keeping our economic capacity down, the approach of the Front Bench has been over-cautious and is still erring on that side. I suppose that that is the sort of philosophy that one is bound to expect in a Chancellor who believes in the old mottto of "Derick, or Little by Little."

Mr. Rankin

On a point of order, Mr. Speaker. In view of the number of hon. Members on both sides of the House who desire to participate in the debate, would it be possible, through the usual channels, for the time of the debate to be extended?

Mr. Speaker

This is a Bill founded upon Resolutions in the Committee of Ways and Means and, therefore, it is exempted business. The ten o'clock rule does not apply.

7.26 p.m.

Sir Robert Cary (Manchester, Withington)

I hope that the hon. Member for Gloucester (Mr. Diamond) will not convict me of being discourteous if I do not follow up his interesting speech. I intervene only briefly in the debate because I want to raise one special matter with the Chancellor. May I say to the hon. Member for Gloucester that I should like to hear him at greater length and perhaps at closer quarters on the interesting matter concerning depreciation. It is not a matter that I feel able to comment on myself without consulting my auditors, but in view of what has been said by the hon. Member for Manchester, Cheetham (Mr. H. Lever), I suppose he knows that I am Chairman of the Lancashire United Transport. If I had to write off any depreciation by replacing 500 double-decker buses within twelve months it would lead to an interesting business speculation.

May I add my congratulations to the Financial Secretary on the skilful and cogent way in which he has presented for the second time a Finance Bill to the House? May I also congratulate his Treasury draftsmen, when the Chancellor had so many benefits to confer, that whereas last year the Finance Bill was so complex that it contained 60 pages on this occasion it requires only 37 pages? I think that shows some skill in drafting for which the Treasury draftsmen deserve a meed of praise.

I want quite briefly and quickly to say to the Financial Secretary that. in spite of what he said about licences in respect of passenger service vehicles, the Budget does not begin to, solve the problem of rural transport which affects so many constituencies of hon. Members on both sides of the House. When representations were made to the Treasury by the industry concerned with this matter, perhaps it was a mistake to make them on fuel tax and licences combined. One costs £6½ million and, as the Financial Secretary said on 13th April, the other exercise, a high rate on fuel tax would cost no less than £30 million. He said on that occasion something of which I am not aware and, so far as I know, many persons in the transport industry were unaware. He said that successive Governments, including that of the party opposite, had made it quite clear that we cannot discriminate fiscally between road users and it would be quite unfeasible to remit the duty on buses only.

I say to my hon. and learned Friend that discrimination in a very subtantial degree exists already against buses. I will give a few examples. Fuel oil is totally free of tax when used for central heat- ing, making electricity, in bakeries, for the manufacture of glass and pottery goods, for agricultural tractors, for marine craft and stationary oil engines. Even the competing railways which use oil fuel in their rapidly growing diesel services obtain it tax-free. When in those circumstances those with the humble buses, be they double-decker or the modest single-decker buses of the rural services, plead with the Treasury that this penal tax of 2s. 6d. should be modified or eliminated, they are told that there cannot be discrimination between one user and another. I say that in those circumstances, if the 1d. had been withheld from the beer duty concession, a little might have been taken off the cost of petrol duty. If 50 per cent. had been withheld from that concession the benefit could have been transferred elsewhere to fuel. I believe that without some further concession being made to them, rural bus services will wither still more. This was put most cogently by a correspondent to The Times on Saturday, the Rev. A. C. Smith, rector of the South Ormsby group of parishes in Lincolnshire, who was complaining bitterly of the suppression of no fewer than nine services in his county and said: The problem of rural transport is one which must affect many more areas than ours and I would have thought the test of such a service for sparsely populated areas should not be 'Does it pay?'. but 'Is it necessary?'. The greatest possible hardship and inconvenience is being felt over this cancellation of services and, if decisions such as these pass unchallenged, we shall indeed soon have a depopulated countryside, empty village schools and man-power shortage in the farming industry on which so much depends. It is certainly true that rural bus services such as ours cannot he expected to show a profit, but if there is a case for a subsidy in any undertaking, it is surely right and necessary here. I think my hon. and learned friend the Financial Secretary might agree that when help is being given in another direction in my county—to the cotton industry, which is to find a newer level with a subsidy to the extent of £30 million—we might find a further withering of rural bus services if there is no benefit to them in this way, The big benefactor through licences is the double-decker bus operated by London Transport, but to the rural single-decker the benefit is infinitesimal. The time must come when, if these services are not helped by a concession over fuel oils, they will have the right to come forward to claim subsidy.

Splendid though the Budget is as a social measure, it has not begun to answer the problem of the rural bus services; but I cannot say that without at the same time offering the Chancellor some possible way by which he might proceed. As he knows, during the last twelve months, with one or two colleagues I have brought no fewer than three deputations to the Treasury on this subject. If the industry could produce a watertight formula by which he could completely separate rural bus services from urbanised services, he might be put in a stronger position to look at the problem of fuel taxation. I think it technically almost impossible for the industry to produce an exact watertight formula, but I put this to the Chancellor.

The Financial Secretary told us on 13th April that the abolition of the duty, which is one of the priorities named by the Front Bench opposite—the abolition of duty on passenger service vehicles—would cost £30 million. Of that £30 million, perhaps, the rural bus services in terms of fuel would use something in the neighbourhood of £5, £6, or £7 million. We cannot get an exact formula to separate these vital rural services from other bus services. I am not speaking of counties like Wiltshire, where there is a high proportion of areas of great prosperity, but of other areas such as those in Lincolnshire, Cumberland, Westmorland and Northern Lancashire, which are sparsely populated and where the withering of the bus services has been great.

If we cannot find a formula, could we use the agency of the Traffic Commissioners, of whom there are eleven, to check on these services? No one is a greater expert on the operations of public service vehicles than the Traffic Commissioners. Year by year, they have to analyse the figures of many companies such as mine. I ask the Chancellor to give sympathetic consideration to using "X" number of millions simply for the benefit of rural transport for one year, taking the Traffic Commissioners as fair witnesses that that concession made by him and costing £4 million, £5 million or £6 million for rural services, shall be applied strictly to those services for which the Chancellor intended it.

I have taken the trouble to discuss this matter in other quarters. I suggest that at the end of twelve months the Traffic Commissioners would be in a position to praise the scheme in its operation, or to denounce it if there were any abuse by those who ought to pay in full because they run urbanised or semi-urbanised services. If it is not possible to produce a technical formula on paper, I ask the Chancellor to take this step of risk by saying that he would give a taxed fuel benefit to strictly rural bus services if his eleven Traffic Commissioners would act as fair witnesses in the application of the sums and claims of the companies involved.

7.38 p.m.

Mr. Harold Lever (Manchester, Cheetham

): The hon. Member for Manchester, Withington (Sir R. Cary), who has spoken on a strictly non-party issue, has the support of all of us, and we would all grant him a figure of "X" millions of pounds at the earliest possible moment, but I am afraid that he will have great difficulty in finding a formula which is at all workable, even with the best will in the world, in order to encourage and preserve rural bus services.

The Chancellor has been congratulated so often on his modesty that I am sure that by now he is getting rather vain on the subject. Although I would readily attribute to him that virtue, especially intellectual modesty, I would rather congratulate him on his courage as an expansionist in a den of restrictionist Tories in producing the most imaginative economic policy ever produced by any Tory Government in a conscious attempt to use the money apparatus to meet the industrial and production means of our economy.

The right hon. Gentleman's only difficulty is that, being surrounded by restrictionists, he has to take every step with the utmost caution, and hence a little late. He has to make all the concessions irresistibly attractive to the restrictionists who surround him. He cannot make the tax concessions and reliefs where his own good sense of values and fair play would indicate that he is bound to make them, but where they will appease the natural deflationists on his own side of the House.

On the other hand, the Chancellor has shown great courage in producing a Budget which is imaginatively expansionist in its general tone, even though we on this side of the House cannot approve the particular directions which the Chancellor has chosen for tax relief and even though it is necessary for him to cover up with a barrage of restrictionist and deflationist platitudes the policy which he adopts.

Since the Chancellor has been in office, he has steadily undermined and sabotaged—it is all to his credit—the work of his predecessor. I think that his predecessor, the right hon. Member for Monmouth (Mr. P. Thorneycroft) was very popular as a person on this side of the House, but I am sure that we are increasingly reconciled to his departure from the Chancellorship by every speech he makes in the House. His speech in the Budget debate was no exception. He wagged a warning finger at the Chancellor, who has had the spirit to expand all forms of currency, front line or secondary. He warned the Chancellor that he would, as a result of the concessions he has made, have to go to the public and borrow more money. He warned the Chancellor that even Governments have to pay back the money they borrow.

If the right hon. Member for Monmouth really believes that in this day and age, I am bound to say that his concepts well fit him to be in charge of the funds of a Boy Scout troop and amount to a serious disqualification when it comes to managing the more complex finances of such a great industrial country as ours. If he honestly went into the Chancellorship and had sleepless nights because he could not immediately envisage, or even envisage in the distant future, the repayment of our National Debt, I am bound to say that he has serious disqualifications for ever returning to that office.

This country can never pay off its National Debt. The National Debt of a modern society and modern economy is, as it were, a second-line currency no more redeemable than the £ note. The £ note is a promise to pay by the Governor of the Bank of England or someone on his behalf. If one goes to the Bank of England for it to honour that promise to pay, it promptly proceeds to give one another promise to pay in its place. The same applies to Government borrowing in all forms.

There is no office where intellectual modesty in these days is more apt and more calculated to produce some success than the one which the Chancellor has the honour to occupy, because he is attempting to deal with so many unpredictables from all parts of the world which impinge upon his plans. He is attempting to forecast the tendencies to save of people at home, productive tendencies abroad and the imponderable ebb and flow of economic tides in the world, which no one has begun to understand.

I am very much afraid that, owing to the lack of support which the Chancellor has from the benches behind him, at the first difficulty he meets he is liable to have to be as good as his words and retreat into conventionally wise restrictionism—the "boy on the burning deck" restrictionism of the right hon. Member for Monmouth.

I think that the hon. and gallant Member for Worthing (Brigadier Prior-Palmer) most picturesquely expressed the general sentiment held on the other side of the House when he said that he was afraid that the Chancellor's shot in the arm might produce an inflationary spiral. Without attributing too much to the mixed metaphor, the hon. and gallant Member very aptly described the sentiment on the other side of the House. The thinly veiled hostility of the Chancellor's predecessor and assistants at the Treasury make me alarmed that, should he bump into trouble with an exchange crisis, a price rise or anything of that kind, he will be pressed with the policies of restrictionism.

The Chancellor will not meet with any special difficulties in implementing the economic policy which he has undertaken, not only in the Budget but in the previous financial Measures, which form a coherent pattern.

I ought to venture, with all modesty, to give a warning to the Chancellor. It is easy to overestimate the impact of these financial Measures. I often think that King Canute and his advisers would have gone down in the history books with a very different reputation if the courtiers had timed the king's arrival at the beach as the tide was going out. I am bound to say that some of the triumphant financial measures which Chancellors have taken have succeeded only because, even if the Chancellors had not ventured in that direction, the economic tide was moving that way and things would have happened in that way in any event.

