HC Deb 05 April 1960 vol 621 cc204-326
Mr. Harold Wilson (Huyton)

Now that the magic of the Chancellor's eloquence is dying away we can begin to look at his Budget in perspective, to assess what it does, what it fails to do, and its relevance to the problems which the country is facing. Before I deal with his detailed proposals, I must refer to the problems which the Chancellor was facing. The Budget was rightly described in a weekend journal as a "morning-after Budget". The boom which was so timely for the right hon. Gentleman last year is, in the Chancellor's view, clearly getting out of hand, so he had to take measures to damp it down. But his task in providing a big enough disinflationary budgetary surplus was made more difficult by the inordinate rise in Government expenditure in this year's Estimates.

My right hon. Friend the Leader of the Opposition referred last night to all the election propaganda last October—the "spendthrift" Socialists, with all those wildcat schemes for higher pensions and the rest, would raise Government expenditure by £750 million in five years. Now the Chancellor presents Estimates showing an increase of £320 million in a single year. It was not only Lord Hail-sham. There was the Home Secretary —and I am sorry that he is not here. The right hon. Gentleman, of course, has an unrivalled claim to speak on any subject dealing with the relations between budgeteering and electioneering. The whole country listens to his words with attention. On 1st October he made a speech proving how irresponsible it was of the Labour Party to say that the £200 million required to increase pensions could be found without bankrupting the country.

The right hon. Gentleman said: The natural increase of expenditure next year, that is to say, what we have to spend without their programme or ours, will be in the order of £100 million. That will leave the Chancellor about £85 million in hand"— that is, for this year's Budget— nothing like enough to meet even the measures which they are pledged to implement … well over £200 million. But the Chancellor is budgeting this year for an extra £322 million without even providing a penny for increased pensions.

We might go further back than last October. We all remember the flamboyance of the Prime Minister during his brief call at the Treasury four years ago. We remember how he set out to reduce Government expenditure where his predecessor, the ill-fated Home Secretary, had failed. He pledged himself in his 1956 Budget to cut Government expenditure by £100 million and he based his whole Budget on that pledge. We all remember his moving reference to the Treasury portrait on Mr. Gladstone— "those eyes … nostalgic and reproachful". Thus inspired, Government expenditure was to be kept to a figure £100 million less than the 1956–57 Estimates. But today the Chancellor is budgeting for a figure not £100 million less than the 1956–57 Estimates, but well over £1,000 million more.

The actual figure above the line is £1,060 million more than the figure to which the Prime Minister pledged himself to reduce Government expenditure. That is, if I may say so, £676 million more than the figure on which the right hon. Member for Monmouth (Mr. Thorneycroft) made his famous last ditch stand only two years ago, and these figures are above the line. Below the line expenditure is, of course, now completely out of control.

The Committee obviously cannot view this with complacency. That is, I know, the view of honourable rebels below the Gangway, led by the neo-Gladstonian, the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). So close is the noble Lord getting to Gladstone these days that we might even apply to him the famous words used by Macaulay about Gladstone: The rising hope of those stern unbending Tories who follow, reluctantly and mutinously, a leader whose experience and eloquence are indispensable to them, but whose cautious temper and moderate opinions they abhor. In so far as hon. Members opposite are girding against the necessity of paying the bill for policy expenditure for which they voted, such as defence, or National Assistance or education, I do not follow them. Certainly, this party on this side of the Committee will never support moves to dismantle the Welfare State so as to reduce Surtax.

The real problem that we are facing is value for money, the avoidance of waste, tighter systems of controlling expenditure. I cannot help feeling that if a few Ministers spent more time discharging their responsibilities as guardians of the public purse, and less time seeking personal publicity for themselves, we should be debating very different figures and a very different Budget. [Laughter.] Oh, yes, we were all deeply moved by seeing the Minister of Transport helping an old lady across the road. We just wondered how there happened to be a photographer there.

The Leader of the House is to bold conversations on the Parliamentary control of expenditure. He will find us on this side of the Committee highly co-operative and. while I do not want to worry the Committee with the details of what we propose, I can say that the right hon. Gentleman will receive from us concrete and constructive proposals for a much fuller degree of Parliamentary responsibility on this problem of value for money. Our proposal will combine the participation of the House as a whole with the expertise and hard work of members of the Public Accounts and Estimates Committees.

Now I turn to the Chancellor's proposals. I do not propose to follow him on hackney carriages, playing cards, cigarette lighters, heavy oil for road vehicles, and other details—all of them Finance Bill points. I should like to offer a hearty welcome to the abolition of the Entertainments Duty. Against hon. Gentlemen opposite, we voted for this last summer. Again, we welcome his proposal on post-war credits, and I think that we can claim to have pressed these proposals on him every time he has answered Questions in this Parliament.

On the dependent relative and on the housekeeper allowance, and the allowance for widows and widowers where there is no resident housekeeper, we divided the House in support of these reliefs last year, and I am glad that the Chancellor has found our eloquence or our votes so convincing. On Estate Duty and gifts inter vivos, as my right hon. Friend said last night, our welcome is not quite so enthusiastic. There is already so much avoidance of Estate Duty that we should have pressed for a further tightening-up and not a relaxation of the Estate Duty provisions.

I come now to tobacco. As my right hon. Friend has suggested, just as the "pots and pans" Budget was the pay-off for the Home Secretary's Income Tax hand-out five years ago, so the 2d. on cigarettes is the pay-off for the Chancellor's 2d. off beer a year ago. I well remember the hysterical cries from right hon. and hon. Gentlemen opposite when my noble Friend, as he is now, Lord Dalton, raised the price of cigarettes to 3s. 4d. for 20s. I remember what promises they made in those days.

The present Minister of Pensions and National Insurance, whose promises have always outrun his performance, told the country during the 1955 election: It is a part of the Conservative policy to reduce the price of cigarettes and tobacco. I agree that the Chancellor's new imposition will not be a great hardship for some people, but hon. Members should remember that it was they who withdrew the tobacco concession from old-age pensioners two and a half years ago, and that the old folk, at any rate, are the least able to bear this increase.

Turning to the Profits Tax, we have no complaint to make of the Chancellor's proposal, but we think that he might well have gone further. Certainly, what he should have done about this, when finding himself in the present economic situation, was to restore the discriminatory tax between undistributed and distributed profits, and there was certainly a case for much higher tax on dividends.

The Budget proposals involve a number of detailed proposals on tax law, most of which can be left for the debates on the Finance Bill, but I should like to give a welcome for the proposal to deal with the problem of penalties to be incurred in case of incorrect returns. A few weeks ago, I joined the hon. Member for Portsmouth, Langstone (Mr. Stevens) in pressing the Chancellor to amend these Draconian provisions, and we shall want to see what the actual proposals are to be in the Bill.

I turn to the proposals to fortify the Revenue against tax avoidance. We have been pressing the Chancellor and his predecessors for several years to take these measures and others which are even more necessary. Tax-loss farming we have pressed year after year, and the recent report by the Comptroller and Auditor General shows that millions of pounds are lost in taxation by the stockbroker farmer and his like.

The right hon. Gentleman's proposal to deal with the "golden handshake" was not the least welcomed on this side of the Committee. Hon. Members will remember that on 29th June last year, I gave details of 11 of these redundant directors receiving a total of £575,000 tax-free between them. This is an average of £52,000 each, which is more than Manchester City paid Huddersfield Town for an inside forward. This shows what a distorted sense of values we are now getting. I gathered from the Chancellor's reply to an intervention of mine yesterday that this proposal does not affect lawyers. This is a very great disappointment, I am sure, to all those hon. Members on both sides of the Committee who are not referred to as "learned".

Once again, the right hon. Gentleman brings forward proposals to close yet another loophole discovered by the ingenious fraternity of dividend strippers. We warned the Home Secretary about this in 1955 and we warned the Chancellor, two years ago, that these people would find ways round his legislation. We told him then that he needed a general anti-avoidance provision to deter these racketeers, and I am glad that he has at last had the courage to take our advice.

I am not quite sure that what the right hon. Gentleman proposes is the right method. We would have provided another method. It is rather difficult, and the Treasury has to prove motive, but I would have preferred our own proposals three years ago to give the Treasury power to introduce an Order, subject to the affirmative Resolution procedure, and requiring ratification by the House in the next Finance Bill. This would have the advantage of leaving the House and not the Inland Revenue in command of the situation. For all that, these measures, so far as they go, will have our full support. I cannot say that about hon. Gentlemen behind the Chancellor, whose response yesterday, I can tell him, was less than enthusiastic. From where he stood, he could not see them. We could, and I must say that they looked rather like a collection of St. Bernards which had lost their brandy. Indeed, when I saw the account in the Daily Express of last night's secret Committee meeting upstairs, and when I read, also, that among the resigning Treasury Ministers two years ago, the right hon. Member for Flint, West (Mr. Birch) was playing a leading part in the attacks on the Chancellor, I can almost envisage the noble Lord and some of his colleagues chanting "Bring back the 'birch'". I hope that the Chancellor is not going to run away from his right hon., hon. and hon. and learned Friends as he did two years ago. The knives are being sharpened.

Mr. Gerald Nabarro (Kidderminster)

Hear, hear.

Mr. Wilson

I am glad that the hon. Gentleman is still in such good heart after having his moustachios pulled by the Patronage Secretary this morning.

But I want to deal seriously with this problem. Whatever difficulties there may be from that side of the Committee, I promise the Chancellor that we on this side will try to throw over him the mantle of our protection, including our support in the Lobby, if he will undertake to stand firm against his hon. Friends.

Mr. Nabarro

That is just what is wrong with the Budget. The right hon. Gentleman is supporting it.

Mr. Wilson

I think that it would be churlish of us not to offer the Chancellor that protection. After all, he is proving an apt pupil, though perhaps a little slow. In reference to what the hon. Member for Kidderminster (Mr. Nabarro) has just said, I have just heard that one Conservative Member has received a telegram from his constituents asking him to congratulate Harold Wilson on his Budget.

This, I would suggest, is entirely to misconceive the problem, because neither the Chancellor nor his hon. Friends—if I may go on using that phrase—should get the idea that he has really done more than scratch the surface of tax avoidance. In fact, he has hardly begun. What he has done is to deal in a very limited fashion with the professionals. Quite rightly; that needed doing. He has dealt with the Players but he has not yet started to deal with the Gentlemen, and he will find them a much tougher proposition when it comes to tax avoidance.

The noble Lord the Member for Dorset, South—I am sorry to keep on referring to him, but at least he is thinking about this problem—in a recent letter to The Times, said that the present taxation system of the country was … a tax code framed by radical Liberals half a century ago for a slum economy.

Viscount Hinchingbrooke (Dorset, South)

So it was.

Mr. Wilson

I will not ask the noble Lord which party created the slum economy, but it is a testimony to the ingenuity and resource of the moneyed classes of this country that they have turned this slum taxation system into one which so aptly and speedily helps a great number of rich taxpayers to dodge their fair share of taxation. The characteristic of our tax system under right hon. Gentlemen opposite is that those who make money flourish, and that those who earn money are penalised.

We have often debated expense accounts. The different treatment of Schedule D and Schedule E is a national scandal, grossly unfair to P.A.Y.E. taxpayers, wage and salary earners, civil servants, thousands of professional people, the vast majority of whom pay their full tax liability. I will not repeat all the evidence we have brought forward in previous debates on this subject, but there is some information which, I think, is worth examining. For example, not long ago the Chancellor published a new estimate of the proportion of the nation's £400 million drink bill which he pays for; that is, the part which enters into tax-deductible business entertainment. He stepped up the figure from 5 per cent. to 10 per cent., but that is probably still an underestimate. Yet, even so, £40 million a year seems to me to represent an excessive amount of cancellarian hospitality.

It can be calculated that the right hon. Gentleman is probably paying for roughly 1 million drinks, wines and spirits, every day of the year—and still he is not popular. We have all seen what goes on. This is, in fact, the Tory Welfare State—free drinks for the businessmen, prescription charges for the sick and old. Whether all this alcohol is really needed to lubricate the production system is arguable, I should think. Some may hold that, so far from increasing, it diminishes productivity and commercial acumen. What is beyond argument is that there is no need for the Chancellor to pay for it.

This is not all. This hospitality is becoming more expansive. Hon. Members may have seen some of the authoritative and revealing social surveys of the Soho area, which some Sunday newspapers have been publishing recently, with obvious reluctance and distaste, sternly putting their public duty before their desire for circulation.

On one thing all these sociologists agree, that these "mushroom" theatre clubs, if we may so call them, which cause so much pain to the Home Secretary, flourish largely under the patronage of expense accounts. It may well be that just as the de Medicis went down to history as the patrons of Florentine art, so the right hon. Gentleman will be remembered as the patron of the new art forms which flourish in Soho. He can read about them in the Sunday papers.

Again, I was struck recently by some interesting figures in the latest Report of the Commissioners of Inland Revenue for 1957–58—there are no later figures. According to that Report, 115,000 incorporated businesses earned less than £250 a year. Those include over half the businesses in the country. Their average net true income declared for tax purposes was £31 a year. Then, taking individual Schedule D taxpayers, nearly half a (million, one-third of the total, had a net true income of under £250 a year. The average was £120.

Another one-third of the taxpayers had incomes of between £250 and £500, averaging £300. Making every allowance for part-time jobs and the rest, if these tax returns are true private enterprise seems neither so efficient nor so profitable as it is made out to be. Yet these firms and these individuals survive year by year. Their numbers are maintained. They have not even got a Guillebaud Report to look after their earning power.

The Chancellor is a humane man. His heart, I know, bleeds for these people who are living on such a low standard of life. Stoically and uncomplainingly they seek to keep up appearances as they commute in their Bentleys from the National Assistance Board to the Savoy Grill. What, I wonder, is this: what do they live on, what is their real spending power? How many of those unprofitable businesses have a car provided, and an initial allowance for it? How many have tax-free expense accounts several times their taxable income?

As the Observer said a week or two ago, how many buy a £1,000 car and then deduct £550 right away from their taxable income in a single year? Despite all this, during the election last year the Prime Minister solemnly assured the country that, even if there were a determined drive against tax avoidance, the total yield would not exceed £250,000 a year. The right hon. Gentleman's regard for statistical truth, of course, has always been somewhat elliptical, not least at election time.

I referred earlier to the professional tax avoidance industry, to which the Chancellor is belatedly turning his attention. While he is doing this, even unskilled amateurs are learning the game. Poujardiste newspaper articles are popularising tax avoidance on a "Do-it-yourself" basis. Take, for example, the remarkable series in the Evening Standard, a few weeks ago. I can do no more than pick out a few highlights.

Article No. 1 was entitled "How to pay less tax". This was a general introduction to the series. Article No. 2 was entitled "Another £1,000 a year? It's yours". The advice was to get into a top-hat pension scheme. Article No. 3 was called, "Who pays the school fees in your family?" The idea is to cast the burden on the Chancellor by means of covenants. We are told that a £30,000 a year man can make payments of £5,000 a year at a cost to himself of only £560, the Chancellor looks after the rest. The article continued: For some people the setting up of 'one-man' companies may sometimes be a convenient way of saving Surtax. But its application can also be used to save death duties The theme is more fully argued in the fourth article, under the title "Death Duties: will you have to pay?" Of course not, unless you are very imprudent. No wonder the yield both of Surtax and Estate Duty has entirely failed to expand as compared with prewar, despite the increased rates of tax to a level which even begins to correspond to increased income and wealth and changes in the value of money.

The fifth article has a silvicultural flavour. If you can wait twenty years, you can earn big rewards by investing in private woodlands, if, of course, you are, as they say, high up in the tax bracket. The sixth article is also rather specialised. "This way you can win at horse-racing." The thing to do is to own a stud farm.

All this might be amusing if we could ignore its economic and moral effects. I wonder how the Chancellor can come along and appeal for wage restraint in the face of these scandals? All the facts I have given today are known to the Chancellor and they were known to his predecessors. Why have they not dealt with them? The answer is because the right hon. Gentleman and his party believe in the fundamental inequality which this system represents; because they are not content with the wide variations in economic rewards which our present economic society creates, or with the even more unjust distribution of wealth and property.

Over and above a maldistribution of income and wealth and social privilege, they have perpetuated a system of fiscal privilege which makes nonsense of the Prime Minister's post-election claim that we have become one nation. The Chancellor knows that even if he tried to deal with this problem his party would never let him do it, because there are too many Tory crusts dipping into this gravy. [An HON. MEMBER: "What would the Opposition do?"] An hon. Member asks what we would do. Let me tell him, and, at the same time, give the lie to such election propaganda as the polling day article in the Daily Sketch called "Odd job Gestapo—if you don't vote Right."

To deal with expense accounts one does not need a vast army of snoopers nor to go primarily for the individual. The Government need only provide that a firm's appropriation for business entertainment and sales promotion shall only be tax—exempt as to, say, 50 per cent. or less.

Secondly, on cars, abolish the initial allowances and, where cars are legitimately provided, limit the annual tax allowance to a fixed percentage—say, 6 or 7 per cent. of the individual's declared income for tax purposes.

Thirdly, alter the law to get rid of some of these "phoney" trusts which have been established for the payment of school fees and for death duty avoidance.

Fourthly, both to deal with this shady no-man's-land between taxable income and tax-free capital gains, and to bring greater social justice into the tax system, introduce an effective capital gains tax.

Apart from the tax on capital gains, nothing of what I have said presupposes any new taxes or increased rates of tax. It is a suggestion for making the existing laws effective. I make two other suggestions, however. The first, which I put last year, is that there should be an Excise duty on commercial television advertising revenue, which has now reached fantastic levels. When programme contractors have described their franchise as a licence to print money, I see no reason why the State which issues the licence should not, either by charging for the licence or by a tax such as the Excise duty on footpall pool revenues, recover some of the easy profits which accrue.

Secondly, on economic grounds there is a case for some tax on fuel oil for space heating. This was exempted from the general hydro-carbon oil duties in 1947 because of the fuel position then, which has now changed. Without going back to anything like the pre-1947 rates, a duty of, say, lid. per gallon would not only do much at the margin to help indigenous fuels and reduce dependence on imported fuel, but produce enough revenue within the oil duties to enable the Chancellor to abolish the whole of the diesel oil tax on road passenger transport.

A budget, in modern times, must be judged on two tests: how far it succeeds in promoting social justice and how far it helps to solve the economic problems facing the country. On the social test, this Budget, like its predecessors, has dismally failed. As my right hon. Friend the Leader of the Opposition reminded the Committee yesterday, the biggest oharge against the Chancellor is his treatment of old-age pensioners and others in need. Once again, the Government have passed by on the other side.

Whether it is a "give-away" Budget, like that of last year, with £340 million of remission in taxation, or, as the Chancellor called it yesterday, a "fortification and consolidation", not a penny can be found for increasing the basic pension.

During the past year the total national product has risen by £2,000 million, yet the Chancellor cannot find £200 million to put up the pension. Other sections of the community have done well. Vast fortunes have been made on the stock market and in some rather sordid property deals, but the old, the sick, and the disabled have become the forgotten legion of this country.

Taking the Chancellor's three Budgets together, which account for some very substantial reliefs in taxation, his guiding principle is this, "Let me ask who is paying the most in taxation, for he is my first priority for relief; the money, after all, is his, and when I can afford to withhold less he should be the first to get relief."

Our approach, on the other hand, is based on the simple proposition, "From each according to his means, to each according to his needs." In our view, all income and wealth come funda- mentally from the community, and the individual taxpayer is a trustee for that wealth and income on behalf of the nation, so that taxation, so far from being, as the Conservatives regard it, a distortion of a sanctified natural economic process, is one of the main weapons for correcting the distortions and injustices which result from our economic system. To a Conservative a high rate of Surtax on the millionaire is a distortion. To us, the millionaire is the distortion. That is the difference between the two sides of the House.

Mr. Cyril Osborne (Louth)

What about the Opposition's millionaires?

Mr. Wilson

I think that we have rather fewer millionaires than the Conservatives have, but they, under a Labour Government, would pay their full share of taxation.

Let us take another example—the need for houses to let is as great as ever. Every Member from an industrial area, and many others, knows the tragedy and hardship of overcrowding and of broken homes. Yet the Chancellor refuses to restore the Government housing subsidies.

Mr. David Price (Eastleigh)

Quite right.

Mr. Wilson

It would cost no more than what the Chancellor gave up yesterday in the reduced duty on port, but I am glad to get the hon. Member's sense of social priorities right.

Mr. Price

The right hon. Gentleman is being unfair. Under the Labour Government there were trade agreements with other countries which involved reciprocal measures. What has been done with port is a reciprocal measure under the Outer Seven Free Trade Association to make it a little more attractive to Portugal. I thought that the right hon. Gentleman was in favour of promoting exports.

Mr. Wilson

The hon. Member need not apologise. He said "Quite right" to what I said about the housing subsidy before I even mentioned port.

I now turn to the other criterion by which a Budget must be judged, and that is its effect on the economic situation. Yesterday, the Chancellor gave an optimistic and complacent account of the economic position. As I listened to his recital of last year's results— 10 per cent. increase in production, a big increase in productivity, buoyant revenues, and stable prices—I could not help feeling how events of the past year have proved the case we have been putting year by year, which is that only by increasing production can we create the revenue needed for improved social services, and that the way to keep prices down is not by holding production down and endangering full employment, but by following a policy of steady expansion.

The tragedy is that because of the neglect of investment our industrial base is still so inadequate that after only one year of expansion the Government take fright and begin to apply the brake. Yet, even in the fourth quarter of last year, production was still only 8 per cent. above what it was in the corresponding quarter of 1955—an average increase of 2 per cent. a year. We are still lagging behind the rest of Europe.

A tragedy is that the brake is being applied just as investment in manufacturing industry is beginning to recover from the cuts applied in 1957 by the right hon. Gentleman the Member for Monmouth. As the Economic Survey pointed out, even in the last quarter of 1959, manufacturing investment was 7 per cent. lower than it was a year earlier. I cannot emphasise too strongly that in the long run it will be by our investment record that we shall survive and prosper among industrial nations.

It was significant, also, that the very week in January in which the Board of Trade figures showed a prospective rise in investment in manufacturing industries was the week in which the Bank Rate was raised. When the Governor of the Bank of England, last autumn, began to hint at the need to use the brake—even before investment had shown any signs of recovery—he made it clear that one reason in his mind was that the Stock Exchange boom, the speculative fever in the City, was getting out of hand. It is because the Government can find no means of restraining the City, and because acquisitive interests in the City could not restrain themselves, that we have had to put the brake on the economy as a whole and productive industry and urgently needed capital investment have had to be sacrificed to an uncontrollable speculative boom concerned only with private gain.

The Chancellor of the Exchequer was very frank when he told us about our serious balance of payments position. When the Prime Minister, during the election, claimed that our balance of payments position was strong, he was speaking in a year in which the balance of payments surplus was the lowest since 1955—£145 million. He was speaking in the fourth quarter of last year, when there was a deficit on our current balance of payments account.

I understand that it is Government policy to produce a surplus on current account of £450 million. The Treasury said this in its evidence to the Radcliffe Committee, as shown at Question No. 13,358—£450 million should be achieved year in and year out as a current surplus on our balance of payments. Last year it was not £450 million, but £145 million. The Chancellor gave some explanation. He said that our imports have risen a good deal more than our exports, our re-exports are down and there is a worsening on invisible account. This is partly due to increased Government expenditure abroad. In present circumstances we might be able to afford either an expensive Foreign Secretary or an expensive Minister of Defence, but not both at once, and it seems to be time to have an investigation into this very serious increase in Government expenditure abroad, which is worsening our balance of payments year by year.

There has been an increase in net expenditure on foreign travel and a big fall in net oil earnings, as the Chancellor said. How big this is we do not know, because the Chancellor is very coy about publishing any figures about oil earnings. He publishes statistics of most other things in detail, yet he refuses to tell us anything about oil, and considering the great political influence on the Government that the oil companies seem to have, it seems to me that at least we ought to be told something of the economics of the oil industry.

When I said that the balance of payments last year was £100 million worse than even in the crisis year of 1957, this does not necessarily mean an impending foreign exchange crisis. In 1957, against a background of a favourable and an improving balance of payments, a grave exchange crisis broke out on speculative grounds because many people wanted to get into deutschmarks and dollars. At present, there is no sign of any serious imbalance in world currencies which could precipitate a similar run on sterling, but the figures which the Chancellor gave yesterday show, I think, that we are highly vulnerable in our balance of payments and that we have been made the more vulnerable by successive acts of Government imprudence.

The position is that our trading surplus, such as it is. including that on invisible account, is nothing like big enough to pay for our commitments in the way of investment overseas. This means that our monetary reserves have been falling, and in so far as we have been able to keep afloat, it has been by short-term capital movements coming in from abroad.

I am not suggesting that we are over-lending. My complaint is not against the amount we are lending but against the fact that we are not making enough available in terms of current surplus to honour that lending with savings. We are now getting into our traditionally vulnerable posture of borrowing short and lending long. I hope that this afternoon the President of the Board of Trade will address himself to these problems. What are the prospects, in his view, for increasing exports? The markets are there, but we are losing ground year by year compared with other countries. The right hon. Gentleman recently told industrialists, I understand, that delivery dates for exports are lengthening—another sign of strain.

I hope that either he or the Chancellor will tell us what they think of the proposals which we put forward in the debate on the Radcliffe Report for an export-import bank in this country to supplement the work of the E.C.G.D., and the various other suggestions which we made about international liquidity. I also hope that he will give us an up-to-date statement on prospects in Europe. Whatever the Prime Minister may or may not have said in Washington last week, the position is deteriorating sharply while the President of the Board of Trade is still proceeding in stately fashion from seminar to seminar round Europe.

Let me give the Committee just two examples. We export a lot of washing machines to West Germany in competition with Common Market countries. Under the Hallstein plan the tariff for Common Market products will fall from 7 per cent. to 6 per cent. but for British machines it will rise from 7 per cent. to 10 per cent. We are still exporting a lot of the bigger models of cars to Western Germany. Under the plan the tariff on other Common Market cars will fall from 16 per cent. to 14 per cent. while that on British cars will go up from 16 per cent. to 24 per cent. These are very serious figures, and I hope that the President of the Board of Trade will say something about them.

Turning from exports, we should like to know more about the Government's policy for easing internal strains. Certainly, the Budget is quite inadequate for dealing with these. Yesterday, the Chancellor was muttering dark threats at the banks. What has he in mind? An increase in the Bank Rate? Surely it is high already. Any further increase will place an impossible burden on local authorities, on building society mortgage holders and on holders of gilt-edged. Was he hinting at the use of special deposits? It might commend the idea to hon. Members opposite if I told them that the special deposits idea was first put into the Chancellor's mind from these benches. It is another product of our very limited bipartisanship in these matters.

Is it not time that the Chancellor dropped this game of cat and mouse with the banks, all this pre-1914 mumbo-jumbo, all this elaborate quadrille, keeping the banks guessing? Why does he not send for the banks' chairmen, tell them what he wants them to do and then see that they do it?

I must tell the Chancellor that it is no good his thinking that he will bail himself out this time by appeals for wage restraint. The Government have lost the right to make those appeals. During the election, one Minister after another, not least the present Colonial Secretary, then Minister of Labour, claimed that under the Tories wages had risen high. The truth was that they had risen in spite of the Government, not because of them. It was all the fault of the wicked trade union leaders. You cannot appeal for votes in 1959 on a higher wages policy and then spend 1960 asking the trade unions to bail you out with wage restraint.

I go further and say that the whole election was fought on the principle of free for all, grab all you can, never mind those who have not a dinghy. For three months after the election the Stock Exchange thought that the country had voted for that. You cannot have a free-for-all and say that the only people who should observe restraint are trade unions and their members, the more so when the Government's policies promote more and more unequal distribution of wealth and income.

If hon. Members look at last year's figures, for example, they will see that wage rates rose by just over 1 per cent., or 3d. in the £. Wage earnings, partly through increased hours, rose by 5 per cent., or 1s. in the £. Company profits rose by 11 per cent., or 2s. 2d. in the £. Equity dividends before tax rose by 13 per cent., or 2s. 7d. in the £. Equity dividends after tax rose a good deal more. Share prices rose by 45½ per cent., or over 9s. in the £.