I warn the Chancellor that by his economic and financial policy he has, in effect, told the tide to come in rather more rapidly. I think that it will, because there is a great deal of evidence that the tide was on the turn, quite apart from the Chancellor's measures. That does not make me welcome any less the fact that the Chancellor has abandoned the restrictionist approach of the right hon. Member for Monmouth and has given a much needed, and even belated, stimulus to our economy.

However, I wish to give the Chancellor a little aid and comfort from this side of the House. Though we deplore the fact that he has not made the concessions in the way we would have done, we unhesitatingly back him in his expansionist policy, because, after all, the central economic problem of the Western world since 1919 has been that there has been a departure of interest between the industrial productive power and the money mechanisms. The key problem ever since 1919 has been how to bring together again the needs of the productive industrial machine, on the one hand, and the money mechanisms, on the other.

The attitude hitherto has been that one can allow one's productive apparatus to work provided only that it is without prejudice to the money mechanisms, whereas the Chancellor, for the first time on the Tory side of thinking, has adopted what is fundamentally, we believe, the Labour Party view that the money mechanisms must be adapted to meet the needs of production. If the Chancellor has the courage to carry on in that line, he will undoubtedly have a good deal of success.

The only point I must warn him against is this. The right hon. Member for Monmouth and his followers, who believe that production must be made to conform to the needs of the money mechanisms, are by no means permanently routed. They will urge upon the Chancellor that he should budget for an overall surplus and that he should cover in his Budget not merely the current spending but his capital account spending.

I do not understand why this should have some magic. I do not know what law of logic says that we should pay out of current taxation for capital formation. But this is much favoured by the right hon. Member for Monmouth, who we know has this nightmare that he will have to pay back what the Government has borrowed, by the Governor of the Bank of England and by many other persons of great influence on the Chancellor's side. The Chancellor has defied them for a moment, but at the least sign of trouble he will have them on his trail again.

Another threat they will hold over him is this. The arch-deflationists who believe that we should adapt production to the needs of a somewhat fossilised money mechanism have always threatened us that our currency at home and abroad will be in danger once the money mechanism is forced to change in order to meet the needs of current productive inventiveness.

Let us deal with this briefly. First, the deflationists have always warned us that the devaluation of the unit of currency at any time and in any amount is necessarily, and in itself, evil. That is not true, although I am bound to say that every Chancellor of the Exchequer we have had since the war has pledged himself to do his best to maintain the value of the unit of currency. Luckily for the country, none of them has succeeded, because of the devaluation of the unit of currency. When as a result of six years of war we have had to bring into being a vast stack of paper money, unrepresented by any real wealth because it had been destroyed in the war, we have set up a defence mechanism in the economy, bringing into some sort of relationship with production the burden of a fixed interest debt.

If the Chancellor's predecessors had obeyed the nostrums preached by the so-called sound financiers and had successfully preserved the pre-war value of the £, the economy would now be at a virtual standstill, because the burden of debt arising from the war would have been beyond the power of industry to sustain. Germany is always held up to us as a prime example of a virile and flexible economy. The German economic recovery owed no small part of its impetus to the fact that this process of relieving the economy from the burden of a paper debt unrepresented by real values, which inevitably follows a war, was carried out in Germany more thoroughly, drastically, surgically and deliberately than in any other country. They proceeded to devalue their currency by 80 per cent. or 90 per cent. in one operation.

When the right hon. Gentleman is pestered at any stage by his reactionary colleagues—as he will be—he should remind them that if their obstinacy in these matters had been successful we should have been in a very bad way indeed. The reactionaries opposite also tell us that it is all very well having all this production, but we dare not bring it to a point where it threatens our balance of payments position. Even the Chancellor pays lip-service to that proposition. I admit that it is only lip-service, but it is lip-service to the ideals of the right hon. Member for Monmouth even when engaged on the steady and systematic sabotage of the former Chancellors policy. I am frightened that he may have his words quoted back at him.

I hope the Chancellor realises where that philosophy gets us. If the solution to our balance of payments difficulties is to sabotage production, whether it is done in a scientific and surgical manner by the Treasury, by way of credit restrictions and the withdrawal of capital, or what you will, it means that the Chancellor is on the side of the unofficial strikers. If the object is to slow down production, and if the country is to be asked not to go all out because it will unbalance our balance of payments abroad, why should the right hon. Gentleman and his able assistants be troubled to think up schemes of economic and financial restriction?

Let them encourage the unofficial strikers. Let them encourage all those who have a vested interest in restrictive practices which everybody normally preaches against. They are splendid things for slowing down production and not putting a burden upon the balance of payments position. The Chancellor must know that the doctrine which he preaches makes him a sort of Luddite of the Right. He is saying that because of the need to balance payments abroad we must restrict production at home.

If that sort of problem arises the right way to solve it is not to have Luddism at home but to sell some of our foreign securities which were built up for a rainy day. It would have been far better if, in 1957, we had sold two hundred million £s worth of dollar securities than to have had a permanent setback in the road and rail efficiency programme, or put it out of alignment. It would have been far better if we had sold a couple of hundred million £s worth of those securities and devoted them to urgently required re-equipment at home, or temporarily suspended the liberalisation of trade abroad. If the Chancellor meets an exchange crisis in the course of his expansionism—and the signs are hopeful that he will not—I hope that he will look for a solution in this direction.

His best course is to make international arrangements in good time to protect us from again being placed into the imbecile situation of 1957 when, with a first-class export surplus, we found ourselves running an exchange crisis caused by people hedging on sterling which caused us to make a drastic readjustment of our financial policy. His best course would be to make international arrangements to underpin sterling. I know that something has been done in that direction, but I hope that more will be done. That would be a tremendous defence, which would prevent us finding it necessary to do injury to our economy when temporary runs on the reserves occur.

Deflationists are very keen upon statistical exercises whereby they create a sum of money on paper which will involve tremendous investment or tremendous savings, and the like. Many of their theories have no evidence to support them. I hope the Chancellor will continue to resist the notion that it is his duty to budget for a surplus in times such as these. In fact, the Chancellor's boldness is boldness only by contrast with the attitude of his predecessor, because he is budgeting for a current surplus. I wonder when we must budget to balance our account on current account. Why should the nation pay currently more tax than is required for current expenditure, when it is quite plain that there is no sort of inflationary pressure in this country, and no sort of failure on the part of the country to export what is required to pay for its imports?

As I have said, since 1919 the great threat has been that we have had two interests pulling against each other—the industrial interest on the one hand, and the purely financial interest on the other. There have been some very interesting moves. The exchange of the present Chancellor for the right hon. Member for Monmouth has been paralleled, oddly enough, in the economic scene outside. The purely financial interests that used to be powerful advocates of the policies pursued by the right hon. Member for Monmouth have realised that they are not applicable in these days, and we have seen all the classic financial institutions—the banks, the insurance companies and the pension funds—acquiring interests in industrial assets and ceasing to be pure money financiers; that is to say, they are becoming part businessmen and part financiers. This is the first external sign that we have had of the resolving of the conflict between pure financial capital and industrial capital, and it is a very wholesome sign, which bodes well. It means that the Chancellor will not be quite so subject to pressure from the right as he otherwise would be.

We must examine the consequences of this movement. If we are really to draw together the purely money power and the productive interests, and if the needs of production are to predominate over the needs of the money mechanism, we must also see that something is done about the traditional approach to savings generally. Is it not the Chancellor's duty, as the most modern-minded of all Tory Chancellors so far, to review in his modern-minded way the whole approach to the savings of working people?

The Chancellor keeps advertising, "Your savings are safe and always increasing." I am not blaming him; it was his predecessors who were responsible for this slogan, but it would be truer if they had said, "Your savings are safe and always decreasing in their real buying power." I am not going to venture to put forward a snap solution to the savings problem in this debate, because it would not be proper for me to do so, but the Chancellor must review the whole question of working-class savings. He must find some way in which they can be geared to the increasing real wealth of the community. We are now moving into an area of general agreement that the increase in the real wealth of the community is the prime object of both parties. It is therefore necessary to ensure that the workers' savings should be safe in terms not only of monetary units but of real wealth, by ensuring that they increase yearly in the same manner as does the wealth of the community.

It is remarkable that the most Marxist and materialist of the trade union pension funds have not been so quick off the mark as have the princes of the Church in appreciating the facts of the modern world in which we live. It is a healthy sign that there should be this drawing together of the money power and the industrial and productive interests, but it is important that when we see it happening we should realise all the consequences, one of which is the need to protect the real value of the workers' savings.

Although I am on the side of expansion, like the Chancellor, and although I am insistent on the money mechanisms being made to serve the needs of production, and that production must not be strangled to suit the needs of outmoded money mechanisms, I would point out that nobody on this side of the House is prepared to suggest wild, speculative or unstable movements of currency. We say that we must face the world in which we live and be ready to accept certain tendencies in the value of currency at certain times, especially after a war.

It may be that we are not in for quite such an amount of depreciation in our currency in the future as was inevitable after the war, with the vast amounts of paper money that we created. I congratulate the Chancellor on having the courage to produce an expansionist financial policy, perched precariously as he is in a nest of deflationists and archrestrictionists, and those who have acquired a regular habit of financial sadism in taking the maximum amount of tax from people in all sections of the community—a habit in which they have been able to indulge too liberally in the years since the war.

Nothing that I have said by way of congratulating the Chancellor must be taken as any diminution of the criticism freely made by my hon. Friends of certain aspects of the implementation of his policy. The great moral outrage of our society has not been that economic movements have produced discrepancies of wealth between different classes. Deplorable as that may be, the fundamental economic and moral outrage of our economy has been the failure to permit the advantages accruing from all kinds of inventiveness to be available to every- body by full use of our productive power. The way in which they are shared becomes increasingly less relevant the more production we can amass. It is in that spirit that I approach the Chancellor's Budget, and I support what has been said by the Opposition Front Bench, namely, that we shall assess his policies more for their overall economic effect than for any particular sin he may have committed in the distribution of his tax reliefs.

8.5 p.m.

Mr. Gerald Nabarro (Kidderminster)

The only effective rejoinder to the speech by the hon. Member for Manchester, Cheetham (Mr. H. Lever), who continued to aver, throughout his speech, that there was some fundamental difference of policy and approach as between my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) and my right hon. Friend the present Chancellor of the Exchequer, is to be found in c. 764 of the OFFICIAL REPORT of our proceedings on 13th April, where my right hon. Friend is reported as having said: … the preservation of expansion and employment, themselves basically depend upon internal and external stability. It was because of those considerations that the Government adopted the measures which my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) so courageously initiated in 1957, and the improvement in our affairs which has resulted since then is the clearest demonstration of their rightness."—[OFFIcIAL REPORT, 13th April, 1959; Vol. 603, c. 764.] I claim that there is complete identity of view between the present Chancellor and the previous Chancellor and, for myself, there is absolute support for the measures which have been taken to restore that internal and external stability.

At the outset, I wish to congratulate my hon. and learned Friend the Financial Secretary upon the cogent fashion in which he led the House through the complexities of the Bill, notably the fashion in which he explained parts of it which I readily confess are almost totally foreign to me, namely, those dealing with the beer and licence duties in Clauses 1 to 5. We are all indebted to him for that.