If hon. Members look at the figures of the equity shares boom over the past two years they will see the growing inequality due to this. Anyone who held £10,000 of representative equity shares in January, 1958, would have found his holdings in January this year worth £18,000, the whole of the increase being tax-free. But if the holdings had been in a representative group of property shares, the £10,000 would now be worth nearly £27,000. He would have made, tax-free, without raising a finger, £17,000 in those two years. It would take a mainline engine driver, of whom we have heard a lot recently, thirty years, nearly his whole lifetime's work on the footplate, to get as much money as that— and it would be taxed.

For those who own land the capital profits are even more fantastic. More and more newly married couples in this property-owning democracy are being priced out of the market by land charges when they want to build on the outskirts of large towns and cities. As for land prices in the centres of big cities, the problem can be judged by the fact that I am told that to build a 10-storey garage in Central London—knowing how expensive it is to build a 10-storey garage in Central London—costs less than the money which has to be laid out to acquire the site.

Before I sit down I want for a few moments to take the debate on to a rather wider theme than that provided by the right hon. Gentleman's Budget. This is the first Budget debate of the new Parliament; the first, indeed, of the 1960s, a period which, for good or ill, will leave its mark on the future of the country. Not only our material prosperity but our moral influence in the world will depend to an unpredictable degree on our success in solving our economic problems and building up our strength. We are all agreed about that.

We should, therefore, this week be looking ahead and devising the pattern on which our economic and social life will be woven in the next decade. For a moment I should like to draw attention to one or two disturbing features which have developed in the last few years and which, with the right hon. Gentleman in command for the next four years, are likely to develop still further.

The first of these disturbing trends I have already referred to—the growing inequality in our society. The gap, not only between rich and poor, but between the very rich and the average householder has widened, is still widening, and ought to be diminished.

I have already referred to the treatment of the old and disabled and I have described the system of fiscal privilege which has grown up. Not only income, but wealth and economic power are becoming more and more concentrated in fewer hands. We have seen the movement towards monopoly, with mergers and take-over bids reported almost daily. We see the inordinate capital gains which accrue to those who have substantial holdings in equity shares or in land. We have seen some of the details of the squalid property deals of recent months. As certain of these are sub judice, I cannot refer today to any of the features to which, in other circumstances, it would be my duty to refer.

Apart from those, vast fortunes can be made by financiers who add not one jot of wealth or productive power to the nation, at the expense of tenants and other productive workers. A few moments ago I gave some representative figures of capital gains. It will be clear that even in the most representative, the least spectacular, cases the growth of unearned wealth through capital gains from generation to generation goes far beyond the equalising effects of Estate Duty which falls only once in a generation, even on the somewhat unrealistic assumption that Estate Duty is not avoided by the usual methods. In any period of economic expansion—and we are all looking forward to continued expansion—there is a law of increasing returns to the rich; of an increased proportion of newly produced wealth accruing to the owners of property, whether in equity shares or land.

The second theme is the way in which, more and more, productive industry is being subordinated to finance. It is a recurring theme of our economic policy. We see it in the take-over bids, where efficient but prudent managements have to stand back looking over their shoulders at unproductive financial groups who come in and take them over.

We see it in the redevelopment of the nation's productive resources. For example, in terms of manpower from June, 1955, to December, 1959, while the numbers employed in production, that is, manufacturing, mining and agricultural, fell over the last four and a half years by 6,000, the numbers employed in the group known as "professional, financial and miscellaneous", rose by 207,000.

We see it in the figures of bank lending since the end of the credit squeeze. Advances to industry rose by 22 per cent.; to stockbrokers, hire-purchase finance companies, "Other Financial" and "Personal and Professional"—much of it for Stock Exchange speculation—by nearly 60 per cent. The Chancellor, by allowing taxpayers to offset interest on overdrafts incurred for, perhaps, speculation against their taxable income, is conniving at the process.

We see it, too, in the commanding position which the Stock Exchange, in my view wrongly, once again occupies in the economy, with a totally unjustified and often harmful influence over productive industry. I would quote to hon. Members some wise words written twenty years ago: The volume of credit and the quantity of money should be regulated in accordance with the needs of the productive system and not dominated by irrational and anti-social speculation in the fluctuating value of securities. The proper function of the Stock Exchange is, as its name implies, to facilitate the exchange of stocks and shares for cash. A method must be found which will enable this useful function to be performed while at the same time abolishing the frenzied speculation which has such evil disturbing consequences of the productive system". Those words were taken from page 257 of "The Middle Way" by the present Prime Minister, and was published in 1937 by Macmillan and Co.

I will not follow the Prime Minister in his contumacious reference to the Stock Exchange as a "casino", or his disruptive suggestion that the Stock Exchange be by-passed by a newly created investment board for all shares except those of new firms. For hon. Gentlemen opposite the commanding heights of the economy are and should be in the City, and in private hands. In our view, they should be within the control of the community and accountable to it. That is why I said the Chancellor's reference to the hiving-off of some of the profitable parts of the State-owned steel industry would be bitterly contested.

The third development to which I would draw attention is the growing practice of financing private industry out of State funds. The right hon. Member for Woodford (Sir. W. Churchill), in his famous panegyric on the Conservative Party, forty-two years ago, referred to "the open hand at the Treasury", but even he could not have foreseen the arrival of a Government which have established themselves as a public assistance committee for mendicant capitalism.

In recent debates hon. Members on both sides of the Committee have expressed their anxieties about both the scale and the manner of some of these subsidies and loans. I will not, therefore, repeat these arguments, but I ought to mention what some Members may have missed, the alarming statement made during the election by the then President of the Board of Trade, now the Minister of Education, when speaking in Lancashire. He proudly boasted in Lancashire that the £30 million he had asked the House to provide for cotton would not be enough. He said that it would cost £50 million to £60 million, but he had not dared to tell the House it would cost that sum or he would not have got it. In other words, he admitted misleading the House in asking for this big sum. I have the right hon. Gentleman's exact words, which show the utter contempt with which Ministers treat the House in matters of public expenditure.

In this, as in so many other directions, the Government are standing the economic system on its head. The traditional position is that local authorities are free to borrow from the Treasury while private enterprise borrows from the market. Under this Government local authorities are forced on to the market on unfavourable terms while private concerns are encouraged to come and borrow from the Treasury.

Fourthly, I would draw attention to the growing "Americanisation" of our economy. We all welcome increased consumption and a rise in the standard of living. Indeed, this party has fought for these things for ordinary families for sixty years. But in some respects, as in the United States, our real productive strength, and the means of further expansion in the shape of capital investment, are now being sacrificed to sheer frivolities. They are frivolities called forth not by what the consumer wants, but by the lunacies of the advertising agents, who then go to fantastic lengths, at great expense, to persuade the consumer that those are the goods he or she really wants.

How many of the scientists we need are misdirected into these irrelevancies? I ask hon. Members: are they really satisfied with a scale of values under which, as a nation, we are spending more on advertising than on industrial research, more on packaging than on education, more on the egg subsidies than on the universities?

Finally, I ask hon. Members to consider how all these developments that I have mentioned can be said to be strengthening the basic economy of the country as it must be strengthened if we are to meet the challenge from abroad, especially the formidable scientific, educational, technological and industrial challenge from the Soviet Union. I ask them to consider how the excesses of speculation, the take-over bids, the property deals, the subordination of industry to finance, the misdeployment of our scientists and the development of an economy dominated more by the advertising agent than the productive engineer, all measure up to the purposive challenge from abroad.

Soviet production is increasing at a rate of at least 10 per cent. per annum against our five-year average of 2 per cent., and a much higher proportion of what we produce is irrelevant to the challenge of the age. Four per cent. of our national income goes to education, against 10 per cent. in Russia. If these basic trends are allowed to go un-corrected over the next decade—and the Chancellor yesterday showed no awareness of these problems—there is a real danger that our civilisation will be shaped in a way that can lead only to national decadence and a loss of our moral influence in the world.

The one hope for Britain lies in the reasonable assumption that before the 1960s are half over, an election different in its result from the last will ensure that these dangerous trends are reversed.

4.51 p.m.

The President of the Board of Trade (Mr. Reginald Maudling)

I have had several opportunities of following the right hon. Member for Huyton (Mr. H. Wilson) in these debates and it is always interesting to try to anticipate what line of argument he will pursue. Once or twice in the past, he has been guilty of inconsistency, as when last year, he accused us of an election Budget and, at the same time, accused us of a Budget that distributed its favours as narrowly as possible.

This time, I thought that the right hon. Gentleman might be a little torn between the two possibilities of accusing my right hon. Friend of being a skinflint Chancellor and planting on his brow the kiss of death. On the whole, the right hon. Gentleman chose the latter, because throughout his speech he was very careful, as was the Daily Herald this morning, not to criticise the Budget in any way. Clearly, hon. Members opposite have come to the conclusion that, as a matter of political tactics, it is better for them to praise the Budget than to criticise it. Those tactics will prove to be a little naïve when hon. Members opposite come to work it out.

The right hon. Gentleman's speech was composed of two parts. In the first, he went a long way to confirm his reputation as our best financial jester. In the second half, he ventured on some fairly serious arguments. In reply to the right hon. Gentleman, I will take up both his political challenge and the remarks made yesterday by the Leader of the Opposition about the election. I shall refer to those remarks later, because they were of interest, and also to the remarks made by the right hon. Member for Huyton about the position of our economy.

First, let me say one or two things about the developments of the last twelve months. This year, unlike previous years, the right hon. Gentleman did not pay the same amount of attention as he usually does to the development of the economy, for the fairly clear reason that during the last twelve months developments have been very satisfactory. In January and February, production was 11 per cent. higher than a year ago. Investment was 4½ per cent. higher than last year and 46 per cent. higher than in 1951, when the party opposite was in power. If the right hon. Gentleman wants any knowledge of what has been holding back investment, he should look at the change in business intentions before and after the General Election. That is a clear sign of why there has been any damper on recent investment.

Then, look at the unemployment position. [HON. MEMBERS: "What about Scotland?"] I will come to the position of particular areas. As the right hon. Gentleman is so often fond of comparing the production position in this country with what it is in other countries, as he did today, he should also compare the unemployment position, in which our record stands second to none. [HON. MEMBERS: "Not in Scotland."] During 1959, the number of employed rose by 350,000. The latest figures of unemployed are 138,000 fewer than in March, 1959.

Mr. Cyril Bence (Dunbartonshire, East)

The right hon. Gentleman is not speaking of Scotland.

Mr. Maudling

I have often heard that Scotland is in a different situation from the rest of the United Kingdom. If the hon. Member will compose himself in patience a little longer, I hope to refer to that.

Prices, which apply throughout the United Kingdom, have been stable since April, 1958. In January and February this year, exports were 18 per cent. higher than twelve months ago. There is an even greater increase in the North American market, the most competitive of all. The right hon. Gentleman once again referred to the fact that our share of the world market in manufactured goods was falling. That figure, however, can be misleading. The most important figure is what is our competitive position, and in the most competitive markets of all, the markets of North America, we have been increasing our share of the market. I should have thought that the right hon. Gentleman would have been happy to see that happen.

Last year, savings showed an increase of 15 per cent. on 1958, even after taking into account the great increase in hire-purchase lending. As for profits, to which the right hon. Gentleman referred, it is true that they were 11 per cent. higher. He did not mention that they were down by 5 per cent. the year before. That is a small point that must have escaped his attention.

I agree that gross dividends were 13 per cent. higher, but what the right hon. Gentleman forgets once again is that from the profits of industry we find a substantial source both of revenue and of savings, which again this year has been reflected in the state of the national economy. This year's proposals by my right hon. Friend the Chancellor will provide a considerable strengthening of the Exchequer when next year comes.

Then, there is the question of the balance of payments. It is true that the surplus in the balance of payments fell last year. There are reasons for that. In the first place, there was a considerable degree of stocking up. In the second place, we have very large markets in the overseas sterling area and it will not have escaped the right hon. Gentleman's attention that last year the imports of the sterling area fell, whereas the imports of many European countries were rising. Naturally, therefore, with our best customers recovering more slowly than the rest of the world, it is not surprising that our exports have risen less rapidly than in the case of some of our Continental neighbours.

That is the story of progress in the last twelve months. That progress was due in no small measure to my right hon. Friend's Budget of 1959. Neither the right hon. Gentleman nor the Leader of the Opposition opposed at that time the general scale of tax reliefs that were proposed. All that they said was that we should have done more and should have done it sooner.

The prospects for 1960 and 1961 are, clearly, a further vigorous expansion of trade, business and prosperity. Consumption, investment and exports are all likely to expand. The difference between now and 1959 is that we do not have the same amount of spare capacity that we had a year ago. It is certainly true of some parts of the country and of some parts of industry. That is one of the problems. We have a shortage of labour in the Midlands and the South and substantial and serious unemployment in Scotland and other areas. Similarly, there is a shortage of light sections of rod and wire, but a plentiful supply of beams and heavy steel products. That is one of the problems we must solve.

By the Local Employment Act, and by our help for the expansion of the steel sheet industry, we are trying to find ways and means of spreading out the capacity so that we do not get this imbalance between shortages in one area and surpluses in another. By and large, however, the fact is that our resources will be fully employed in the expansion that will take place anyway without any further stimulus from the Exchequer. Therefore, any net tax reductions would create demand in excess of the available resources. This can only be reflected, inevitably, in rising prices and in a strain on our balance of payments.

We have now had more than a year of vigorous expansion and stable prices. It would be folly to cast away that stability by trying to push that expansion one degree too far. Surely the lesson of the past year, or the lessons of recent years, must be that a tough Budget, if we like to call it that, or a restraining Budget or a fortifying Budget—or whatever we call it—is indeed a small price to pay for stable prices and a strong balance of payments.

Of course, our balance of payments is a considerable problem to us. Since the war our reserves have never been really adequate for their purpose and our capital payments, particularly to overseas territories, are rising all the time. Therefore, we must constantly watch our balance of payments for, if home demand gets too high, goods will be diverted from the export market to the home market as we can see from the example of chemicals, steel and one or two other things. A diversion from the export market is bound to affect the export trade.

Similarly, on the home market. If the home market demand is too high, we shall suck in more imports from abroad. Surely in this day and age there can be no doubt that excessive home demand is a deterrent to the export trade and the main danger to our balance of payments Therefore, I submit that my right hon Friend was absolutely right in calculating that it would be wrong, both on the ground of the need for stable prices and on the ground of the need for fortifying the balance of payments, to add in any way to purchasing power by his Budget.

If that argument be accepted, the degree of tax relief which can be given, and the level of taxation itself, is fixed by the level of Government expenditure. This rise in expenditure faces us all in this Committee with grave problems from which no one in the Committee, or the Government, or in the country, should seek to shrink. Let us look at some of the main items of increased expenditure above the line—defence, education, health, National Assistance, local employment, roads and universities. Below the line, if anything, expenditure has declined. But in addition, of course, we must add the burden on the balance of payments of very substantially increased aid to overseas territories. All these items of increased expenditure are things which people have agreed are good and in the national interest.

I said that expenditure below the line next year on the estimates will in fact be less than last year. It is above the line that the increase—

Mr. Nabarro

Because it is below the line and because it happens to be less than the year before does not in any way vitiate the argument of many of my hon. Friends and myself that expenditure on the nationalised industries, uncontrolled by the House of Commons, is very unsavoury.

Mr. Maudling

It is wrong to say that the expenditure is uncontrolled. Whether it is fully or properly controlled, obviously, is a thing which needs discussion and thought. I agree with that. But to say that it is uncontrolled is quite wrong.

For the sake of the party opposite I will draw a veil over the question of defence expenditure, because after the last debate on defence we can well imagine that we should get less defence but certainly no less expenditure from them, and that is quite clear.

Education, roads and the financing of local employment are, of course, essential investments in our economy and necessary to put us in the position to earn in the future the revenue and wealth which we ought to earn. The social services and the increased overseas aid we provide are a recognition of the moral duty to help those people in this country and other countries who have been left behind following the rising tide of general consumption.

All these items of expenditure are individually justifiable, but I think that what we and the country have to face are the consequences of this growing expenditure, urged on us from all sides, when looked at as a single sum. This expenditure has been urged on us from all sides as individual items, and not in a single sum, I agree; but the problem is essentially the lack of correlation between claims for spending on individual desirable items and the total bill as it is presented to the taxpayer. That is the fundamental problem at present facing the Exchequer.

Regarding the question of expenditure, though there may be grounds for critical examination, it certainly does not lie in the mouths of hon. Members opposite to criticise after what they said at the General Election. I listened with interest to what the Leader of the Opposition said yesterday in his account of the General Election. I thought it was rather like putting a looking glass before us—Alice in the looking glass. I fear that the strain of the last few weeks has caused the right hon. Gentleman to lose his grip on his logic as well as his party, which is not altogether surprising. The right hon. Gentleman said In a sense the point we have been making has been proved. It is clear that if we have an expansion, if we have a rapid rise in income and a rapid rise in production … we get a rise in revenue at the same time."— [OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 77.] That is precisely the point we made at the election—[HON. MEMBERS: "Oh."] —precisely, that the natural growth of revenue would be committed to the natural growth of expenditure upon the schemes to which I have just been referring.

We said, time and again, that the natural growth of revenue is mortgaged to existing expenditure which, by and large, the party opposite supported and asked us to increase. It was on top of that natural growth of expenditure that they wanted to pile the hundreds of millions which they cast before the electorate at the last election.

Mr. H. Wilson

Will the right hon. Gentleman explain the figures used by the Home Secretary, and which I quoted, when the right hon. Gentleman said that the natural growth of revenue would leave the Chancellor with only £85 million for financing increased expenditure. Seeing that the Chancellor is financing £323 million, apart from the extra demand below the line, will the right hon. Gentleman reconcile that with the statement made by the Home Secretary?

Mr. Maudling

The facts are even stronger than the argument of my right hon. Friend the Home Secretary. The natural growth of expenditure has absorbed the natural increase in revenue, which is the point I was making.

While on the subject of the last election, I should like to refer to something else which was said yesterday by the right hon. Gentleman the Leader of the Opposition, when he talked about General Elections and Budgets and said that when a General Election is impending, we always have an easy Budget, with plenty of tax concessions, but, as soon as the election is over, then the Chancellor of the Exchequer gets tough with the taxpayers and tough with the country."—[OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 76.] Let us examine this charge for a moment. When my right hon. Friend introduced his Budget last year he made a very large reduction in taxation and the party opposite said that he was absolutely right to do so. They did not challenge that in any way. They said that my right hon. Friend was right to have a so-called easy Budget at that time. Surely it is not suggested by the party opposite that my right hon. Friend should keep taxation higher than it ought to be or keep the figure of unemployment higher than it need be because he might have some fortuitous advantage at the election. Even the right hon. Gentleman would not rise to those heights of altruism.

So, on last year's Budget, there was no objection to the extension of taxation reliefs and on this year's Budget there is no objection to no extension of tax relief. Neither the right hon. Gentleman the Leader of the Opposition nor the right hon. Member for Huyton objected, and neither is there any objection to it in the article in the Daily Herald. Is it suggested that my right hon. Friend was wrong in having what is called a tough Budget now? If it is agreed that it was right to have an easy Budget before and a tough Budget now, what is the basis of the charge that there should have been an easier Budget?

Mr. Hugh Gaitskell (Leeds, South)

The right hon. Gentleman has not in anything he has said disproved what I said yesterday, namely, that before an election we have an easy Budget and after an election we have a tough Budget. Of course, we did not oppose what was done last year. What we said was that it should have been done long before, so that we would have got rid of unemployment long before.

Mr. Maudling

The right hon. Gentleman has confirmed my point. He agrees with last year's Budget. If he thought we were too easy, why did not he say so before the election? He did not say so. He agrees with this year's Budget; he thinks it right to be tough. If he thought we were wrong to be tough why did not his right hon. Friend say so? He cannot have it both ways. He cannot have the benefit of agreeing with us and the advantage of criticising us.

Mr. Gaitskell

The right hon. Gentleman had better try to answer this. Why is it that a Conservative Government allowed production to languish and unemployment to increase until within a few months of the General Election and then proceeded to let up? Then they had a boom and an expansion for everybody with the hope that they would be returned, and immediately they got back into office they clamped down with heavy taxation.

Mr. Maudling

I dealt with that clearly in my speech on the Budget last year, answering precisely the same point as that made by the right hon. Member for Huyton. We do not believe in rushing ahead as fast as they did and running back into another period of inflation and a balance of payments crisis. With the present strain on the economy, what position should we be in now and what sort of Budget should we have to introduce now, if we had followed the advice of the party opposite before the election and even during the election? I do not think they have any status to intervene in this argument.

Mr. Arthur Holt (Bolton, West)

May I refer back to what impressed me as an important statement of policy when the right hon. Gentleman said that the natural increase in revenue was mortgaged to the natural increase in expenditure so that things were already balanced? Does he really mean this? This seems to imply that we cannot hope for any cuts in taxation by this Government while they are in office.

Mr. Maudling

If that were always so, what the hon. Gentleman has suggested would be true. But I was talking about the position last autumn and so was the right hon. Gentleman the Member for Huyton. I agree that if the natural increases in revenue were always mortgaged to the natural increase of expenditure then the outlook for tax reduction would be poor. That is why it is so important that my right hon. Friend should concentrate on controlling expenditure and on another source of tax relief, increasing savings, which is too often forgotten in this context.

The point I was making was that, while there may be scope for criticism of the level of expenditure at the moment, that criticism does not lie in the mouth of right hon. Gentlemen opposite. Of course, when the party opposite was in these election difficulties, that did it a certain amount of harm, at any rate, according to the hon. Gentleman the Member for Coventry, East (Mr. Crossman). If I may quote him, he said, in one of his unusual moments of candour, that: These tax pledges were an advantage to the Tories. It gave them the chance to accuse us of election bribes. I am afraid it is true that our own defensive about Income Tax and Purchase Tax undermined in some way the image we had built up about the integrity of the party. I think that was a very fair assessment of the position. The right hon. Member for Huyton has always come to the aid of his leader, and he tried to help him in the election campaign by producing arguments which he has produced again this afternoon about taxing expenses and capital gains.

They are not arguments worthy of a financial expert of the type which we know the right hon. Gentleman is when he really tries. During the election there was some discussion about how much could be obtained from taxing business expenses. In one speech, the Leader of the Opposition said that we could get £100 million from this, and, in another speech, he said that this was not a major item in their programme. In a programme on his scale I am not surprised that it would not be a major item.

The question of business expenses is grossly exaggerated. When Sir Stafford Cripps tightened up business expenses in 1948, he reckoned on getting an additional £250,000, and he was no mean expert in tightening the screw when he thought that it was right to do so. The new measures which my right hon. Friend has properly introduced this year will not produce any increase in revenue next year. In some cases they are designed to prevent opening the gate to a large flood of tax avoidance. In others it is a question of maintaining a sense of fairness between taxpayer and taxpayer, which, I think, everyone agrees is the basis of the taxation system. But to suggest that from this source could be obtained the vast sums of money which hon. Members opposite talk about—

Mr. H. Wilson

The right hon. Gentleman apparently still supports the estimate of £250,000 from the tax avoidance drive. Does he or does he not agree that one of his right hon. Friends admitted a loss of £12 million in a single year from tax avoidance alone? Does he or does he not agree with the figure of £40 million for Treasury subsidised drinks without taking account of other expenses?

Mr. Maudling

I saw the article in which the figure quoted by the right hon. Member appeared, but I am not sure that I accept the accuracy of it or the implication. I also saw the article in the Observer, which no doubt the right hon. Gentleman also saw, on the question of tax avoidance and the question of income returns by companies and individuals, and, as I thought he would probably raise this in his speech, I took the trouble to get advice on the accuracy of it. I am assured that the figures which the right hon. Gentleman quoted in the article and which he repeated this afternoon have not been fully understood, and so the conclusions are largely misleading. I am not altogether surprised. Of the so-called one-man companies, in the case of about 50,000 the trading surplus goes on the salaries of directors and not as profits at all. They are taxed on that basis. That is the whole point. In addition, the lowest range includes several thousand small clubs, with quite trivial trading activities, which make no profits at all. Those are the sort of facts which one must look at with great care before accepting figures at their face value.

Mr. Wilson

I did not take the figures from the Observer but from the Financial Times and the report of the Commissioners of Inland Revenue. Is the right hon. Gentleman aware that the deductions that I drew from those figures were taken from prominent tax experts and indeed from the association representing the employees in the Board of Inland Revenue? That is where I got the deductions from.

Mr. Maudling

I know that the right hon. Gentleman always thinks of everything before any one else. He has told us this six times this afternoon. He thought of it first. I took the precaution, assuming the right hon. Gentleman would take the trouble to quote these figures to get the best information from the officials who advise us and who are in the position to get that information.

The other point which the right hon. Gentleman raised was the so-called capital gains tax. How much money does the party opposite think could be obtained from the capital gains tax? When this came up, the Royal Commission accepted an estimate of some £50 million a year. I know that the minority Report said that it was more, but I prefer to accept the majority Report as more likely to be accurate. This was not taking into account any offsetting effect of savings and investment. I cannot imagine anything having a more serious effect on savings or investment than a swingeing tax or capital levy.

Mr. John Cronin (Loughborough)

I am sure that the right hon. Gentleman wants to be fair to the Committee. These figures of the majority Report of the Royal Commission which he gave us were based on the last thirty years or so, which included one of the largest slumps in history, which is not likely to be repeated in the future, so that the figure given by the majority Report of about £250 million is much nearer the mark.

Mr. Maudling

If I understand correctly the figure of £50 million was given by the Inland Revenue, which is pretty good on these things, and I accept that figure. I am prepared to stand on that.

So far as the actual Budget proposals are concerned, I do not think that the right hon. Gentleman had much criticism to make, and therefore I do not need to enter into any long discussion on that.

I think that the Income Tax and postwar credits reliefs are modest but will be extremely welcome to a large number of people. I think that the assistance given to savings, both by improvement in the National Savings Movement and the Estate Duty changes, are more important than has been realised, and that this assistance to savings will be of very considerable benefit in easing the strain on the economy in the coming year. I was surprised at the point of view of the Leader of the Opposition who seemed to think that if I gave my son a gift of money I was trying to avoid death duties. I think that that is a retrograde point of view. I must warn my son the next time that he has his pocket money it is really an avoidance of death duties.

The right hon. Gentleman was talking yesterday as if any gifts were an evasion of Estate Duty. That has been a point of view which has, I think, often been held by the other side of the Committee and is one which we on this side of the Committee do not agree with.

Concerning the new revenue, the reasons for having some additional revenue have been rehearsed fairly fully. This is part of the general need to protect the stability of prices and to fortify the balance of payments. I think that in looking for new revenue my right hon. Friend was right to turn to tobacco. It is a commodity which, by and large, is imported across the exchanges and this is an impost which is spread pretty widely across the community. Althougn it is an amenity to many people, it cannot be described as a necessity, and it is certainly an item which will yield an increase in revenue because consumption continues steadily to rise.

As for the proposal for Profits Tax, which I think is rightly based on the buoyancy of profits generally, we are facing these increasing bills for social services, education and aid overseas. It is of great importance to the future economy and stability of the country. In meeting these bills my right hon. Friend is right to turn to the sector of the economy where there is considerable buoyancy of income.

I do not think that the Profits Tax will have any effect at all on the level of industrial investments which is at the moment buoyant and high and very encouraging. I think that the level of industrial investment will be determined not by the Profits Tax level or the Bank Rate but by the manufacturers' prospects of selling their products. I think that they will be more certain of their future prospects when they see a Budget which is cautious and prudent of the type introduced by my right hon. Friend yesterday.

One final argument is whether my right hon. Friend has been severe enough. There are those who say, and who will say, that he should have been more severe.

Mr. Nabarro

Not me.

Mr. Maudling

There are other points of view, less important, no doubt, than that of my hon. Friend, but nevertheless worthy of consideration.

There will be those who will say that my right hon. Friend could have been more severe, and if they do they should specify in what way. It is very difficult to calculate exactly the way the economy will go in the next year. Even the Economist was saying last week: The psuedo-science of quantitative forecasting is subject to far too wide a margin of error. I must say that we humbler mortals entirely agree with that. There are so many imponderables. There are the sales in the sterling area, the extent to which the labour force can expand, the rate of savings, and the position in Europe which is very hard to predict at the moment. All these things cannot be exactly weighed and provided for.