I wish to address my remarks hereafter to four main considerations: first, Clause 27 of the Bill, the method of financing the nationalised industries; secondly, Income Tax; thirdly, Purchase Tax; fourthly, the beer duty.

It was my right hon. Friend the Prime Minister who, when Chancellor of the Exchequer in 1956, initiated the method of financing nationalised industries other than the National Coal Board by direct Exchequer grants, and it was during the debates in the early hours of the morning at that time to which my hon. and learned Friend referred, that my hon. Friend the then Member for Ealing, South, Mr. Angus Maude, by noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) and I were somewhat critical of this procedure. We were critical because the huge sums of money envisaged for financing the nationalised industries appeared to us to be pushed farther and farther away from parliamentary accountability. Nothing that has happened in the last three years has changed my opinion.

Once this Clause of the Finance Bill this year, which extends for another year, this method of financing certain nationalised industries and increases the limit of Exchequer grant from £1,070 million to £1,620 million—an increase of £550 million—is passed through the House and is part of the Finance Act, then, during the following twelve months, the House will have little or no opportunity of controlling the extent and the manner in which these huge sums of money are expended.

I shall, of course, receive from my right hon. Friend the Chancellor the stock and stereotype reply. Every Chancellor for the last three years has used it. It is that members of the Government authorise the capital expenditure programmes of nationalised industries year by year. It is true that they authorise them, but we in the House of Commons do not authorise them and we have no opportunity of scrutinising and voting upon them. We are involved here with huge sums of money, an increased limit of £550 million in a single year.

I ask my right hon. Friend whether he will, without referring to my fundamental criticism of this method of financing, tell the House whether the contents of Clause 27 are merely an interim measure to extend existing procedure for a further year until alternative methods for financing the nationalised industries are adopted, or whether Clause 27 is to be a permanent feature of future Finance Bills and, as in the case of the Income Tax Clause, amounts merely to an annual sanction and annual approval by the House of Commons.

It is important to my hon. Friends and me. for many of us are interested in this, to know whether the policy in this respect is now decided, based on the contents of Clause 27, and whether it is to be merely an annual renewal or whether the Chancellor has merely extended it for a period of one year pending the adoption of an alternative policy for financing these very large investment sums.

I come now to the sinews necessary to support Clause 27. All new capital formation and fixed investment should be based upon the aggregation of real net savings. My right hon. Friend and his Conservative predecessors have a magnificent record in that respect. It is only necessary for me to quote two figures in comparison with one another to bring out why the record is so magnificent. In 1949, the total of savings was no more than £224 million. In 1957, the total of savings was £1,484 million, a figure approximately six and a half times as great.

That, I think, is a testimony to the mounting strength of our economy and, what is much more important to me philosophically and, I am sure, to hon. Members in all parts of the House, it is a testimony to returning habits of thrift in the British people and their confidence in the value of their money in the future.

Mr. H. Lever

The hon. Gentleman says that it is due to confidence in the maintained value of the £ sterling and its internal buying power. There is no ground for that confidence in the record of the present Government.

Mr. Nabarro

I think that there is a good deal of ground for confidence. Since the autumn of 1957, prices have remained relatively stable, within two points in the cost-of-living index, and in the last twelve months there has been practically no variation at all. This is a much better record of price stability than the record at any other time since the war.

In my opinion, this has been buttressed in the last year or two very largely by the level of savings. I appeal to my right hon. Friend this evening to re-examine the whole structure of personal savings in this country, for I feel that to finance the huge sums required for below-the-line expenditure—over £720 million in the current financial year—the present level of savings, even the record level of savings of the last two years, will not be sufficient.

I want my right hon. Friend to do three things in support of Clause 27 and of the expanded rate of investment, in order to stimulate personal savings. First, I want him to examine the present issue of National Savings Certificates which, surely, has practically run its course. It has been issued now for three years, the tenth issue on exceptionably favourable interest terms, and I suggest to my right hon. Friend that, within the next few weeks, there should be either a new issue of National Savings Certificates, an eleventh issue, to supplant the present issue, to attract to the national savings fold those persons who already hold the maximum or, alternatively, there should be an increase in the maximum which, at present, is 1,000 units worth £750. That is my first savings proposition.

My second savings proposition relates to Premium Savings Bonds. They have done very well since they were introduced by my right hon. Friend the Prime Minister in his Budget in 1956. In my view, they could be extended a great deal more. I would far sooner people bought Premium Bonds than invested in the football pools. I am sure that most of us would feel that it is much more to the national advantage and interest that people should be encouraged to buy Premium Bonds rather than invest in football pools, greyhound races, or things of that kind, although I myself have no objection to their doing the latter if they wish. Further to encourage the sale of Premium Bonds, the waiting period should be reduced from six months to three months, and the maximum holding should be increased from £500 to £1,000.

My third savings proposition relates to a matter which has not been explored for very many years. A valuable form of personal savings and family security is enshrined in the life endowment insurance policy. Premiums are relieved of Income Tax as to 3s. 6d. in the £, and a maximum of one quarter of income is set in respect of that relief. Those figures were settled very many years ago.

In the light of modern conditions, I consider that my right hon. Friend might well re-examine the matter with a view to doing the following things: first, increasing the Income Tax relief from 3s. 6d. in the £ to 5s. in £ the; secondly, increasing the maximum in respect of which relief is granted from one quarter to one third of personal income. I am convinced that if the Chancellor would follow those three lines in regard to National Savings, Premium Bonds and tax relief on premiums for life endowment policies, he would stimulate the level of personal savings by a margin sufficient to support the very large level of below the line expenditure amounting to approximately £720 million in the current year to which he referred in his Budget.

I come now to Income Tax. This is, I think, the eighth successive year in which I have been privileged to speak on the Finance Bill. I deliberately refrain from endeavouring to speak in the Budget debate, because there are points that I consider may more directly be made against the background of taxation generally, during this debate. Almost every year I have said to the Chancellor of the Exchequer that the capital allowances for industry are no real substitute for a reduction in the level of direct taxation, or the reduction of the standard rate of Income Tax.

Last year, the Chancellor went on record as agreeing with me. This year, he has done both. He has reduced the standard rate of Income Tax by 9d. and he has restored investment allowances. I feel confident that those two measures in concert one with the other will result, first, in a substantial expansion of investment in private industry, and, secondly, in an additional contribution to savings. I support entirely what he has done in regard to investment allowances.

I must deprecate the suggestion made from the benches opposite about increased depreciation allowances. I did not wish to interrupt the hon. Member for Gloucester (Mr. Diamond), but I think that somebody might have told him one of the fundamental facts of industrial taxation, particularly in regard to depreciation and obsolescence. It is simply expressed in this way. The aggregation of annual depreciation allowances, plus the obsolescence allowance, equals the historical cost of the plant. This means that an investor in industry always recovers 100 per cent. of the historical cost when the item of plant or equipment finally is scrapped. That is a system which I do not wish to see altered. An investment allowance, on the other hand, is a bonus on top of the historical cost of the plant. It is, therefore, a very real incentive.

I wish to make two comments about the Income Tax provision in the Bill, and I hope that my right hon. Friend will not regard me in any way as being ungrateful for what he has done. My comments are simply these. He proposes to reduce the standard rate from 8s. 6d. to 7s. 9d. in the £, and to reduce the three lower bands from 6s. 9d. to 6s. 3d., from 4s. 9d. to 4s. 3d., and from 2s. 3d. to 1s. 9d. Thus, we are now to have a pattern of Income Tax comprising rates at 1s. 9d., 4s. 3d., 6s. 3d. and 7s. 9d.

Among other attributes, I have been blessed with a meticulously tidy mind. [Laughter.] I am sorry that that confession evokes hilarity. I believe in simplicity in all arithmetical, financial and fiscal matters. It is very easy for the Inland Revenue to get out its P.A.Y.E. tables. It is very easy for a firm possessing automatic computing office machinery to calculate the liability to Income Tax of wage and salary earners based on this 1s. 9d., 4s. 3d., 6s. 3d., and 7s. 9d. series.

I endeavoured to show, in an intervention in a speech by my hon. and learned Friend, that the Treasury conveniently forgets that an integral part of the P.A.Y.E. system is the use of hundreds of thousands of unpaid tax collectors, namely, the employers, many of whom have no office machinery to help them. Of course, in my businesses I employ office machinery and clerks who can work P.A.Y.E. tables at speed, but in computing the P.A.Y.E. of my gardener at home I find it very difficult to operate a system, without office machinery based on the 1s. 9d., 4s. 3d., 6s. 3d. and 7s. 9d. series.

I have, as I say, a meticulously tidy mind. The Chancellor of the Exchequer would have been better advised, at almost equal cost—and I hope that he will not come back and argue about marginal differences—to reduce the standard rate from 8s. 6d. to 8s. and the lower bands from 6s. 9d. to 6s., from 4s. 9d., to 4s. and from 2s. 3d. to 2s. The effect would then have been to create the two-four-six-eight stairway of Income Tax.

Mr. Gordon Walker

Quite right.

Mr. Nabarro

I am glad that I evoke a note of sympathy from the Front Bench opposite. I am sure that I am right in this matter and so are the overwhelming majority of business people.

I have the greatest gratitude for what my right hon. Friend has done in reducing Income Tax, but I hope that he will not say that his officers at the Inland Revenue approve of what he has done. Bureaucracy has a vested interest in building empires and believes in complexity and more, fatter and better jobs for the boys. I am a private enterpriser working out my own tax, and I believe in simplicity, as a simple-minded soul.

My second comment on Income Tax matters is longer term. For far too long company Income Tax has been obliged by Statute to move and to vacillate, in consonance with individual and personal Income Tax, up and down. I thoroughly object to that. I am not speaking of the kind of corporation tax which my right hon. Friend abolishes in the Finance Bill, but corporation tax in the sense of company taxation. I object to company taxation always being tied to personal taxation, because in a modern society economic and financial consideration require that from time to time the levels of those different forms of taxation should be operated separate and distinct from one another.

Mr. H. Lever

They are now.

Mr. Nabarro

They may be to a degree.

Mr. Lever

To a very great degree.

Mr. Nabarro

To a degree. However, the standard rate of Income Tax is not, and that is what I am directing my comments to.

Mr. Lever

rose—

Mr. Nabarro

If the hon. Gentleman will allow me to complete my argument, I think that, as a businessman, he will agree with me.

Today, the standard rate of Income Tax applicable to companies is 7s. 9d. in the £. In addition, there is a 10 per cent. Profits Tax, my right hon. Friend having amalgamated distributed Profits Tax and retained Profits Tax in the Finance Act last year. That means that the total level of company taxation is 9s. 9d. in the £, or 48¾ per cent. In the case of individual taxation, it is 7s. 9d., 6s. 3d., 4s. 3d. and 1s. 9d. I hope that next year, whichever party is in power—I feel confident that it will be my party, and that is why I am making these comments—company or corporation taxation will be separated from personal taxation within the field of Income Tax and that we will have a straight percentum tax for companies and the present arrangements for Income Tax applicable to individuals. if my right hon. Friend has not time this evening to respond to this point, will he tell me at some time the disadvantages of doing what I propose, evidently with substantial support from all parts of the House.