My right hon. Friend had to form a judgment in producing this Budget with its moderate degree of restraint on the economy. People may say that he should have erred on the side of caution, but that assumes that all caution is on one side, that there are risks only on one side, which is just not true. It is certainly important to avoid the danger of inflation, but I do not think that anyone can estimate mathematically how much of a surplus one needs to avoid inflation or deflation. There is the danger, as hon. Members opposite have said, of the shock to confidence which must be avoided, and which my right hon. Friend has avoided.

For some time now we have had expansion without inflation. We have had record investment and record savings. We want all these things to continue. They can continue and they will continue so long as confidence remains. I think that everyone can see the need to moderate the rate of advance, not to check it, and to fit it in with the resources of the country. But a sharp check at this stage would have serious effects. Hence the desire of my right hon. Friend to fortify the economy, not to accelerate it or to impose a sharp check.

As my right hon. Friend made clear, he is ready to act upon the growth of private credit if he feels that should be necessary. Therefore, I think that it is difficult to sustain the argument that my right hon. Friend was not severe enough. Had he been too severe he would have fallen into a danger just as serious as the danger which was threatened from the other flank.

Mr. G. R. Mitchison (Kettering)

I am obliged to the right hon. Gentleman for giving way. We have all enjoyed his excursion into Treasury matters, but would he inquire from his right hon. Friend the President of the Board of Trade why it was necessary to concede nearly £4 million to lower the prices of port, champagne and other wines while doing nothing for council housing and old-age pensioners?

Mr. Maudling

I will certainly talk to my right hon. Friend the President of the Board of Trade, but if the hon. and learned Gentleman will be good enough to read my right hon. Friend's speech yesterday he will see the reason.

Mr. Mitchison


Mr. Maudling

My right hon. Friend dealt with this matter yesterday perfectly clearly and he gave exactly the reason why the change has been made. If the hon. and learned Gentleman cares to pursue the matter in Committee no doubt he will be able to do so, but perhaps he will first read what my right hon. Friend said.

Mr. Mitchison


The Temporary Chairman (Dr. Horace King)

If the right hon. Gentleman does not take his seat, the hon. and learned Gentleman cannot speak.

Mr. Maudling

I have really answered the point; I have given way quite a lot in the course of my speech, and have endeavoured to deal with all the points raised.

The argument that I have tried to make is that my right hon. Friend had to reach a difficult judgment in the matter. To have remitted taxation now would have been to add to the expansion of the economy, to add to the danger of rising prices and to add to the danger to the balance of payments. That would have been wrong. On the other hand, to have imposed a severe check would have been a blow to confidence which might have created just as serious dangers. Therefore, I think that in producing this Budget of moderate restraint on the growth of consumption and in the distribution of his reliefs of taxation and his additional charges my right hon. Friend has met exactly the requirements of the economy. Nothing that has been said from the benches opposite has thrown the slightest shadow of doubt on that.

5.24 p.m.

Mr. John Diamond (Gloucester)

It is my duty, following the right hon. Gentle-ment the President of the Board of Trade, to pick out and to attempt to controvert some of the arguments he has used. I find this especially difficult because the right hon. Gentleman devoted between two-thirds and three-quarters of his speech to fighting the General Election all over again. He may have been stimulated into doing this, but it does not help us very much in attempting to enter into a serious debate, the most serious economic debate of the year. Instead of giving us a great deal of information, which no doubt the right hon. Gentleman has got, and helping the Committee to understand the position a good deal beter, he proceeded to fight once more the General Election which he has already won. He is already in office and he is there, no doubt, for five years to come. It is better to make these fighting speeches when we get nearer to the date of the next election.

The majority of us are more concerned with facing the difficulties which lie ahead. That is what I regard as my responsibility. I will not atempt to deal even with the right hon. Gentleman's suggestion that death duties relate to pocket money given to one's children. I do not think that that is a level of debate worthy of an answer at all.

As to the general level of the Budget, I do not dissent from what the right hon. Gentleman has said. I agree that, by and large, the Chancellor has acted sensibly in not over-stimulating the economy and in not placing too large a restraint upon it. I go further. I do not accept the view that it is the Chancellor's duty every year to bring forward a multiplicity of tax increases and tax allowances in order to demonstrate that he is aware of his responsibilities. I should have thought that he ought to claim for himself, and I am sorry that the right hon. Gentleman did not do so, the greatest credit. Surely the best evidence that the economy is running more or less as we would like to see it is that the Chancellor has the least to do at Budget time and that, therefore, the Finance Bill is the smallest and not the largest. To my mind it is not a valid argument to say that in order to prove that one is a clever Chancellor doing what the nation requires one should introduce a mass of new taxes.

I repeat that I welcome a good deal of what the Chancellor said yesterday with regard to his proposals. I welcome the abolition of the cinema tax. It is true that this dreadful two-year lag seems to apply as much under this Government as it did under the Labour Government. When one makes a speech, and if one has the good fortune to have an idea which commends itself to the Government, it always takes two years to go through the machine and to come back in the form of a Budget Resolution. The pity about it is that all these cinemas have closed. Not all, of course, would have remained open had this been done, but the need for this to be done was, if anything, greater two years ago than it is today. Nevertheless, we must not look a gilt horse in the mouth, and I welcome what the Chancellor has done in removing the remains of the cinema tax— which is called Entertainments Duty, but refers exclusively to cinemas.

I welcome everything he has done in anti-tax-avoidance measures. I am in great difficulty here because, two years ago, we were exactly in this position at the same time in our Budget debates and, stupid man that I am, what did I do? I congratulated the Chancellor and said that he needed the support of this side of the Committee because he would get into trouble from his own back benchers and he could rely on us for support. That was in regard to retrospective legislation in relation to dividend stripping. The Chancellor was got at by his own back benchers.

Mr. Nabarro

And he will be got at again.

Mr. Diamond

He committed the big-gest folly he has over committed. Having come forward with anti-tax-avoidance measures, he took the most unwise step of going back on them and it was much worse than if he had never put them forward.

Mr. Nabarro


Mr. Diamond

I know that the hon. Member for Kidderminster (Mr. Nabarro) wishes to interrupt me, but he should give me a little time. I hope that this history will not repeat itself. Therefore, I want to make it quite clear to the Chancellor that I am not in favour of what he is doing because I do not think he has gone half far enough. I hope that, if I make it plain that he has not gone half far enough, we shall not have the same unfortunate results as last time.

Mr. Nabarro

If the hon. Member will be fair in his analogy, he will immediately recognise that the item of retrospection proposed in the present Budget involves a decision made earlier by courts of law and is not in any way concerned with tax avoidance. The reversing of a decision made by a court of law is a very serious matter indeed.

Mr. Diamond

The hon. Member for Kidderminster should not regard it as absolutely essential that every time I get to my feet he must interrupt me every five minutes, as he has done on previous occasions. If he has not understood, I am sure the rest of the Committee has understood that in referring to anti-tax-avoidance measures I am not referring to a particular matter which no doubt will be dealt with in a particular Clause of the Finance Bill. I am not talking about the necessity to see that encouragement is given to pay taxes, but that encouragement is given not to avoid paying taxes.

This is important at this stage because, two years ago, we were in exactly the same position and the wheels were turned so that the vehicle was driven the other way. That is the last thing I want to happen. Therefore, I endorse everything that was said by my right hon. Friend the Member for Huyton (Mr. H. Wilson). The Chancellor is to be congratulated for going so far as he proposes in these measures, but he has a great deal further to go before he will give satisfaction to this side of the Committee—and certainly to me, and I am the only person on whose behalf I can speak.

I am absolutely astonished that, in spite of the great steps forward the Chancellor has made, he saw fit to give another encouragement to tax avoidance by the steps he is proposing in relation to gifts inter vivos. It is so evident to all of us that death duties are an almost archaic tax. Death duties are something which no one pays unless there has been negligence and provision has not been made for themselves; or if, perhaps, late in life, a widow is left a large sum of money by her husband and does not know what to do about it, and so leaves it in her own possession, then, when she dies, a suitable proportion goes to the Chancellor. I cannot understand why, against the generally admirable frame of mind in which he has approached the whole matter, the Chancellor should start to turn precisely the other way. I cannot understand why these figures are so small.

I do not understand how it comes about that with this very large reduction he is proposing to make—speaking offhand, I think it is 60 per cent. for five-year inter vivos gifts—the estimate he has been provided with is so small. There is only one possible conclusion which I would accept. Very few leave it to as late as five years before they die before making appropriate settlements.

Mr. C. Osborne

What about the Duke of Devonshire?

Mr. Diamond

There are individual cases of bad luck. They hit the headlines and everybody knows about them, but what is not known is that by taking wise precautions property can be passed on before it becomes the estate of the deceased person. That must be done well before the five years. I hope that when this point comes up in the Finance Bill we shall examine it most carefully and get an explanation why there is such a small amount.

When we come to the Finance Bill it will be appropriate to deal with the details of the anti-tax-avoidance measures proposed. The Chancellor is a patently honest man and obviously believes what he tells us. My difficulty is that I cannot accept what he believes. The figures the Chancellor has given us from time to time as to the scale of tax avoidance I am unable to accept—quite unable to accept. I am bound to come to the conclusion, therefore, that there is an enormous time lag between the time when he gets the information as to the scale and the amount of tax avoidance and the time when those who practise in this field become aware of it. It is very obvious that often this time lag is deliberate. Those who are on to a good thing take care to see that the appropriate repayment of tax which generally follows from such an activity is not put before the Revenue until all their friends are in on it and so a great deal of time has gone by.

Therefore, I make the suggestion for the consideration of the Chancellor that he should endeavour to find some method of bridging this time gap. I am sure he believes his figures and gives them as honestly as he can, but I am sure they are wrong. I am sure that the information on which they are based is not sufficiently wide or up to date. Therefore, he might consider having a sort of tax advisory committee. Obviously we cannot set up a Royal Commission on Taxation every year, but we should have some sort of advisory committee on which there would be representatives of a variety of interests all anxious about one thing, to see that the honest citizen pays his fair share of tax and that the dishonest citizen is prevented from paying less than his fair share. That Committee should bring information to the Chancellor of what is going on because, I repeat, I cannot see how it comes about that the Chancellor is always so late and so inadequate in his figures.

I do not want to rub salt into wounds, but this dividend stripping has been going on for so long and the Chancellor and the present Solicitor-General have time after time said, "It is all over now. We have done everything that needs to be done. Nothing needs to be done now. We have closed every possible loophole."

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


Mr. Diamond

Yes. The Solicitor-General used almost those words on the alteration of the Finance Bill. Of course, it needed to be done the next year and this year and, in other ways, it will have to be done year after year. The Chancellor has finally been persuaded to adopt a method of anti-tax-avoidance which is not very acceptable to anyone in this Committee. The decision as to whether a transaction was a bona fide transaction or a tax avoidance transaction is to be left to the Inland Revenue Commissioners. He has been forced to this because of the extent of tax avoidance. I repeat that there are schemes and systems going around by which, in my view, if every single honest business man were prepared to adopt the methods used by others, there would be no Schedule D payable worth collecting in two years' time.

I am satisfied with the extent of the Chancellor's provisions to deal with possible avoidance—I do not refer to evasion which obviously goes on in all those businesses earning negligible profits and where there is clearly an understatement of profits. I am referring to the methods available for converting taxable profit under Schedule D into non-taxable capital gains as a result of share dealings and so on.

The Chancellor must by now be convinced that the information which he has had from time to time, when his statements have been inadequate to the occasion, must have been at least inaccurate in the sense that it was behind the times. I hope that he will consider some form of committee whereby he can keep himself more currently advised about what is going on in those circles where tax avoidance is regarded as more important than earning wealth and providing the services which the country needs.

I turn from those provisions, which I welcome as far as they go, while saying that they do not go far enough, to the economic scene. I want first to congratulate the Chancellor on having for all practical purposes maintained stability in prices over the whole year. That is important to all of us, and all of us should recognise it. I am only sorry that the Chancellor did not give full recognition where recognition is due. I am only sorry that in his speech yesterday—and I am sure that he will take the earliest opportunity to amend it—he did not say that he was grateful and the country was grateful to the workers who have made a contribution, if not the major contribution, to price stability throughout the year.

I want to make that clear, because I think that it has escaped the attention of hon. Members opposite and most of the Press who spend their time talking about strikes of one kind and another and how the wage-earners have gone after more and more wages. At the risk of keeping the Committee for a few minutes, I will read two sentences from page 9 of the Economic Survey. Referring to the year 1959, the Economic Survey says: It was also one in which the increase in productivity was larger than the increase in earnings so that there was a fall in labour costs per unit of output. Two lines further on is the second sentence: In 1959 there was a rise in profits per unit of output …. Those are the two outstanding phrases of the Economic Survey. They put into perspective all our debates about wages and strikes and all the Chancellor's onesided appeals for restraint in wages. I say "one-sided" because it is only very recently and in one of his most attractively modest and restrained ways that the Chancellor has been appealing for restraint in dividends. That is not sufficient. I agree that he has appealed for restraint in prices.

Mr. Amory

The hon. Member always tries to be scrupulously fair in these matters. I ask him, if he can bear it, to look back at my speeches, when he will see that, whenever I have mentioned wages, I have nearly always mentioned profits at the same time and 'the need for restraint in both.

Mr. Diamond

We had this interlude last year when, unfortunately, the Chancellor did not mention it once in his Budget speech. It is my job to encourage him to put a little more accent, as it were, where encouragement is needed, and I invite the right hon. Gentleman in his important capacity to say to the nation, "Thank you, workers, for having contributed to the stability of prices over the past year" and to all his friends who are responsible as directors for dividend policy, "I regret that you, directors, have not come up to the standard of the workers in their sense of patriotism". If the Chancellor would make it as plain as that, I would not need to natter at him from time to time in order to put the matter into fair perspective.

I turn to the major item in the economic scene about which I am most concerned, and that goes back to productivity. Looked at in terms of one year, we all know that production has gone up. However, I am taking the broader view and considering the issue over a period of years. Taken over a number of years, our productivity is sadly lagging behind our competitors. OUT competitors are the developed countries in Western Europe and in America. Our increase in productivity is not to be compared with that in Western Europe over a number of years. We are all on the same footing. We all want to see an increase in productivity, coupled with stability, improved exports and an increase in our standard of living as a result.