I now wish to say a word about Purchase Tax. No speech from me on fiscal matters could possibly be complete without a reference to Purchase Tax. My right hon. Friend is moving slowly and inexorably in my direction. [Laughter.] I am sorry that my right hon. Friend laughs at what I have said; it was not meant to be funny.

Mr. Ede (South Shields)

The hon. Member does not know how funny he is.

Mr. Nabarro

That may be so, but there is more than one way of earning a living, whether as comedian or politician. They are not very far removed from one another, on occasion.

I have advocated during the last two years that the whole ramshackle structure of Purchase Tax should be drastically reformed so that a relatively low rate on goods for general consumption might be spread over as wide a field as is practicable. I have advocated a single, flat, non-discriminatory rate of tax. I said last year and the year before during our Finance Bill debates that the reason I advocated this was largely because, in peace-time, and with an expanding economy, there cannot be any such a thing as a luxury.

It is manifest nonsense for the hon. Lady the Member for Flint, East (Mrs. White) to advocate the abolition of the 5 per cent. rate of Purchase Tax because it includes clothing. If that rate were abolished, the tax on a Christian Dior model gown at 200 guineas would be removed. It is not merely working-class clothing which is taxed at 5 per cent. It is impossible to distinguish within the Purchase Tax schedules—and I purposely put this as a lurid example—the working woman's woollen dress priced at 30s. and the Christian Dior gown at 200 guineas. They are both articles of feminine apparel. Equally, it is impossible to distinguish in the Purchase Tax schedules on fur coats, between relatively a cheap beaver coat and a mink coat. All are taxed at 25 per cent. My point is that in peace-time, with an expanding economy, there is no such thing as a luxury article.

My right hon. Friend the Chancellor of the Exchequer moves slowly and inexorably towards the Nabarro formula enunciated over the last two years.

Mr. Gordon Walker

Shame.

Mr. Nabarro

The right hon. Gentleman says "Shame". Listen to my right hon. Friend's words on 13th April. I might have written them myself last year. What I said last year, the Chancellor does this year. I am not in any doubt about his sympathetic movements. My right hon. Friend said: I, on the other hand, think it should be a tax at relatively low rates spread over as wide a field as practicable on goods for general consumption. What an impossible task it is anyhow to draw a line where luxuries start and non-luxuries end. I decided on a fairly general reduction in rates and in doing so provided substantial and welcome relief for consumers over a wide range of household and personal articles whilst avoiding any weakening of the foundations of this important tax."—[OFFICIAL REPORT. 13th April, 1959; Vol. 603, c. 770.] I am grateful to my right hon. Friend. He has brought down Purchase Tax this year by £81 million in a full year. Any Chancellor of the Exchequer who takes the huge sum of £81 million off Purchase Tax in a single year is a good friend of mine, whether he likes my being a friend of his or not. My right hon. Friend has brought the rates down to 50 per cent., 25 per cent., 12½ per cent. and 5 per cent. It should be borne in mind that only a matter of fifteen months ago, these rates were 90, 60, 50, 30 and 15 per cent., with two lower rates as well.

The measure of the reduction, scorned by hon. Members opposite in earlier speeohes, has not yet been brought out in these debates. For example, cosmetics have been reduced from 90 to 50 per cent. in fourteen months or less. For example, a refrigerator or a washing machine or domestic electrical equipment of a wide variety has been reduced from 60 to 25 per cent. in less than fourteen months. For example, in three short years carpets have been reduced from 30 per cent. to 12½ per cent.

All these articles are essential to every section of society, and they include motor cars. It was the Leader of the Opposition who exclaimed at the Labour Party Conference last year that there is one motor car in every four families today and that the Labour Party's objective is that every family should have a car.

Mr. Gordon Walker

Of course.

Mr. Nabarro

"Of course", says the right hon. Gentleman. That is exactly my case. Why, therefore, should these essentials of life be put farther and farther out of the reach of the working population by maintaining an exhorbitant and discriminatory rate of Purchase Tax upon them? There should be a single, flat-rate, non-discriminatory form of indirect taxation. It could be a Purchase Tax at the wholesale level, as at present, but a single flat-rate and non-discriminatory. It may be a retail sales tax, if it was desired to collect it over the counter—personally, I do not favour that—or it may be, as in Germany, a turnover tax at source. I do not mind which of those three alternatives is ultimately adopted so long as it conforms to the Nabarro desiderata, which are that it shall be at a single, flat and non-discriminatory rate.

Sir A. Spearman

Nabarro is not always wrong.

Mr. Nabarro

My hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) observes that Nabarro is not always wrong. I accept his advice with gratitude.

The fourth heading of my speech is the question of beer duty, which is enshrined in Clause 1 of the Bill and consequential and associated provisions in Clauses 2 to 5. Mine is a large hop-growing constituency. Therefore, my constituents are grateful to the Chancellor of the Exchequer for securing the future of their industry. I hope that my right hon. Friend will tell me, when he winds up the debate, that it is his intention to continue the import duty on hops, which assures that the British hop grower has 99.5 per cent. of the British market within the aegis of the best of all our marketing boards, the Hops Marketing Board.

I feel that the Chancellor has done a very risky thing in reducing the beer duty. Between now and next year, he will have to withstand very powerful pressure groups from the whisky industry and the tobacco industry, both of which are huge revenue raisers. I, for my part, was content to pay the beer duty at the level which existed before the 2d. per pint came off, for the rest of my life. I was also prepared to pay the present level of the duty on whisky and the present level of the duty on tobacco. They are all vices of mine. I am a substantial consumer of beer, and a less substantial consumer of whisky.

The overwhelming majority of the British people were prepared to pay these levels of tax and duty, because they felt that they were providing the means of financing the Welfare State. It is a mistake to take 2d. off a pint of ale. The pattern of revenue cannot remain static, decade by decade. If beer consumption drops off, something else will go up. If television goes up, the cinema drops off. I think that it is a mistake to tamper with the beer duty, for the £40 million could have been so much better spent and with much better value to the economy, elsewhere.

I am not alone in this. As to the cost-of-living index argument, as an amateur statistician, I reject it absolutely. I am glad that my right hon. Friend is writing down those important words. As an amateur statistician, I reject it absolutely, but I am not alone. The Chancellor might turn up—his advisers would quickly furnish it for him—the leading article in the Economist of 14th April. These are its words: The other major, and intended to be popular, reduction of indirect taxation—the 2d. off the pint of beer—was excused by the Chancellor on the ground that it should have an especially marked effect in reducing the cost-of-living index. This is a nonsense argument; £36 m Ilion of reliefs to consumers, however distributed, must always mean £36 million of reliefs to consumers, no more and no less; and the extent that it may look like more than £36 million in the index that must be mainly because the weighting given to beer in the index is bogus. But there is some excuse for the reduction in this duty because the consumption of beer has recently been falling and may respond to price cuts; moreover, the tax is still very high. At worst, the 2d. off the pint is a piece of pre-Election vote-fishing that need not be regarded with specific gravity. So says the Economist.

I believe that if it is a piece of electioneering it is rather old-fashioned in concept. Had I been Chancellor—a position which I hope to occupy one day —[Laughter.] I never advocate anything in fiscal matters without saying to myself what I would do if I were Chancellor. [An HON. MEMBER: "Prime Minister.] An hon. Gentleman says that I will be Prime Minister. The office of Chancellor of the Exchequer is always a stepping-stone in that important direction.

I say to my right hon. Friend that the cost of his concessions in Clauses 1 to 5—the beer duty and associated ventures—is £40 million in a full year. The 2d. off the pint costs roughly £34½ million and the licence duty alterations cost £5½ million. On grounds of administrative simplication and of economy in administrative costs, I would most certainly have reformed the licence duty arrangements at a £5½ million loss to the Revenue, but the other £34½ million equals almost precisely the net cost of abolishing Schedule A tax for 7 million home owners. I would have done that outright, and for this very good reason. For every £1 million of tax collection in the administrative cost of assessment and collection of Schedule A, with the multitudinous maintenance claims made against it, it is today the most costly, administratively, of any form of taxation.

Does my right hon. Friend know, as a bachelor—I do not hold that against him—the huge amount of work which is involved between the local tax offices and taxpayers, in respect of maintenance claims against Schedule A tax every year? I am typical of millions of home owners, arguing with the local inspector about the cost of installing a new fire grate, or a washer far the kitchen tap, and in respect of each item, with supporting bills produced, discussing what part of the cost would be in respect of some element of improvement, and therefore, disallowable, and what is genuinely a repair and maintenance item.

Mr. H. Lever

One way out of the difficulty would be to withdraw the allowance and not the Schedule.

Mr. Nabarro

That is a theory, but I did listen to the hon. Member for 35 minutes without interrupting him once.

Mr. Lever

I was not interrupting.

Mr. Nabarro

I will give way to the hon. Member if he wants me to.

There is a suggestion for dealing with it, by increasing the statutory allowances. My right hon. Friend the Member for Blackpool, North (Sir T. Low), in his speech on the Budget this year, mentioned it. But that does not meet the administrative difficulty. At a cost of £34½ million, the whole of this wretched abracadabra of maintenance claims and Schedule A tax could be swept away.

My right hon. Friend will not like what I am going to say, for he rarely likes what I say to him on these matters. Abolition of Schedule A tax would have been exactly in consonance with the Tory philosophy of a property-owning democracy, and it would have been far more valuable than the alleviation of Stamp Duty. He alleviated Stamp Duty on conveyance on houses up to £3,500 in last year's Finance Act, and he should have dotted the "i's" and crossed the "t's" by scrapping Schedule A this year, instead of employing that old-fashioned electioneering gambit of 2d. off beer.

I shall not vote against the Government on it. I shall not vote against them on any Clause of this Finance Bill in Committee, or against any of those limited Purchase Tax matters, which we may be able to discuss against the background of the ingeniously drawn Treasury arrangements which will preclude any detailed discussion. I applaud their ingenuity, for if there ever was an odious feature of Purchase Tax it was the marathon debates we have had in the last few years with every hon. Member of the Committee on both sides hunting his own hare.

I will support the Chancellor in every stage of the Bill on its way to the Statute Book even if, in some respects, I have been a trifle critical in what I have said tonight. I will support him for this fundamental reason; that he sits on the Treasury Bench there, a bosom friend of mine, his name engraven permanently upon my heart as the only Chancellor of the Exchequer in British history who has refunded to the taxpayers £366 million in a single year, £295 million of tax reliefs in this Bill in a full year, and £71 million in post-war credits repayments in the parallel Bill which is being discussed in another place tonight.

My right hon. Friend merits our support. He has my warmest congratulations. I shall assist him, as far as I am able, during the remaining stages of the Bill.

8.44 p.m.

Mr. Donald Wade (Huddersfield, West)

In his penultimate remarks, the hon. Member for Kidderminster (Mr. Nabarro) raised the subject of beer, and I shall therefore say a few words about the same subject. I thought that the Financial Secretary opened the debate with his customary clarity, but I must say that it seemed to me that the earlier part of his speech could have been summarised in that one well known line, "Beer, beer, glorious beer." If I may say so, it was not quite in keeping with the moderation of the remainder of his speech.

After the Chancellor's Budget speech I did not attempt any personal public opinion poll but, as is usual on these occasions, I heard the views of many different people, constituents and others. I came across two points of view which were directly opposite on this subject of beer and which I think are fairly representative. One was the view of a man and the other the view of a young lady. They live in the same city and they work in the same office.

On the morning after the Budget the man said, "It seems to be a jolly good Budget. This 2d. off beer is a good idea. All the chaps going home in my bus seemed to think so, too." The young lady also offered her views quite spontaneously and she said, "I do not think much of this 2d. off beer. It is all very well for people who like drinking beer but what about those who do not like beer? It will not help their cost of living." I have some sympathy with the young lady, but of course both those commentators were very much oversimplifying the issue.

This is largely a question of priorities, and I think that the Chancellor has some of his priorities wrong. I am aware of the argument about the law of diminishing returns which might apply to the beer duty. It may well be that television is keeping people at home and that not so many are going to public houses, which reduces the consumption of beer, but it seems to me that precisely the same kind of argument could be used on behalf of the cinemas. For the time being, television is keeping people at home and away from the cinemas, but I have been very impressed by the figures given to me which seem to indicate that the Entertainments Duty on cinemas just makes the difference for many of the small cinemas between running at a small profit or running at a loss and having to close down. If a cinema has to close down the Chancellor loses the Entertainments Duty from it and any possible tax on the profits which might otherwise have been made. There seems to me to be a very strong case for abolishing the Entertainments Duty on cinemas. Certainly in arranging my priorities I should have endeavoured to bring the abolition of that duty within this year's finance Bill.

I realise that the Chancellor cannot please everyone, but in considering to what extent he can try to do so it is fair to take into account the total level of Government expenditure. If there had been some reduction in that total level it would have been possible to increase the number and the amount of tax reductions, and it is with that in mind that I look at the question of Purchase Tax. I should have preferred to see the 5 per cent. rate abolished altogether. If the Chancellor could not afford to do that in one year, he could have pruned some of the items in the category of goods subject to the 5 per cent. tax. I should have thought that in a number of cases the tax was scarcely worth the cost of collection. In addition, one has to consider the trouble and expense to which retailers and manufacturers are put. I certainly think that there are many items subject to Purchase Tax which are of greater importance and usefulness than alcohol. In saying that I do not wish to show a bias against those who drink beer, but I feel that the Chancellor has some of his priorities wrong.

Turning to Clause 25, which deals with Profits Tax, I approve of the changes which the Bill introduces but, in dealing with Profits Tax, I think that it would have been as well to introduce a tidying up operation. The introduction of the flat rate last year brought to light a number of anomalies. For example, there are certain clubs and societies which, for administrative reasons, function as limited liability companies but their main purpose is to raise funds for charitable objects, and the effect of the 10 per cent. tax is merely to reduce by 10 per cent. the amount of money available to charity.

There is also the case of the building societies, which seems to have become a hardy annual, at any rate for me. The effect of a 10 per cent. Profits Tax on surpluses is to reduce the margin available for reserves. It has the effect of making it more difficult for building societies to build up reserves and to maintain an adequate reserve ratio. In the Housing and Housing Purchase Bill the Government have recognised the importance of a reasonable reserve ratio for building societies, and it seems illogical to lay down a rule recognising the need for an adequate reserve ratio and at the same time to impose a 10 per cent. tax on surpluses which makes it more difficult for the building societies to maintain their proper margin of reserve. As the Financial Secretary knows, representations have been made to him on this subject, and I should like to know whether there is to be any promising outcome of those representations.

Another item on my list which I think is relevant to home ownership is the Stamp Duty on mortgages. Part IV of the Bill deals with the Stamp Duty, but there is no reference to the Stamp Duty on mortgages, and I should like to know what is the prospect of that duty being abolished.

Returning to Part III, which deals with Income Tax. I welcome the Income Tax reduction. I will reserve my comments until the Committee stage, but I want to say a word about investment allowances. I take the view that they are not suited as a measure to be used as a short-term device in budgetary policy. I find myself in agreement with the statement in the Economist on 11th April: … to suppose that it is prudent policy to switch investment subsidies on and off like a tap is to suppose that private industrialists can do what the Chancellor himself said the nationalised industries and Government Departments cannot be expected to—that is, to vary their investment programmes 'rapidly up and down in accordance with the state of trade' and still carry through 'sensible plans'. I find myself in agreement with that view and in disagreement with the hon. Member for Scarborough and Whitby (Sir A. Spearman), but very careful consideration should be given to the measures which are appropriate to deal at short notice with the dangers of inflation and reflation. Neither investment allowances for the private sector of industry nor investment programmes for the nationalised industries should be included in the list of short-term policies which can be switched on and off. We have had too much chopping and changing about.

This leads me to a more fundamental question. Is this Finance Bill one stage in a series of relaxations which will not be interrupted by another crisis, or is this just a lucky year? Is this a gleam of sunshine before another storm? That seems to me the great point. If the first, more hopeful, view is correct, then those claimants who have been missed out this year may not have to wait very long, but if the other view is correct they have missed the bus. I am sorry to mix my metaphors. It is a very different matter if in a short while there is another crisis and new restrictions are applied and additional taxes are imposed. That is the 64,000-dollar question.

It is not enough to say that it all depends on the amount of restraint exercised by wage and salary earners. It is not enough to state the problem. Referring to the steadying of the cost of living, the Chancellor said in his Budget speeech: But if this progress is to continue, almost everything depends on the degree of restraint shown in wage negotiations this year."—[OFFICIAL REPORT, 7th April, 1959; Vol 603, c. 46.] The Chancellor posed the problem, but it seems to me that it has not been adequately answered and that our task is to find the answer.

Last year, when the flat-rate Profits Tax was being discussed, I suggested that some of the criticisms which were put forward against the unevenness in the distribution of dividend income were misplaced, that it was maldistribution of ownership about which we ought to be more concerned. That is very true. All the evidence available indicates that the distribution of ownership of industry is very uneven. The majority of people are dependent upon salaries and wages and have no direct share in the ownership of industry. They may have a nominal share in the nationalised industries but that is far too remote to have any real meaning. Therefore, if they want a higher standard of living or wish to offset the high cost of living, their only way is to ask for more wages and salaries, and that seems to be a perfectly natural thing to do. I think that will continue so long as the gulf remains between capital and labour—although I prefer to use the more up-to-date phrase "between owners and non-owners".

It may be that the Chancellor agrees with this but considers that he can do nothing about it in the Finance Bill or that it is no concern of the Treasury. I do not agree with that view. I think it is very much the concern of the Treasury and that there is much that can be done. I should like to see a whole section of a Finance Bill devoted to this subject of the wider distribution of individually-owned capital wealth.

I will give one or two precise examples of what I would include in such a section. First, it is still easier and more advantageous from a tax point of view for a firm to make a cash bonus rather than introduce an employee shareholding scheme. Secondly, it seems to have been the policy, certainly ever since the war, for every Government to encourage those who save to lend their money to the Government rather than put it directly into industry. This policy should be questioned. For political and economic reasons, there is much to be said for bringing about a very much more widespread distribution of ownership. By "ownership" I include the ownership of equities.

I know that it has been argued in the past that there is a risk in ordinary people putting their money into industry and that they should lend it to the Government, but in recent years a great deal of thought has been given to risk spreading. After all, there is a good deal of risk in gilt edged securities; they have been some of the riskiest of investments since the war.

Therefore, it seems unreasonable that the Treasury should penalise those who invest directly in industry by the Stamp Duty on transfers. I support the suggestion already made by an hon. Member opposite that the Stamp Duty on transfers should be abolished or that the exemptions should be brought into line with the Stamp Duty on conveyances on property. That should, of course, be only a part of a very much more comprehensive policy for dealing with distribution of ownership. I do not support the view of giving any special favours to unit trusts. I do not think one should pick out one particular kind of investment.

I would much rather see something of a more revolutionary nature on the lines of proposals put forward by my colleagues and myself last year on the Finance Bill, which were a development of proposals for extending co-ownership and saving generally, which we put forward year after year. I think the Chancellor may recollect a debate on 2nd July last year to which he replied. The plan we put forward incorporated the idea of the deferred tax liability for a certain portion of earnings which could be put into a special savings account and invested. In this way there would be widespread encouragement of saving. The Chancellor had certain objections, but I do not think any of them are insuperable.

Since then there has been much discussion on this subject and various proposals have been put forward. There have been inspired statements in the Press which have given the impression that the Government were really going to do something about it. I understand that some Members of the party opposite have supported the general idea, but it all seems to have come to naught. The striving seems to have been in vain. I am sorry that is so, because I am always glad to see Liberal clothes stolen so long as the Government that steals them puts them to good use. But there it is, so far the efforts seem to have been in vain.

I sum up by saying that there is much in this Bill which commends it, but there are many omissions which I regret. The best case which can be made for the Bill is that it will be part of a process for general relaxation of taxation and expansion of industry. I hope it will work out that way. For the sake of the country I hope it will work out that way, but unfortunately it may not do so. It may well be that we shall have another balance of payments crisis or another upsurge of inflation. In other words, there may be another storm after the sunshine.

I think it will depend partly on the extent to which three conditions are satisfied. One is that there is great restraint by the Government in holding down the total and level of Government expenditure; secondly, that a considerable part of the additional spending money put into people's pockets will be saved; thirdly, that this gulf between owners and non-owners will be bridged, thereby making possible a change in the climate of opinion from which most important results might follow.

This is all relevant to a Finance Bill. I think something could be done in the Finance Bill, there is a real need that it should be done, and I hope that before we conclude our deliberations the Chancellor will be able to show in some positive way that he recognises the need.

Mr. Rankin

On a point of order, Mr. Deputy-Speaker. I understand that the right hon. Gentleman the Chancellor of the Exchequer desires to rise at 9.30, which is compelling my hon. Friend the Member for Sowerby (Mr. Houghton) now to wind up the debate for this side of the House. When I raised this point earlier in the evening I was assured that this was exempted business which could continue to the satisfaction of both sides of the House. If the procedure which is now to be followed takes place, it is simply a method of getting round the rules of the House, because after the two Front Bench speakers have spoken there is little purpose in back benchers continuing the debate.

Mr. Deputy-Speaker (Sir Gordon Touche)

That is not a point of order. The rules about exempted business are quite well known.

9.5 p.m.

Mr. Douglas Houghton (Sowerby)

I apologise to my hon. Friend the Member for Glasgow, Govan (Mr. Rankin) and to other hon. Members who still wish to take part in the debate. The right hon. Gentleman the Chancellor of the Exchequer has expressed the desire to give his reply to the debate in about half an hour's time, so I hope that the House will forgive me if I make some remarks from this side of the House in an endeavour to bring together the many and varied strands in this interesting debate.

I begin with my annual grumble that the Finance Bill is the only major Bill which is published without an Explanatory Memorandum. Several years ago I raised the question whether right hon. and hon. Members could have the benefit of an Explanatory Memorandum to the Finance Bill so that we could see a little more clearly what it was about before the Second Reading debate. The Financial Secretary said last year that this proposal had been considered and found not to be very practicable. The traditional procedure has been followed again this year, although I must say that the hon. and learned Gentleman gave an admirable reading of what would otherwise have been a very good Explanatory Memorandum.