This was a feature of last year's Budget debates and the Finance Act and, as the Chancellor will remember, the right hon. Gentleman and I at one stage had a debate on the need for private industry to be encouraged to increase its investment in plant. For that purpose, the Chancellor was proposing allowances which at that time I thought were inadequate. I think that the Chancellor will agree that the figures show that those fiscal devices did not achieve his purpose. They were intended to increase investment and, accordingly, productivity during the year. They failed to do that.

What happened was that consumption, which the right hon. Gentleman encouraged, worked its way through the economy and stimulated investment. We are now in the interesting situation of asking what we are to do now. The Chancellor is now proposing possibly to curb consumption—which I welcome 100 per cent., because curbing consumption is absolutely essential—without in any sense stopping investment.

The Chancellor proposes to do two things about that. The first is one about which we know very little. It was contained in his veiled statement yesterday, which I hope means that he will concentrate on two things, bank advances and hire-purchase advances. As to personal bank advances, I admit that I belong to the old school. If this were a banking community, I should be sitting on the benches opposite and not on this side of the Committee. I believe in the simple proposition that one should earn one's money before one spends it.

Mr. Nabarro

Hear, hear.

Mr. Diamond

I know that that is astonishingly out of date, but it is the idea on which I was brought up and we are all subject to our influences at home. That is my view about life, and I regret the way we and the Government and the banks go about encouraging people to borrow on the flimsiest of securities, totally unrelated to banking, in search of extra banking profits. I am sure that that is something which we as a nation do not want. If we want to increase consumption, we have methods better than that. Bank loans have been used for a variety of unnecessary and unwise purposes -motor cars galore, for instance. There is nothing wrong with owning a motor car if one has earned one's money and can afford to buy a motor car, but why should we borrow on future time and on our children's future activities?

Mr. Paul Williams (Sunderland, South)

The hon. Gentleman is laying down what he thinks is a sound principle for individual behaviour. Would he apply that principle to industry in general, to the nationalised as well as to the private sector?

Mr. Diamond

I am talking about individuals going to banks and hire-purchase companies and borrowing money so that they can enjoy certain articles of consumption for which they are unable to pay. I am sticking to that. I am saying that, on moral principles, this is not something which we can support and that on fiscal principles it is something which we do not want to encourage, because if we want to encourage consumption there are much better ways of doing it.

Mr. F. M. Bennett (Torquay)

What I am about to say is in no way a hostile rejoinder to the hon. Gentleman—quite the contrary—and is fairly pertinent. Would be accept that if it is not wise for a private individual to do that, then it is not wise for Governments to do what they have a tendency to do, which is to finance long-term undertakings by short-term Treasury bills?

Mr. Diamond

The hon. Gentleman must be fair. He is trying to divert a simple economic principle into a highly technical argument about short-term borrowing for long-term investment. It would take me a quarter of an hour to answer that question fully. I should be glad to do that, but outside the Chamber.

I propose to get on, Sir Samuel, because I know that you are anxious to call any number of other speakers who wish to participate in this debate. I will get on with what I think is a serious omission to face the position. I hope that I shall be excused for not re-living the past and not fighting the General Election all over again, as the President of the Board of Trade did. What I am concerned with is the fact that we are in a race. I am not concerned with increasing production merely so that we shall all wallow in better and more comfortable armchairs year after year. I am concerned that we are in the race with other countries which spend a good deal more on their investment, and we are always behind them. We never invest sufficiently far ahead. The interesting thing about a race, as everyone recognises at once, is that it is no good a contestant saying that he can run as fast as the next fellow. Unless he starts at the same time, he will be beaten. It is no use a contestant starting two or three laps behind and saying that he can run as fast as the person immediately in front of him. It is doubtful whether he can, but even if he can he must start at the same time.

The practice of allowing investment to lag and suddenly saying, "We shall have to pull it up again" as has happened in the past year, and indeed for two or more years, means that we are being left behind in this important race. I think that the race is frightfully important. I come on now to the aspect which bothers me more than anything else about the whole of the economic situation and which the Chancellor of the Exchequer thought fit not to mention. I dare say he thought it right not to mention it because he considered that it was not entirely relevant. I am more concerned about our future in relation to the Common Market than I am about any other single factor. I am more concerned at what we have to do and the change of mind and heart which we have to accomplish before we shall have this country running on a satisfactory economic keel for a long period ahead. The Chancellor will not take this as a criticism, but I am surprised that he and the President of the Board of Trade did not think fit to go into this and tell us what the situation is and what is required. We are not the "E.F.T.A." countries; we are the "left-out" countries. We are being left out of future economic development, and we are not even sufficiently conscious that we are being left out in the cold.

This means not only a series of economic actions, but a complete readjustment of our minds. It means that we must recognise that what we were taught at school was wrong. We were taught that every single English man is worth three Frenchmen, four Germans and five Dutchmen. That is not right. They have as many brains as we have. They have as much industry, if not more industry, as we have. The first thing most of us notice on a tour of the Continent is that they keep open much later and work much harder. I am not saying that they should or should not.

This is a situation which we fail to recognise. We surround ourselves with our typical insularity and say "We are British. We shall wave the Union Jack and everything will be all right". It will not be all right. In two years' time we shall be in a very serious position indeed unless we adjust our minds. This will be so even though we may in the meantime, as I hope that we shall, bring up our production, increase our productivity, and do everything else which is required of a nation such as ours which depends on the economic activity of the West for the rising standard of living of all of us.

5.53 p.m.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

It is with great trepidation that I rise to address the Committee for the first time. It is extremely difficult to think of much to say on the Budget which is not in some sense controversial. I hope that the Committee will forgive me, as I will endeavour not to try the patience of hon. Members for too long.

I have the honour to represent the Cirencester and Tewkesbury Division of Gloucestershire. Many hon. Members will know that beautiful countryside and reckon me one of the luckiest Members from that point of view. I also have the honour to follow in the footsteps of Mr. Speaker's predecessor, Lord Dunrossil. He earned for himself a great name, both in the House of Commons and outside it. When looking through some of his earlier speeches the other day I found that in one of his very first speeches, on the Budget in 1932, he used the following sentence: All taxation is bad …"—[OFFICIAL REPORT, 23rd March, 1932; Vol. 263, c. 1091.] If Lord Dunrossil thought that in those days, he would certainly think so very much more strongly now, because in the Budget of 1930 Income Tax stood at 4s. 6d. in the £ and yielded about £250 million only in a full year.

Many of my constituents are farmers, and they have a double ordeal at this time of year—the February Price Review, followed by the Budget. In most years they gain on the roundabouts what they lose on the swings, but they may not be quite so happy this year. It seems that they are asked every year to increase their efficiency by £25 million. How nice it would be if the Government similarly assumed that they would increase their own efficiency by a similar amount before the Budget was drawn.

However, I am sure that farmers throughout the land will be very glad to hear that the worst loopholes of tax farming are about to be stopped up. Tax farming is not in the interests of the farming community as a whole. There are marginal cases where rich men occupy land and more earthy gentlemen might feel that they would like to occupy the same land. There are those cases which are arguable either way. At least, the better-off gentleman put extra capital into the land through certain tax expenses which, in the long run, is to the benefit of agriculture. We must be careful not to carry the rooting out of expenses so far that we kill genuine and good investment.

There are many other forms of tax dodgers. The hon. Member for Gloucester (Mr. Diamond), my neighbour, dwelt very long on that subject. It is so complicated. Many people have to employ accountants to keep within the law, let alone to get anything further. I suggest to the hon. Member for Gloucester that it might be a good idea to introduce a 100 per cent. tax on accountants' fees to discourage such gentlemen from going too far.

We must pursue the dishonest in this respect, but I think that a strong reason why people try to evade tax is that the general level of taxation is too heavy year by year. This is especially true of the income range between £1,500 and £3,000 a year gross. I shall quote some figures to show how much those people pay in tax, compared with when Lord Dunrossil, thirty years ago, said, "All taxation is bad". Since 1930, the cost of living has risen by 172 per cent. A man earning £1,500 a year now pays £227, or 15 per cent. of his total income, in Income Tax. The equivalent salary in 1930 was £550. A man earning that salary paid £12 Income Tax, or 2½ per cent. of his income. Therefore, that type of Englishman pays six times as much as he used to.

Further up the scale, a married man with two children earning £2,500 a year now pays £670 Income Tax, or 27 per cent. of his income, whereas a man earning the equivalent salary of £900 thirty years ago paid £62, or 7 per cent. of his income. Therefore, the incidence of Income Tax in that income group has risen by nearly four times. I believe that in Germany a married man with two children earning £2,500 a year would pay £350, or about half as much.

This group comprises about half a million families, and includes those engineers, technicians, young managers and skilled workers on whom our industrial future depends. No wonder that they are tending to go abroad. No wonder that they are looking across the Atlantic, where they can expect to receive a higher net income. There is even a genuine and honest fear of Surtax itself. People feel that there is something wrong and intimidating about crossing the £2,000 mark. I was asked by someone whose salary I once put up to leave it at £1,999, though he added that he would not mind having a firm's car.

In this class are those who try as far as they can to educate their children, saving the Exchequer considerable sums. They try to pay for their own doctors— and have to pay for their own drugs if they do. They also find that when their children go to the university they are debarred from grant because of the means test.

I know that we cannot suggest a tax relief without saying where the money is to come from, and we shall not get enough from stopping up loopholes of taxation expenditure and evasion to pay for the scale of relief I feel is necessary for these people. It is, perhaps, a pity, with the modern theory of economy about which the Chancellor spoke so convincingly yesterday, when he described how the volume of demand had grown, and said that we must not do anything at this stage to make it grow further, that we have come to the conclusion that our Budget must not be one that gives much away when the nation is prosperous and doing well, and we are nearing full employment, and that, conversely, in a time of slump, we can look to tax reliefs to stimulate the economy.

Tax relief that is not spent—that is saved—would be a benefit even at the present time, as I am sure the Chancellor would agree, and I suggest that this class of people, when they have paid for their education and health, and have met other calls upon their purse, will, in the main, be prepared to try to put by something for their old age, and that a relief in that direction might not have been as inflationary as my right hon. Friend may have feared.

With that qualification. I think that this is a good Budget, and one making for stability. It is fair to all sections of the population, and it is the type of Budget that we must suffer from time to time. However, if the situation next year is more favourable—which would mean, perhaps, that we were not quite so prosperous, which is the anomaly— I hope that the Chancellor will turn his attention to these long-suffering people whose case I have tried to make out this afternoon.

6.4 p.m.

Mr. Douglas Houghton (Sowerby)

It gives me very great pleasure indeed to congratulate the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) on his maiden speech. I am sure that his manner was agreeable to the whole Committee, and he must feel very pleased that his ordeal is over and that he has come through it with flying colours. He is so young, and his seat must be so safe, that he is likely to be in the House for many years. I am sure that he will look back on this occasion with much satisfaction, because he has made his speech to the approbation of the whole Committee.

The hon. Member quoted his distinguished predecessor, Mr. Speaker Morrison—now Lord Dunrossil—as saying that all taxation is bad. Willingness to pay tax is a willingness to give, and that is the spirit in which we should look at our obligation to the community and to the State. We could not get along without taxation, and many of its objects are regarded by the whole of the country as necessary, and a great many of them as desirable. Objection to the present level of taxation must, therefore, amount to disapproval of some of the national purposes to which the citizen is asked to give.

There may be differences of opinion about the desirability and value of some of the national services, but it must be remembered that those have all received the approval of this House—and we speak, we hope, in the name of the majority of the people. Therefore, this constant nagging about taxation is really a form of social delinquency. We should appreciate that our contributions to taxation are for essential and desirable purposes, and should look at taxation from that point of view—

Mr. Nabarro

Not always desirable.

Mr. Houghton

The hon. Gentleman says, "Not always desirable". There are a great many things that are not desirable in his view. Indeed, I do not believe that his own Government is desirable in his opinion. As I said a moment ago, these purposes have received the approval of the House and, generally speaking, of the country.

The hon. Member for Cirencester and Tewkesbury suggested that since accountants are necessary to keep us within the law it might be a good idea to levy a 100 per cent. tax on their fees. Of course, he was jocular in his reference to the purpose for which we employ accountants. It is mostly to enable us to exploit the law, but there is no doubt that accountants, with due deference to my hon. Friend the Member for Gloucester (Mr. Diamond), have a very strong vested interest in many practices, within the law, that constantly worry Chancellors of the Exchequer, and lead to restrictive measures.

Conservative Chancellors must be extremely fortunate people. It so happens that just before a General Election they are able to give the country an easy Budget, and then, after a General Election, they have to pull back. That has happened again this year. Another striking thing is that when it is necessary to claw something back, the new impositions of taxation go on shoulders that did not previously receive direct relief.

This time, the tobacco consumers are asked to pay more although, in last year's Budget, they were not direct recipients of tax reliefs. The beer drinkers got it then; now the smokers must make up for it—

Mr. Alan Green (Preston, South)

Tobacco smokers are not just tobacco smokers. They are consumers of other things as well, as I am sure the hon. Member appreciates. They are not a class to themselves. And there is also the matter of the Profits Tax.

Mr. Houghton

I was just referring to the direct relief given last year and to the imposition a new tax this year. Those who got direct relief last year do not have to suffer this time. It is the smoker who has to pay this year.

I hope that the Chancellor is not getting weary of constant references to the position of old-age pensioners because, at Budget time, of all times, we feel bound to impress their case upon him. On these benches there is a growing conviction that the Government do not intend to do anything for old-age pensioners in the foreseeable future.

During the General Election campaign, the Conservative Party and the Government made firm promises to the old-age pensioners that they would have a share in rising prosperity, and the Prime Minister emphasised that those were not mere words. We have pressed the Government in recent weeks to declare themselves in this matter. What are their intentions? We are assured by the Minister of Pensions and National Insurance that the matter is under constant review. Constant review is all very well so long as it produces some results, but, otherwise, it is merely evasive action; it puts off the old-age pensioners and does not give their case serious consideration.

I come now to one aspect of Government expenditure which, I think, has not been fully appreciated in the House or in the country. The increases in Government expenditure which we are asked to provide for contain a fairly serious backlog of pay increases in the public and near-public services. For some years, those employed in administration and services have not kept abreast of the rising level of pay in industry and commerce. A battery of committees and commissions has been appointed by the Government recently to examine the growing gap between levels of pay in the public and near-public services and those for comparable work outside.

We had the Priestley Commission for the Civil Service. We had the Pilkington Commission for doctors and dentists. We have had the Guillebaud Committee for railwaymen, and now we have the Willink Commission for the police. Those are the four patron saints of fair comparisons.

Mr. Nabarro

Of the Establishment.

Mr. Houghton

Not of the Establishment but those employed by the Establishment.

Mr. Nabarro

What I said was that the gentlemen the hon. Member named are the four patron saints of the Establishment.

Mr. Houghton

I call them the four patron saints of fair comparisons, the principle which the Government appear to have adopted generally as the basis for fixing the pay of those in the public and near-public services in relation to those outside. The number of workers concerned is very large and is growing. It seems now that we have two main groups of wage and salary earners, on the one hand, the pace-setters and, on the other, the catchers-up. A good deal of the increased expenditure before us relates to pay which it is now necessary to give to the catchers-up to give them fair comparisons with those employed outside on comparable work.

If the Committee and the House approves of this new relationship between public servants and similar employees and those in industry and commerce, there will be a growing rise in public expenditure to enable the public sector to keep abreast of the private sector. Written into the Estimates this year are several years' backlog. If this is fully understood, one word should be addressed to those who will receive the benefit of this new principle, a principle which is certainly better and more reassuring than anything adopted in the past.

What we are entitled to say to those workers is that, if they are to be brought into close relationship in their pay with the levels of pay in industry and commerce, then their work and qualifications must be subject to certain tests. We cannot apply the test of profit and loss accounting, but we can apply the test of efficiency and economical working. I believe that the Committee will not call in vain upon those concerned to cooperate in applying more suitable tests of efficiency and economy.

I hope that the Chancellor will stick firmly, despite discouragements, to the principle which is now being consolidated in respect of a very wide range of workers. It may be expensive. I think it probably will be. But it will be fair and, without it, there will inevitably be a fall in the morale, efficiency and enthusiasm of those upon whom he will rely in a very broad sector of the public services for efficient service to the State. This is not, of course, confined only to the Civil Service: it goes very much wider than that.

I come now to the provisions in the Budget to curb tax avoidance and other matters which are the concern of the Inland Revenue. In one column in the Press today, it has been called a "Somerset House" Budget. To that extent it is an honest man's Budget, because the steps which the Chancellor has taken on this occasion are safeguards against the abuse of our tax system. I am glad that the Chancellor has finally come down in favour of general as well as specific safeguards against the ramifications of bond washing and dividend stripping. It is five years since the present Minister of Housing and Local Government assured the Committee that the days of the dividend stripper were numbered. They proved not to be numbered. We hope that they are numbered now. The general provision which is proposed will give powers to the Inland Revenue which should be a safeguard against new devices not covered by the specific provisions.

The hon. Member for Cirencester and Tewkesbury referred to the approval which he thought the farming community in his constituency would give to the steps to be taken against the hobby farmer, the dinner-jacket farmer, the Stock Exchange farmer—whatever derogatory term one chooses to describe those in farming for purposes other than commercial profit. It has been said, and it may be true to an extent, that some farmers in that position are able to con-tribute something of value to stock breeding, research and experimental activities of one kind or another, provided that they can have their losses set off against their other income.

We ought to be able to provide for stock breeding, research and experiment by means other than a raid on the Exchequer in this indirect way. The Chancellor's provision covers not only farmers, but a probably more numerous body of tax avoiders, that is to say, the bogus market gardener and others who are in business more for the sake of setting off their losses against other income than for the purposes of making a profit on their business activities.

There are many people with larger gardens than perhaps they wish to maintain at their own expense who, ostensibly, are market gardeners. They have motor vehicles and workers. They may even have wives as managers of the market garden. At present, these expenses properly axe charged against the receipts of their business and, not unexpectedly, they make a heavy loss, which is set off against other income.

In an earlier debate, I made a suggestion which would at least restrain this set-off of losses against other income, namely, to restrict the loss to gross takings. The Chancellor of the Exchequer would be quite surprised to know how many cases there are in which the losses greatly exceed the gross takings of the business, which shows plainly that the people concerned are not really in business. This type of case will be caught by the Chancellor's proposals. The Chancellor has accepted the recommendation of the Radcliffe Committee in this respect. Whether it is the better way of dealing with the matter than alternatives which we might canvass later, I am not sure, but one of the objections to the remedy which the Chancellor proposes is that it opens up more argument and disputation between the taxpayers and the Inland Revenue about what are his real intentions.

On the whole, I am in favour of reducing the area of dispute between the taxpayer and the tax gatherer, which leads to a lot of bad blood on both sides. If we can, we should reduce it considerably, but hon. Members opposite must realise that it means much rougher justice—

Mr. Nabarro


Mr. Houghton

In many cases, it is bound to mean rougher justice. In some circumstances, it would mean flat rate allowances which might be beneficial to some and inadequate to others.

The question whether a farmer or other person is in business for commercial profit can be open to argument in a number of cases. I am prepared to discuss the matter later, but I offer the alternative that losses on a business of this type should be a running charge against future profits, and should not be set off against other income. There should not be argument with the Inland Revenue about how the losses have been incurred. There should be no tax relief at all and the losses should be left until they can be set off against future profits. Perhaps then some of these businesses would make a profit if only to extinguish their accumulated losses.

I now turn to the general question of expenses under Schedule D and Schedule E about which there has been considerable discussion in the Press and in the courts lately. The Chancellor has not dealt with this matter in this Budget, but I have no doubt that there will be a considerable amount of discussion about it in our later debates. Here again, I think that the Chancellor should consider the introduction of provisions which will reduce argument between the tax gatherer and the Inland Revenue.

If we look at the formula for Schedule E expenses, those "wholly exclusively and necessarily incurred" in the performance of an office, we will see that an employer can reasonably be expected to provide the means of meeting expenses "wholly, exclusively and necessarily" incurred in the performance of the job. But, in many cases, employers do not do that. They provide employees with a gross remuneration out of which they pay their own expenses. Consequently, the employer leaves his employee to contend with the Inland Revenue for the highest net income he can get.

Mr. Nabarro

indicated dissent.

Mr. Houghton

The hon. Member either does not approve or does not understand, but it must be obvious that if an employee receives a gross amount out of which he pays expenses "wholly, exclusively and necessarily incurred" in the performance of his job, he is spending money on his employer's behalf. Why does not the employer provide him with the money, either in subsistence, travelling and similar allowances which are above board and which can be properly checked by the employer? What the employer says in many cases is, "Here is a gross amount. Pay your own expenses and tell any tales which you have to the Inland Revenue. Do not tell them to me".

In those circumstances, why should not an employee, like a civil servant, local government officer, or an employee of many public companies, claim his out-of-pocket expenses, such as travelling and subsistence expenses, from his employer in the normal way? Undoubtedly, that would overcome many of the exaggerated claims made against the Inland Revenue.

Again, agreements could be reached between particular vocations and their staff or professional organisations on flat-rate allowances which would be accepted by members of the vocation or profession generally as being fair and reasonable. That is what is done in the trade unions. Nearly all trade unions have agreements with the Inland Revenue for flat-rate expense allowances for tools, overalls, special clothing, and so forth, thus relieving the worker of the need to contend with the Inland Revenue. I think that that is a practice which should be widely extended, thereby relieving both the taxpayer and the Inland Revenue of a good deal of needless trouble.

When we come to the Schedule D expense formula, that of "expenses wholly laid out for the purposes of trade," there is no doubt that the door is wide open. I dissent from the view that the solution to this problem is to bring the Schedule E expense formula into line with that of Schedule D. If that were done, the Inland Revenue would be literally defenceless against bogus claims or exaggerated claims on a wide scale. That is not the remedy. Nor do I think that the recommendations of the Radcliffe Committee are the remedy. The Radcliffe Committee suggested that the expenses should be "suitable and appropriate" for the performance of the job, thus opening up a wider field of argument about what is suitable and appropriate.

What I think is necessary is something quite drastic, such as the disallowance for tax purposes of certain types of expenditure altogether, without any argument.

Mr. Nabarro

What sort of expenditure?

Mr. Houghton

I would say entertainment most definitely. Let companies entertain at their own expense. There is nothing to stop companies entertaining at their own expense, but the expenses incurred should not be chargeable against taxable profits. That is the mischief of the entertainment racket. There is no other word that can be applied to it. We can all see obvious signs of commercial and industrial extravagance which undoubtedly reacts adversely on the attitude of mind of a great many ordinary work people who can see what is going on.

Certainly, something much more drastic is necessary to curb expenditure in that direction. I hope that in time the Chancellor will tackle this problem boldly. In the Finance Bill this year the Inland Revenue has undoubtedly already taken up residence in many of the spaces which might otherwise be needed for Clauses dealing with tax changes. The Chancellor might have as much on his plate as the Finance Bill will stand this time.

I want to say one word about penalties. We have not yet seen what the Chancellor proposes to do as a result of the judgment in the House of Lords in the recent Hinchy case, but there has been a great deal of distortion and misrepresentation of the penalty Clauses of the Income Tax Acts, and particularly about the manner of their application by the Inland Revenue Department. I hope that the Chancellor will leave himself room for negotiated settlements in many of these back duty cases. Without that we may see an increase in the number of proceedings for the recovery of penalties, which I am sure we are not anxious to see.

The Inland Revenue has taken the line that it is not out to make criminals; it is out to collect tax. That is a sound doctrine. In 1944, Sir John Anderson, later Lord Waverley, referred to the discretion which the Inland Revenue Department use in negotiating settlements which might otherwise be exposed to much more severe action, and I believe that his statement was received with approval by the House. I hope that the Chancellor has not tied himself or his Department too tightly in this matter, because, despite the recent case, these penalty Clauses, which have been in operation for many years, have been used wisely and with discretion by the authorities.

At a time when we are talking of restraints on consumer spending it is paradoxical to see advertising, on commercial television and elsewhere, expanding to an almost unbelievable extent. I should have thought that the Chancellor of the Exchequer would have taken something out of the enormous profits of commercial television. He should certainly have considered a capital gains tax, in the context of the present economic situation. I know that there is a resistance to the introduction of a new fiscal code, with all its complications and possibilities of avoidance, but no one can doubt that there is considerable public disquiet at the enormous profits being made by speculative enterprises of one kind and another, improving the taxable capacity of individuals without causing any tax to be levied upon them.

That is a grave social and fiscal scandal, and, bold as the right hon. Gentleman has shown himself to be in certain respects, he should have tackled that problem on this occasion. I hope that he will not lose sight of it next time.

6.33 p.m.

Mr. F. M. Bennett (Torquay)

As I do not wish to keep the Committee for longer than is necessary, I do not propose to follow the hon. Member for Sowerby (Mr. Houghton) into his interesting discourse on fiscal matters. I hope that he will forgive me for not doing so. I will merely say that on one or two points I felt some sympathy with what he was saying.

Judging from Press reports this morning, and from what was said by the right hon. Member for Huyton (Mr. H. Wilson), one would have thought that the whole Conservative Party was hostile to the Budget. No one has suggested that I should say this, but I must say that this is a gross perversion of the truth. Because a minority of my party is both articulate and vocal it does not necessarily follow that it commands the majority support. No one should know that better than the Labour Party which is constantly telling us that about its own much more serious difficulties in this field.

Mr. Nabarro

Does my hon. Friend mean that the majority are inarticulate?

Mr. Bennett

It does not mean that. It means that we are a little less vocal, which is slightly different from not being articulate.

Various accusations and counter-accusations have been made about the relevance of this Budget in the context of what the parties offered at the last General Election. It is no part of my duty to talk of what the Opposition offered at the last election, because, since they were soundly beaten, it is irrelevant. But the feature of the Conservative programme which, above all others in the economic field, influenced the electorate, at any rate in my constituency, was our promise to seek to maintain stable prices and not return to inflation.

It may be arguable whether this Budget is likely to achieve stable prices. All I can say is that I have sufficient respect for the Chancellor and his advisers to believe that in the context of the existing situation a Budget of this sort was inevitable. I gather that this much at least is common ground with the Opposition Front Bench. If there is a real fear that there will be an excess of demand outrunning resources, it seems to me—without being an expert, or as vocal as some of my hon. Friends —that one of the best ways of saving the situation and maintaining stable prices is to curtail the level of excess demand.

The right hon. Member for Huyton was more than a little unfair when he criticised the relief given in respect of port and sherry. No one knows better than he, as an ardent advocate of economic co-operation in Europe and the European Free Trade Association, that this relief is part of that co-operation. It is playing shoddy party politics to make out that this is a luxury item. If we are to expect a nation like Portugal, which is only partially industrially developed, to reduce its trade barriers and take a greater amount of British manufactured goods, we must accept, as freely as possible, the few exports which Portugal is at present able to send us.

As I understood my right hon. Friend, he seemed to be bringing light sparkling wines into this relief. It may be that there is some highly technical Customs and Excise reason for this, but I hope that he will consider the matter again. I can think of many good reasons why we should help the Portuguese, but it is more difficult to justify extra reliefs on imports from France, notwithstanding the current visit of a distinguished personage from across the Channel. We appear to be taking this step without there being any reciprocity at all. I urge my right hon. Friend to reconsider the matter, and to see whether we cannot make a distinction between the two commodities.

In the matter of cigarettes, I can declare a negative interest. As a non-smoker I have no personal feelings, one way or the other. I do not for a moment believe that this is a case, as has been said, of the Chancellor taking 2d. off the beer in 1959 before the election and putting 2d. on cigarettes now. I do not believe that it is a simple piece of electioneering like that, and I do not believe that those who make that charge believe it, either. There are essential differences. It was said in 1959 that the revenue from beer was falling, and it is a classical method, from the Treasury point of view, that tax is reduced when the revenue falls, with the idea of stimulating that revenue. When it is rising the Chancellor looks around and says, "This is a good place to get a little extra without interfering with the use or the consumption of the article." Therefore, there are good classical fiscal reasons why the Chancellor should have done this.