It still passes my understanding why we cannot have more explanation of the Bill before we debate it in order to leave the Financial Secretary more time and freedom to engage in controversial quotations, most of which are inaccurate and misleading, from the speeches of my right hon. Friend the Member for Smethwick (Mr. Gordon Walker).

There have been several very interesting speeches. I must mention the maiden speech of the hon. Member for Belfast, East (Mr. McMaster). I am sure that we all welcome his intervention in the debate. If I may express a personal opinion, it is that he is young enough, and will probably stay long enough as a Member of this House, to contribute to debates on matters concerning the United Kingdom as a whole and not simply confine his remarks to matters solely affecting Northern Ireland.

We also had an interesting speech from my hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever), who gave us another fascinating example of his unorthodox economics. I regret that I missed the speeches of the hon. Member for Rye (Mr. Godman Irvine) and of my hon. Friend the Member for Gloucester (Mr. Diamond), but I listened to the speeoh of the hon. Member for Kidderminster (Mr. Nabarro) who appeared in a new rôle, a rather pathetic one, I thought, of wondering whether his affection for the Chancellor was unre- quited love. He seemed to beseech his right hon. Friend to make the slightest acknowledgement of acceptance of his doctrines on Purchase Tax and other features of our taxation system.

What we have to do is to go back to the Chancellor's main theme of the Budget, which is embodied to a very large extent in this Bill, when he said that the House would remember that the main aim of the Budget was to make an improvement in the competitiveness of our economy. What we have to ask is whether this Bill makes the maximum contribution to that end. It seems to me that to make the economy more competitive we must get more production at stable labour costs or, better still, more production at lower labour costs. Lower labour costs must not be confused with lower wages. Wages can go up while labour costs go down. The introduction of new machinery and modern methods can make that possible.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) gave a most interesting example of that from his own business experience, to which the House always listens with great attention and respect. I thought, incidentally, that he gave an admirable introduction to the cotton contraction and compensation Bill when we get that Measure. We shall look forward to his comments on investment in declining industries and other unrewarding forms of investment in private enterprise in our changing industrial pattern.

The Chancellor offered a warning about wages more than once. He said, on 7th April: The main factor making for stable prices in 1958 was the fall in import prices. It is true that the wage increase last year at an average of 3½ per cent. were distinctly smaller than in recent years. And this undoubtedly helped towards steadying the cost of living. But if this process is to continue, almost everything"— I emphasise those words— depends on the degree of restraint shown in wage negotiations this year."—[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 46.] If "almost everything" depends upon the restraint shown in wage negotiations this year one would have thought the Chancellor would have regarded it as a fundamental condition of his proposals for tax relief that they should make for contentment and a sense of justice among the mass of the wage earners whose desires and strength in their unions are obviously the impetus behind demands for higher wages.

We must remember, also, that tax reliefs are, after all, a tax-free rise in income for those who pay tax. It is important, therefore, to look at the distribution as well as at the amount of tax reliefs that the Chancellor is to make. What do we find when we look at the question whether the distribution of reliefs by this Bill makes for a sense of social contentment and a sense of justice? We find that the major relief is in the standard rate of Income Tax in direct taxation and in the top and middle rates of Purchase Tax in indirect taxation. The hon. Member for Scarborough and Whitby (Sir A. Spearman), in one of his usually thoughtful speeches, said the task of the Budget is, not to help those who need it but to strengthen the economy. That, taken literally, is harsh doctrine.

I think that the hon. Member would not dissent from my view that we have to be satisfied that these two factors are brought as closely together in designing the strategy of the Budget and of the Finance Bill as we can get them. We ask the question: does the chief tax relief, a reduction of 9d. in the standard rate of Income Tax, strengthen the economy more than more discerning reliefs in taxation would have done? Here I may say that I am quite sure there has never been any vested interest in the Inland Revenue Department in a standard rate of tax of 7s. 9d. or a lowest rate of tax of 1s. 9d.

These are odd and inconvenient rates even for Income Tax people to use. I dissent from the comment of the hon. Member for Kidderminster, who rather suggested that these queer rates of tax must have been foisted on the Chancellor by the "backroom boys" who really liked the look of them. I cannot believe that.

Does the reduction in beer duty strengthen the economy or fortify the Revenue through an expectation of increased consumption? There have been several criticisms of the reduction in the beer duty—from the hon. Member for Dover (Mr. Arbuthnot) and also from the hon. Member for Kidderminster. I saw a comment on the reduction in beer duty in the correspondence columns of the Spectator the other day which goes much further than ever I would dare in suggesting a possible explanation of the reduction in beer duty. The correspondent said: I may after all be wrong in seeing the reduction in the beer duty as a coherent part of Government policy. It may just have been the price demanded by the Colonial Secretary for postponing his resignation". That goes much further than I would go.

The Solicitor-General (Sir Harry Hylton-Foster)

I am sure that the hon. Member for Sowerby (Mr. Houghton) will give the paper an opportunity to publish an apology. Before reciting the letter here, perhaps the hon. Member would prefer to wait to see what the Spectator has to say about it.

Mr. Houghton

I do not think that the right hon. and learned Gentleman need take this any more seriously than I think that the author intended it to be. I am sure that no hon. Member of this House would accept any serious implication in a letter of this kind.

Mr. Arbuthnot

Why repeat it?

Mr. Houghton

We seem to have become astonishingly touchy and sensitive about these things. Many hard things are said in the House, and very often imputations are flying across the Floor of the House and hon. Members take them calmly. Nothing in this letter in the Spectator throws up any suggestion in my mind that the comment which I have read should be taken as other than an amusing comment on one of the important proposals in the Budget.

One aspect of the reduction in beer duty has important social implications. The Chancellor, when referring to the reduction in the beer duty, said: I depend on this duty for a large contribution towards the revenue and I must do what I can to safeguard the foundations of this contribution for the future."—[OFFICIAL REPORT, 7th April, 1959; Vol. 603, c. 56.] That seems to me to raise an important question whether the vested interest of the State in taxation on liquor and tobacco endangers steps which, on social and health grounds, should be taken to curtail consumption. I think that that has an especial relevance to the tobacco duty. A Chancellor may be confronted with a serious fiscal dilemma in the future. Tobacco is already under the strongest suspicion as one of the causes of lung cancer, and in the last 48 hours we have had renewed warning on that score. The tobacco duty, as the hon Member for Kidderminster said, is a very important. revenue producer. I think that we should take note of the possibility that fiscal interests and social and health interests may conflict before very long in that field.

The Chancellor has done nothing about the cinema tax. This is another aspect of tax relief which would probably have made for more contentment over a wider field than some of the reliefs which the Chancellor has given. This tax seems to be falling, and it bears hardly on an industry which is now suffering from bad times. I think that there is general regret that the Chancellor has not felt able to abolish this tax altogether, at a cost of about £9¼ million.

The Purchase Tax reductions, as many hon. Members have mentioned in the course of the Budget debate and of this debate, benefit those who have expenditure in the top brackets of Purchase Tax rather than in the lower brackets. We ask whether there are any grounds for encouraging people to buy more television sets and spend no more money on pots and pans.

I submit that the Chancellor could have done many very good things had he been more modest in his reduction of the standard rate of Income Tax. He could have increased the amount upon which the lowest rate of tax is charged. That is the first reduced rate band, which at the moment is £60 and, under the new proposals, is taxed at 1s. 9d. That £60 was reduced from £100 in 1955, and there is no reason why it should not go back again. The top rate of tax used not to be levied until £400 was reached, and now it is £40 less than that.

The Chancellor could have considered both the single person's and the married person's allowances. He could have increased child allowances by £25 at each level. He could have extended the income limit for age exemption and the ceiling for age relief. He could have increased the ceiling for small income rates. All those he could have done for a more modest reduction in the standard rata of tax. He might have considered implementing the recommendation of the Royal Commission to grant special relief to those who are 100 per cent. disabled and the registered blind. He could have extended child relief for incapacitated children over the age of 16, and the dependent relative allowance could have been extended to a deserted mother on the same conditions as to a widowed mother, indeed, he could have increased the allowance itself.

The right hon. Gentleman could have extended the housekeeper relief, which remained at £50 from 1931 to 1953 and was then increased only by £10. He could have granted a higher income relief than two-ninths for incomes not going beyond £1,000 a year. There is a discriminatory relief for the benefit of small incomes which the Chancellor might have considered.

Finally, he could have considered raising the limit of savings bank and other interest which is exempt from Income Tax. The present limit of £15 could have been raised, and he could have extended the scope of relief given beyond the Post Office Savings Bank to certain trustee savings banks. All those would have been very desirable reforms and reliefs to give at a time when the Chancellor was able to make very substantial tax concessions.

It may be argued that the reduction in the standard rate took precedence over all else, but I would remind the House that when the Lord Privy Seal introduced a reduction in the standard rate of tax on 19th April, 1955, he said: This reduction in the rates of tax will bring relief to the individual taxpayer at all levels of income. But it will do nothing, of itself, to improve the points at which tax starts to be payable."—[OFFICIAL REPORT, 19th April. 1955; Vol. 540, c. 59.] The right hon. Gentleman therefore supplemented the reduction in the standard rate by additional reliefs, particularly in personal allowances, in order to spread the benefit lower down in the income range than he could by the simple act of reducing the standard rate and the reduced rates to match. He sought to avoid the kind of distortion which occurs in the present Bill, where £50 million in tax reliefs goes to over 12 million taxpayers; £59 million in tax reliefs goes to 5,800,000 taxpayers; and £57 million in relief goes to 800,000 taxpayer.

The Chancellor has repeatedly said that this is an inevitable consequence of reducing the standard rate, and other hon. Members opposite have said that the more tax a person pays the more relief he is bound to get, as though there were some kind of arithmetical inevitability about doing things that way. I am reminding the Committee of the combination of methods adopted by the Lord Privy Seal in the 1955 Budget.

It may also be suggested that many taxpayers lower down the scale have already had reliefs in different Finance Bills in recent years. I must remind the Committee again that even the reliefs in direct taxation given in the Finance (No. 1) Act, 1955, were clawed back the following autumn by way of Purchase Tax on goods which had never been previously within the scope of Purchase Tax. Taxes on household goods and domestic appliances of various kinds were made subject to Purchase Tax, and the additions in indirect taxation in the autumn of 1955 were almost equivalent to the reliefs in direct taxation given earlier in the same year.

But that is not the whole story. In recent years there has been a steady and quite substantial transfer of budgetary liabilities from the taxpayer to the contributor under our various social benefit schemes. The contributions to the National Insurance and National Health Service Schemes have doubled since 1948. The transfer from the taxpayer to the contributor has wiped out, in many cases, the tax reliefs for many of the lower paid workers. Since 1951, tax savings have been nullified by increased National Insurance and National Health contributions for a single man earning up to £5 a week, a married man earning up to £7 a week, and a married man with one child earning up to £9 a week.

Furthermore, some taxpayers are now paying more in contributions than they are paying in tax as a direct result of this transfer from taxation to contribution. That is so in the case of a single man earning up to about £8 a week, a married man up to about £10 a week, a married man with one child under 11 up to about £13 a week, and a married man with two children under 11 up to about £15 a week. If Income Tax is levied according to assumed ability to pay, on what principle are these contributions levied which exceed the amount of tax that people are called upon to pay? That is a very important aspect of the changes in the incidence of direct taxation which hon. Members are so loudly proclaiming.

I come now to a feature of taxation about which, much to my regret, there has been little comment during the debate. I wish to say a few words about the humiliating and rather disgraceful experience we have year by year of trying to stop the ingenious devices of tax avoidance, the "shady strategems" of the bond washer and the dividend stripper. There are, of course, many other "shady strategems" besides those. There is plenty of evidence for all to see that taxation is not achieving the purpose which it is popularly supposed to achieve.

There are obvious signs of the existence of what Dr. Zhivago called the "crude insolence of money". They are to be found in extravagance commercially and industrially, and they are to be found also in the improved standard of life which many taxpayers have achieved for themselves by arranging their affairs in such a way as to pay the least amount of tax on the largest possible amount of income.

We have in our taxation system a curious twist of social values. A High Court judge or eminent public servant seems to have a smaller social value than a stockbroker or a bookmaker for the simple reason that they stand in entirely different relationships with the taxation systems. There is the inequity of existing taxable capacity as between those with capital and those without, the existence of the stringent rule under Schedule E and the lax one under Schedule D, and much else besides.

We hear the cry time and again that taxation is too high, and it usually comes from those who are doing their best to lower it for themselves in a most antisocial way. If taxation is too high, it seems to me that expenditure must be too high or the national wealth not high enough. Expenditure is mainly the realisation of the social and political aims of the people expressed through Parliament. If expenditure is too high, this is because the social demands of the people are making more and more calls upon our revenue and national resources.

We hear very little indeed in any specific form from the benches opposite about a reduction in expenditure. We hear little from them to make taxation as popular as expenditure. Expenditure is popular. There is no doubt about that. It makes itself felt in many diverse ways, in social benefits, in moral obligations by the State discharged on behalf of its weakest citizens, in a Health Service to succour the sick and helpless. We hear very little about these things when debates take place on taxation. Hon. Members opposite say that taxation is a very bad thing and say it so often that a great many people are coming to believe them, without realising that taxation is only the other side of the account of national expenditure for essential social purposes.

I trust that the right hon. Gentleman the Chancellor of the Exchequer will pay further attention to this growing scandal of tax avoidance and benefits in kind which are definitely intended to lower the tax burden and put into disequilibrium the taxable capacity of many people in different forms of employment today. Until we have more health in the taxation system, we shall not have a proper appreciation among workers and others, I think, of the purpose of taxation and the desire of many people to have a reasonably high level of taxation if that is the price to be paid for an increasingly high level of social benefits. Hon. Gentlemen opposite are smiling at all this, but will they go to their constituents and put the equation to them in terms of benefits on the one side and taxation on the other? Will they justify to their constituents the devices and avoidances which are used by so many to shirk the burden which Parliament has put upon them and which they should accept in the national interest?

9.33 p.m.

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

I am always glad to follow the hon. Member for Sowerby (Mr. Houghton), for whom I have a very great respect. I do so with some trepidation, because I know of his impressive expertise in the matters we are discussing. I am reminded of those lines of Goldsmith—if I may alter them a little— And still he spake, and still the wonder grew, That one small head could carry all he knew. I support what the hon. Member for Stoke-on-Trent, Central (Dr. Stross) and the hon. Member for Sowerby said about the maiden speech of my hon. Friend the Member for Belfast, East (Mr. McMaster). I was very glad that my hon. Friend mentioned the unemployment problem in Northern Ireland, of which the Government are very conscious and in which we are anxious to help in every way we can. I also agree with him entirely about the importance of a high rate of investment. As regards what he said about his anxiety to do something for service pensioners and ex-Government employees, I know that he will be interested in the Bill dealing with the pension increases which we will bring forward in a few weeks' time. I should like to join in the congratulations to him and to say how much we look forward to future speeches from him.

Before I reply briefly to the points raised in the debate, I should like to remind the House of the main aims of the proposals embodied in the Finance Bill. The Bill is designed, first and foremost and throughout, to invigorate and improve the strength and competitiveness of our national economy. I agree entirely with what my hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) had to say on that point, and I agreed very largely, too, with the computations which he gave of the sum that he considered we could safely release in additional purchasing power.

Mr. H. Wilson

We all obviously agree with the desire of the Chancellor to increase the competitiveness of the economy, but does he agree with and approve of the statement attributed to the President of the Board of Trade in Germany that he does not care about this country having been surpassed by Germany in the matter of exports?

Mr. Amory

I shall not follow the right hon. Gentleman. That is nothing whatever to do with the debate in which we are engaged at present.

The objects which I have mentioned must be our overriding objective, and that has been the test of everything which I have proposed in the Finance Bill. The question which I asked myself of each proposal was: will this proposal strengthen or weaken our power to produce efficiently and to export competitively? I do not think any hon. Member can dispute that that was the right question to ask and that no other consideration is anything like as important. It is on our success as exporters over the next few years that the fulfilment of all our national economic aims and aspirations depends.

If we accept that, then I think two things follow. First, now that we have attained a welcome measure of price stability, we must do all that we possibly can to preserve it, because it is an essential element in achieving the main aim which I have mentioned. Secondly, we must do everything we can to encourage industry to operate at the highest level of efficiency and to continue a high rate of investment. We must see to it that industry is not denied the resources to do that.

It is against that background that I should like to comment on the Bill. I look forward this year to a prospective Budget surplus which was larger than at one time the circumstances of the year ahead seemed to demand, and that has made possible some substantial reductions in taxation. My objectives were to see that these reductions should be, first, as effective as possible and, secondly, as fairly distributed as possible, bearing in mind their purposes.

I am satisfied that the Bill achieves both those objectives. It provides a stimulus which should be felt throughout the economy, while it gives particular encouragement to investment for the future. It will bring some relief in direct and indirect taxation to every taxpayer. Indirectly its benefits will be even more widely spread. It should have a significant effect in promoting stability of prices and it will thus help all, particularly those with the smallest incomes who are most vulnerable to price increases and who, because they pay least in taxes, cannot easily be directly helped to any great extent by budgetary action. I was glad to observe that in a recent opinion poll the majority of people appeared to think that the Budget is fair and that it is to the economic benefit of the country.

Coming now to the proposals, I should like to say first a word about direct taxation. After very careful consideration of the various changes that have been made by my predecessors over recent years, I decided to concentrate my proposals this year on the standard and lower rates of Income Tax. That stems from my desire to do something really effective to strengthen the incentive both to earn and to save in the interests of a strong, highly competitive economy.

Our rates of direct taxation since the war have been too high at all levels. The encouragement of incentive is important in the case of the wage earner. It is equally important the whole way up the scale of earnings. The reduction which I have proposed in the standard rate and reduced rates will bring some relief to about 21 million people who have taxable incomes.

Some play has been made with the fact that the better-off get the bigger relief, but the gain is still proportionately bigger for the less well off. To take, first, the £700–£1,000-a-year range of taxpayers, for example, under my proposals the total relief will be £40 million. Out of the £379 million that this group would have paid, this is a reduction of about 10½ per cent. The £2,000–£3,000 group will show a reduction of about 8½ per cent., and for those earning over £3,000 the reduction of the group works out at a little over 6 per cent.

Alternatively, let us take the examples given by the right hon. Member for Huyton (Mr. H. Wilson) on the second day of the Budget debate, or, rather, the correct version of them provided by my hon. and learned Friend the Financial Secretary to the Treasury later in the debate. The married man with two children under the age of 11 and who earns £700 a year gets a 15 per cent. reduction of what he pays—not a big sum, because he does not pay much. At £1,000 a year he gets 10 per cent., and at £5,000 a year he would get a proportionate drop of only 6¾ per cent.

It has been suggested that I should have given relief by increasing allowances rather than by reducing the standard rate. I have said before, and I make no apology for repeating, that to get matters in perspective one must not look at the changes made in any one Budget in isolation. It is never possible to do everyhing that seems desirable in any one year, and the effort of a Chancellor of the Exchequer must be to see that over a series of Budgets a just balance is maintained between various claimants for relief.

We have done a good deal for the personal allowances since 1951. The age relief was raised three times, in 1953, 1957 and 1958. Exemption from tax for those over the age of 65 with modest incomes was introduced in 1957 and the limit raised in 1958. The earned income allowance was increased in 1952 and again in 1957. The single and married personal allowances and the child allowances were increased in 1952 and 1955, and the allowances for children over the age of 11 were further increased in 1957. The single and married allowances have been raised by over 25 per cent. compared with 1951. The child allowance is 40 per higher for children aged 11 and under, it has increased by 80 per cent. for children between the ages of 11 and 16 and has been doubled for children over 16. Although this is not a matter of taxation, family allowances were increased in 1956.

Mr. H. Wilson

What about National Insurance stamps?

Mr. Amory

I will come to that.

Mr. Douglas Jay (Battersea, North)

In this catalogue, should not the right hon. Gentleman mention that Surtax was reduced in 1957? [HON. MEMBERS: "Why not?"] I was asking whether it would not put the matter into perspective if the Chancellor also mentioned that fact and that the Profits Tax on distributed profits was also reduced last year.

Mr. Amory

As I thought the right hon. Gentleman would have realised, I was speaking about personal allowances.

I would, of course, have liked to be able again this year to improve the range of personal allowances still further, but if I had done so I would not have been able this year to make a real impact on the standard rate. One would almost think from the way hon. Members opposite have spoken that this year's reduction in the standard rate was of no use to the family man. In fact, the family man who was already paying tax benefits like other taxpayers from my proposals. What I have not done this year is to improve the relative position further compared with that of the single man or woman. I decided that in the light of the changes made in successive Budgets this year it was the turn of the standard rate, and after listening to the arguments put forward on both sides in the course of this debate I remain convinced that I was right this year.

I would ask hon. and right hon. Gentlemen opposite this question. If they would not have reduced the standard rate and the reduced rates this year when a measure of reflation was required, when would they have done so? Would they ever? One suspects not. Hon. Gentlemen opposite, I know always delight in pressing for penal discrimination against unearned income, much of which is income from savings. They exhort people to save and then look askance at any income that arises on the capital saved. We all agree that there should be proper differentiation in favour of earned income because of its very nature, and, as I have said, we have twice improved the earned income allowance since 1951.

The acceptance of this principle must not carry us to the other extreme of victimising investment income. If we want to encourage a high and persistent level of saving at all levels, we shall fail in our objective entirely if by our fiscal action we regard the receipt of income from such sources as anti-social and to be discriminated against.

The right hon. Member for Huyton complained that too much relief is being given to industry, and, in particular as if that were a most shocking situation, that the level of taxation on industry will be slightly lower than in many other countries. So far as that may be true, is it really a bad thing? If we want our industry to be on its toes, alert and flexible, and equipped with the most modern plant, I would not have thought that it was an unhealthy thing, at any rate, not to put it at a taxation disadvantage with its competitors. An excessive rate of taxation on industry inevitably leads to wasteful expenditure.

Coming more particularly to the investment aspects, right hon. Gentlemen opposite have approved my investment allowance proposal as a practical incentive to a high rate of industrial investment. Do not they think that by leaving a little more of its earnings in its own hands I shall also be helping to ensure to industry the resources to finance its investment expenditure without excessive recourse to the market for new capital? My proposal here seems to fit very well into the pattern of my aim to encourage the highest possible level of efficiency in industry.

Finally, on Income Tax, I must protest once more, if hon. Gentlemen opposite will forgive me for doing so, at their habit of talking about my giving this sum or that to the taxpayers. As several of my hon. Friends have pointed out, what I am proposing is not to give anything but to leave the taxpayers with a little more of their own money. The necessary consequence of reducing the standard rate of tax is that those who pay the most tax get the largest total reduction, though, with my proposal, it is proportionately the smallest benefit that they get. There is nothing unfair about that. I am convinced that the proposed reduction in the standard rate and the reduced rates of Income Tax will have beneficial effects throughout our national economy.

Turning now to the Purchase Tax, I think everyone has welcomed my choice of this tax for relief. I am going to use as few statistics as possible now because I have subjected the House to a number already. I must tell the House of a good definition of Government statistics which I heard at the Commonwealth Economic Conference last summer, when a Commonwealth official described a Government statistic as the shortest line between an unwarranted assumption and a foregone conclusion.

The criticism by hon. Gentlemen opposite has been that I have made the wrong kind of reduction. They would have preferred that I should have been more selective and relieved a number of items from tax altogether. This arises, as I said in the Budget debate, from the different conception of this tax which hon. Gentlemen opposite and I have, and holding those different views we are bound to differ as to the best way of giving relief. I gather that they want to make it, if they can, a tax on luxuries, or at any rate on what they consider non-necessities, with very high rates on articles which they in their judgment would decide to be luxuries. If that were done the general rates would indeed have to be high ones, and higher than the present ones. I should not regard that as a sound basis for a tax to bring in anything like the sum we depend on in present circumstances.

Were Purchase Tax to be carried to the lengths hon. Gentlemen opposite would like, it would imply a far too sharp an interference with the judgment of individuals as to how they prefer to spend their money. I and my hon. Friend the Member for Kidderminster (Mr. Nabarro), I think, broadly want this tax at moderate and not too disparate rates over a wide range of goods in every day consumption. My hon. Friend is moving slowly and inexorably in my direction. I took an important step in this direction, and this year I am proposing another. The moderate reduction I propose in all but the lowest rate has not involved any serious losses of stocks to the traders concerned, and they seem to have appreciated that.

It is said that I ought to have abolished the 5 per cent. rate altogether. I would offer this reminder, that the 5 per cent. rate of tax applies, as my hon. Friend the Member for Kidderminster said, I think, to the most frivolous Easter bonnet as well as to the cloth cap, to the Dior or Hartnell gown and the simple cotton frock, as much to the Savile Row suit as to the inexpensive ready to wear one. Similarly, the 12½ per cent. rate covers the finest Persian carpet as much as the humble linoleum square.

Nor is it true that the goods at the highest rate of tax are confined to luxuries. They are taxed at that rate for Revenue purposes, not because expenditure on them is thought to be on luxuries. A motor car is no luxury to a doctor, a midwife, a practising architect, or a country clergyman, and I am advised that few women would regard at least some expenditure on cosmetics as being a necessity. Nearly every household in the country has a wireless set now and almost two-thirds of the households have a TV set, and about one in three have a motor car or a motor bike. Over half the homes have vacuum cleaners, and 500,000 washing machines were sold last year. These things are not regarded as extravagant luxuries to millions of householders today.

Mr. Nabarro

Good sound stuff.

Mr. Amory

I would say a word about investment allowances, because some of my hon. Friends, I know, are not quite convinced about the advantages of introducing investment allowances. I can understand their views, and, indeed, I did give this matter a good deal of consideration before reaching a decision.

Last year, wishing to give the maintenance of a high rate of industrial investment some encouragement, I chose to increase to 50 per cent. the initial allowances. It is too soon yet to be sure how much effect that has had, but this year I wished to reinforce that encouragement and in a way which would have the effect of prompt execution of such capital expenditure, including expenditure on designs for higher efficiency, as might be under consideration.

As has been pointed out, and as I myself have mentioned in relation to public investment schemes, not all capital expenditure can be efficiently phased in this way to suit the convenience of the economy. Some can, however, and that marginal amount can exert an important effect. My hon. Friend the Member for Dover (Mr. Arbuthnot) said that he would have preferred a general increase in the depreciation allowance rate. I considered that and decided against it this year, because the effects, though no doubt in the right direction, would, in relation to the extremely high cost, not have been sharp enough to achieve my object.

The hon. Member for Gloucester (Mr. Diamond) asked about what he called the premature withdrawal of investment allowances. I hope that there will not be a premature withdrawal of investment allowances, but there may well be circumstances in the future—I do not know—in which no special encouragement will be justified, and then I expect that the Government of the day would do as they did in 1956, which was to provide that all outstanding contracts should be safeguarded.

A number of hon. Members have said that they wished I had been able to propose the abolition of the Entertainments Duty this year. I would ask them to remember that we have reduced this duty three times in the last few years and that I reduced it last year by more than half. I ask them also to remember what I said in my Budget speech about the desirability, in view of the aims of the Budget, of not dissipating the relief in too many different directions without real effect. My hon. Friend the Member for Dover raised this point, and I took note of what he said. I will not say more about it, as I have little doubt that we shall have an opportunity of discussing the matter later.

My hon. Friend the Member for Manchester, Withington (Sir R. Cary) made a strong plea for further help, in addition to the reduction in vehicle Excise duty which I am proposing, for rural transport. I wish that I could have found some practical way. I considered this very carefully with my right hon. Friend the Minister of Transport, and he, I understand, consulted some of the Traffic Commissioners, but we could not find a workable formula.

The case for the reduction in the beer duty has been referred to by my hon. and learned Friend the Financial Secretary, and I need not add much to what he said. First, the drop in revenue was becoming quite substantial. In 1945–46 the yield was £306 million. In 1949–50 it had fallen to £277 million and in 1957–58 to £261 million. The estimate for the current year on the basis of the old rate of duty was £250 million. That was a trend which no Chancellor could ignore. Unless I was prepared to see this important duty gradually eroded away, some effective action had to be taken.

So much for the revenue aspect. As I explained to the Committee in the Budget debate, there is also the effect on the cost of living. Here I would reply to my hon. Friend the Member for Kidderminster who called himself a very simple-minded soul who, as he also said, is a very simple-minded amateur statistician. I have already explained that the correct conception of our present consumer prices index is that it is a statistical reflection of the cost of and the proportion of things which people actually buy and is related to the actual standard of living which exists among the people.

Since the fact of the matter is that about half the adult population spend a proportion of their incomes on beer, the index must give beer a weight corresponding to the amount which they spend. The spread is wide throughout the community. Beer is not a luxury beverage available only to the wealthy but one of our traditional national beverages made from home-grown products. It has been carrying a very heavy rate of duty. It is in no sense whatever a fallacious argument that it enters, and enters properly, into the measurement of changes in the cost of living of 20 million people.

The right hon. Member for Smethwick (Mr. Gordon Walker) raised one or two points to which I ought perhaps to refer. He mentioned bond washing. If he thinks about it he will conclude that a capital gains tax would not help in that problem. He made a strange comparison towards the end of his speech between the higher contributions for National Insurance and tax reductions, and he seemed to omit one side of the equation altogether, because he never referred to higher benefits and pensions. Are right hon. Gentlemen opposite in favour of a contributory principle in the National Insurance Scheme or are they not? Some of their utterances make one think that they are no longer in favour of the contributory principle.

On tax avoidance, the right hon. Gentleman proposed that we should take power to alter the law by Order. I do not think that Parliament would care for that. I do not think that Parliament would like to give the Government power to alter the law on matters of taxation by Order.

Mr. Gordon Walker

Is not the law altered in that way in the case of Purchase Tax?

Mr. Amory

That is a very different thing, as I think the right hon. Gentleman will appreciate if he thinks it out.

The hon. Member for Ashton-under-Lyne (Mr. Rhodes) made one of his interesting speeches. I entirely agree with him in what he said about the need for a high rate of investment. I was also interested in what he said about the gentleman who told him that women will come back to red flannel for their bloomers sooner or later. I think that that gentleman had the same misplaced confidence which hon. Members opposite have that people in the country will return one day to the red ties of Socialism.

My hon. Friend the Member for Kidderminster asked me a question about the treatment of the advances to nationalised industry. We believe that in the present circumstances the method of advances from the Exchequer is the best way of dealing with this, but if the day comes when it is possible for these bodies to raise money on the open market on their own standing we shall be very glad. In the meantime, we think it best to give Parliament the chance of expressing its view on this matter a year at a time.

I should like next to refer to the speech of the hon. Member for Stoke-on-Trent, Central. I always enjoy his speeches. My hon. and learned Friend and I will give most urgent consideration to the acceptance of the invitation which he gave us. He mentioned that a dinner service of 450 pieces was available, and perhaps that will give us a chance of including the whole of the Treasury in the invitation, too. We shall be very glad if North Staffordshire will sing to us when that occasion comes.

Dr. Stross

It was 450 dinner services.

Mr. Amory

We shall have an opportunity of discussing the proposals in the Bill in much greater detail no doubt during the weeks to come.

Hon. Gentlemen opposite, I have noticed, are always ill at ease when confronted with proposals to reduce taxation. The proper question seems to them to be not "Is it possible?" but "Is it really necessary?" Let them remember the words of, I think, Emperor Tiberius: The good shepherd shears but does not fleece his sheep. By a tremendous effort of will they have brought themselves not to oppose any of the Budget Resolutions on which the Bill is founded, not because they welcome reductions in taxation but because they know that the nation at large does. They realise clearly, too, that the injection of purchasing power and saving power so released will be to the advantage of the economy and in particular of employment, and they know that the provisions of this Bill will be effective and that, except in detail, they cannot criticise it.

It is agreeable if one can propose Measures which are popular, but it is far more worthwhile to propose Measures which are economically right for the country too. In scope and pattern, these proposals conform, I am convinced, to the present needs of our economy, and it is because they do that and will strengthen further our national efforts that I commend the Bill to the House.

10.5 p.m.

Mr. Rankin

Earlier in the debate, at about seven o'clock, Mr. Speaker ruled that this was exempted business, and those who were in the House at the time, I am sure, concluded that the debate would take its normal course, and that those who wanted to participate would be allowed to do so and in due course we would have a reply from the Chancellor or one of the other Treasury Ministers.

What has happened is that the Chancellor has intervened, and, of course, with the intervention of the right hon. Gentleman the debate has concluded, because there is little purpose in those of us who desire to take part now putting points to which there cannot be a Government reply. As the Chair is the guardian of the rights and privileges of Members, I think that you, Mr. Deputy-Speaker, should take note of the fact that business is exempted and yet, by the action of the Government Front Bench, the rule of the House has been disregarded and the debate has, in effect, been terminated by the intervention of the right hon. Gentleman.

Mr. Deputy-Speaker (Sir Charles MacAndrew)

The rule of the House has not been disregarded. The time is now seven minutes past ten o'clock.

Question put and agreed to.

Bill accordingly read a Second time, and committed to a Committee of the whole House.

Committee Tomorrow.