Yet I wonder, but not on the alleged ground of unpopularity, whether the economic framework which the Chancellor is trying to produce requires the extra money which he will raise from the duty on cigarettes. As I am not a smoker I have never, to my knowledge, got cigarettes out of a machine, but I am told that the complications involved by the changes in cost are very extensive indeed.

Mr. Nabarro


Mr. Bennett

Frankly, I do not think that the tax will make a jot of difference to the number of cigarettes smoked, but I wonder whether the Chancellor will think, on reflection, that this is the best or the only way in which he can raise this extra revenue, if, indeed, he needs the extra revenue at all.

As to tax avoidance, I should like to say again, contrary to some remarks made from the benches opposite, that I and, I believe, almost everyone else on this side of the Committee are delighted at any step which ends rackets and abuses. For hon. Members opposite to claim a monopoly of virtue in this matter is nauseating hypocrisy. I should have thought that there was never a happier or better era for "spivs" than the period between 1946 and 1951. That was, indeed, their golden age, and for hon. Members opposite to claim a monopoly of virtue now is very hard for some of us to swallow.

There is widespread agreement that the matter of the "golden handshake" has got out of all proportion and that some steps should be taken to stop the practice. I wonder, however, whether it is not possible to differentiate between a genuine loss of office in which the loser of the office plays no part, because he suddenly finds himself, against his wishes, out of a job after a long time or a lifetime in the work, and some of the other cases of which we know where when a take-over takes place the loss of office is merely a temporary transfer before a more profitable office is assumed in the new firm following the take-over. I hope that the Chancellor will think it possible to look at the distinct moral difference between these two instances.

As to the more general tightening on the manipulation of companies and shares, I feel entitled humbly to claim a little credit, and I only do this now because of the claims made from the benches opposite. I doubt whether anyone has been more assidous than myself during the last few months in putting forward precisely the need for this reform by way of Questions and in any other way whereby I could get some publicity on the subject. Oddly enough, when I have asked these Questions it has been noticeable that I did not have the terrific volume of support from hon. Members opposite which one is now led to believe was there all the time.

Clearly, there are a number of points to be taken into account here. Just because dividend stripping is the one which has received the most stripping —[Laughter.] I mean the most publicity —I hope that we do not allow ourselves to believe that this is the only or the most significant method of tax avoidance. I will not worry the Committee with the various methods of which I have particulars and of which the Treasury has been made aware, but, broadly speaking, what has been going on is that a minority of astute gentlemen have been disguising as capital investments a whole series of what are really trading income transactions. They have done this by dressing up each transaction in a capital form through the creation and later, perhaps, the disappearance, of a company formed just for that object. I see no difficulty at all in distinguishing between deliberately creating and manipulating devices of this kind and genuine capital investments and changes in them of the sort which we do not want to deter.

I hope that when the Clause in the Finance Bill comes to be drafted we shall be extremely careful that in getting rid of abuses we do not create a method which might be used in future years for quite a different and wrong purpose. I hope that this is not a first step on the part of the Chancellor towards a capital gains tax. I hope and believe that it is precisely the opposite and that my right hon. Friend is taking this step because if he did not deal with these abuses of Income Tax now he would be liable to increasing pressure for a capital gains tax as time went on. If he does not take this step we are most likely to find ourselves faced, sooner or later, with a capital gains tax which would be undoubtedly wrong for the country in every way.

Mr. Roy Jenkins (Birmingham, Stechford)

I do not know whether the Financial Secretary to the Treasury could tell us whether that is a true interpretation of the Chancellor's intention.

Mr. Bennett

Normally, I deal with interruptions myself. I do not ask the Treasury Bench to reply. I phrased my sentences extremely carefully. I said that I hoped and was glad to think that this was the Chancellor's point of view. Whether it is or not, I assume the Chancellor will be able to tell us as time goes on, but I believe that I have universal support on this side of the Committee in saying that we favour this proposal precisely because we disapprove of a capital gains tax and not because it might be a first step or a backdoor approach to it.

Before I was interrupted vicariously I was about to deal with farming losses. I do not know whether forestry is included. I have to declare an interest straight away, because I am an owner and grower of woodlands. I am not talking about Estate Duty provisions. I am speaking in terms of current Schedule D losses and gains. However careful one may be, and however keen to make a profit and make a business of it, the fact remains that one cannot do other than make a loss out of planting woodlands for a number of years, for the unhappy reason that the trees do not grow for a long time and they have to be looked after and woods have to be cleared in the meantime. This is a point which might be forgotten if I did not mention it now early in our debates.

I have some other words of criticism to make of right hon. and hon. Members opposite on the question of entertainment expenses. I have no axe to grind here at all, but an awful lot of nonsense is talked about this. There are, of course, many instances of abuses taking place, but to suggest that if we manage to clear them up the Chancellor will never need to raise any other taxes and we shall suddenly find scores of extra millions of pounds coming into the Revenue is a grotesque perversion of the truth.

It is not a bad idea, when we talk about businessmen and why it is necessary for them to lubricate their clients and themselves when they are trying to do business—and some doubt has been cast today on the need for them to do that—to point out that I do not exactly notice an entire lack of desire on the part of right hon. and hon. Members opposite and, indeed, of hon. Members on either side of the Committee, to enjoy the hospitality offered at Government Hospitality, Parliamentary and C.P.A. functions and the like, where there are free sherry or other drinks.

Mr. George Thomas (Cardiff, West)

And orange juice.

Mr. Bennett

In response to that interruption, I will include free orange juice, and so hope to carry the hon. Gentleman with me.

If it is necessary for us, when foreign or Commonwealth visitors come to this country, to join with them in these "jollies", which we all enjoy, and which I think do a lot of good, we must not be too smug when businessmen who want to sell their goods get together with other business people who come to this country. For in these parties, we Members do not even pay the difference between the top bracket of tax and the total cost, but the businessmen at least do that. This House and other people in Government service get the whole lot free out of the taxpayer, and not 60, 70, or even 80 per cent. Therefore, let us not be too smug about this because otherwise we may find ourselves facing considerable and deserved criticism in other less fortunate circles.

6.51 p.m.

Mr. A. V. Hilton (Norfolk, South-West)

Exactly one year ago today I took my seat in this House, and, having done so, within two or three minutes the speech to which I listened was that of the Chancellor of the Exchequer making his Budget statement for 1959. As a real newcomer, I was obviously very interested in that speech, and, although I was quite a "greenhorn", it was obvious to me before the Chancellor had finished his speech last year that it was a pre-election Budget speech.

A year has passed, and yesterday I again listened with very great interest to the same Chancellor, but what a vastly different Budget speech it was.

Mr. H. Hynd (Accrington)

After the election.

Mr. Hilton

Quite obviously, as my hon. Friend the Member for Accrington (Mr. H. Hynd) has said, it was after the election. This speech was so different that some hon. Members opposite and some sections of the Press are saying that this one is a Socialist Budget.

Mr. Nabarro

Hear, hear.

Mr. Hilton

The hon. Member for Kidderminster (Mr. Nabarro) says "Hear, hear," I do not consider that it is a Socialist Budget, however, although there are other things in it with which we on this side of the Committee agree. The main difference is this. I cannot conceive of a Labour Chancellor of the Exchequer in a Budget speech in these days not making any provision to improve the lot of the old-age and other pensioners. I have said that it was just a year ago today that I took my seat in this House, and it was in making a plea for an increase in pensions that I made my maiden speech within a few days of coming here. I make no apology for returning to this theme today.

When I refer to old-age pensions. I am sure that, although we listened yesterday to the Minister of Pensions hard-heartedly rejecting all the pleas made from this side of the Committee about increasing pensions, we on this side do not get all the pleading letters from people who are up against it at this time. We Members get all sorts of letters from old-age pensioners, and only last week I had a card from somebody who signed himself "O.A.P." and who referred me to a passage in the Bible, giving the book, chapter and verse. When I turned it up, this is what I read: When I am old and grey-headed, torsake me not. Despite what has been said frequently in recent months about what the party opposite has done for old-age and other pensioners, there is a very strong feeling amongst old people that they are being forsaken by the present Government. One concession announced yesterday by the Chancellor was 3d. off a pack of cards, and, as one cartoonist put it today, it will mean that while the old people are patiently waiting for an increase in their benefits they will be able to while away the time playing patience at 3d. a pack cheaper.

There are certain things in the Budget which I welcome, particularly the decision to take steps to stop tax evasion, which I believe all fair-minded people will agree is a very good thing. After all, I have represented manual workers, those who work on the land, for a good many years and unless they have one or two youngsters there is no possibility, paying as they do their Income Tax on the P.A.Y.E. system, of their evading the tax, which is taken from them at the source. As has been said from this side of the Chamber on so many occasions in recent years, it is wrong that the big boys should get away with it as blatantly as they have done for years.

The subject of the "golden handshake" has been referred to, and it is a good thing that the Chancellor has caught up with it, but I am more interested, coming from a rural area, in the gentlemen who come down to agricultural areas and take up farming for other than agricultural purposes. Much has been said about the way in which these gentlemen have been able in the past to evade paying Income-tax. It is a good thing that the Chancellor has decided at last to take action to prevent this sort of thing in the future. I think that it will have more than the effect of catching up with this type of person. It will mean additional revenue to the Exchequer, and I hope it will also mean that these people will realise that agriculture is not for that sort of purpose.

In my own county, there are many bona fide agriculturalists who would dearly love to have farms but who just cannot get them because of these gentlemen coming into the rural areas, paying very high prices for farms and keeping out those people whose heritage farming is. If this action of the Chancellor will mean not only that he will recover more tax but that more of these farms will become available for those who are more entitled to them, he will be doing a doubly good job, and for that reason I am glad that he has taken this decision.

Another thing that is welcomed on this side of the Committee, and, indeed, I think on both sides, is the abolition of the Entertainments Duty, which is a good thing. I believe that it is rather late in the day, but there is a lot of truth in the old saying, "Better late than never". Everybody, too, is pleased that the Chancellor has decided to make some concession in regard to post-war credits. This is something for which I know hon. Members on both sides have pleaded with him in the past, and last year he was able to make certain concessions. The Chancellor confessed yesterday that not as much had been drawn as he had anticipated and that not nearly as many people had asked for repayment as he thought would have done.

Although the Chancellor has agreed to make further concessions this time, in my view he should have gone even further by reducing the age at which people can claim repayment of their post-war credits. After all, it is their own money which is being withheld from them, and since the number of people who claimed repayment last year did not come up to the expectations of the Chancellor, I think that he could have gone a great deal further this time. However, I welcome the fact that he is making some concession.

There is one thing about which I am not pleased and that is the reduction in the duty on wine and the increase in the tobacco duty. In this connection I think that the Chancellor was rather mixed. I must declare an interest here. I am a non-drinker. [An HON. MEMBER: "A non-drinker?"] Of course, one has to drink something, but I do not drink the wines referred to in the Budget. It is a fact that the ordinary person drinks very little of the wines on which the duty is to be reduced, whereas the majority of ordinary folk smoke quite a lot of the tobacco on which the duty is to be increased.

Here, again, I am thinking of the old people. We were told yesterday by the Minister of Pensions and National Insurance that the present purchasing power of pensioners is slightly higher than it was a few years ago. The proposed increases in duty will hit our old friends, because they still like their pipe of tobacco. Therefore, I regret that the Chancellor has imposed these increases. Yesterday I went through the Lobby with the majority of my colleagues on this side of the Committee and voted against the increase in the Tobacco Duty. When I was in the Lobby I was thinking how much more I would have preferred to vote for this increase had the money been going to the old-age and other pensioners by way of increased benefits.

As I know that there are a number of other hon. Members on both sides of the Committee who wish to take part in the debate, I will conclude by saying that I hope that before long the Government will listen to the pleas from this side of the Committee and will make it possible for an increase to be given in pensions for our many old-age friends who are going through the mill at this time.

The Temporary Chairman

Order. Before I call on the next speaker, I want to apologise to the hon. Member for Clitheroe (Mr. F. Pearson) for not noticing just now that he was attempting to address the Committee for the first time. Mr. Pearson.

7.6 p.m.

Mr. Frank Pearson (Clitheroe)

Thank you very much, Dr. King, for your kind reference to the fact which slightly delayed my address to the Committee for the first time. It gave me the opportunity to retire for a little mental stimulus.

In rising to address the Committee, I am only too conscious of the need which I have for that indulgence which is always shown to new Members. I shall speak briefly, and I wish to raise the matter of the £250 million to £260 million which the Chancellor is finding it necessary to raise in this current Budget in the furtherance of his farm support policies. Before I go any further, however, I must declare a slight personal, though almost insignificant interest, in a small part of those subsidies. I hasten to add that the Committee must not in though almost insgnificant, interest in in those "golden losses" which my right hon. Friend the Chancellor has so rightly and so adequately dealt with.

It is my honour to represent a Lancashire constituency which, in part, is interested in farming, but which in great part is interested in the textile trade and in other manufactures. It therefore falls to me to see both sides of the question of farm support. I am only too conscious of the farming side, but I am also extremely conscious of the taxpayers' side of the matter. We in Lancashire rather pride ourselves in asking whether we get value for money. At the present time I think it is pertinent to ask whether the taxpayer, for what is the equivalent of about 1s. 3d. in the £ at the standard rate, under our present price support policies is really getting full value for his money.

The price support policies have two main objectives. The first is to enable the industry to equip itself and make itself more efficient. In that respect I think it can be said that price support has been essentially successful. We have now something like 168 per cent. of productivity and production above prewar. This represents between £400 million and £500 million worth of extra food produced by the farming industry in this country. In the speech made by my right hon. Friend in introducing the Budget, he made it only too clear that the question of the balance of payments is still with us. I ask the Committee to contemplate what bill would have to be paid if we had to go into the markets of the world and buy an equal amount of food.

There is a second point which is equally important, the question of maintaining a stable cost of living. In that respect I believe that our price support policies have played a vital part. I will give the Committee a few selected prices of ordinary commodities as they operate in this country and on the Continent. I must apologise for the fact that the statistics I have been able to obtain, issued by the International Labour Office, are possibly not as fresh as I hope the actual commodities are. In fact, I rather run the risk of being accused of ordering tonight's dinner off last year's menu.

The cost of 1 1b. of bread in France is 7½d., in Germany 10¼d., in the United States 1s. 6½d., in this country 6½d. The cost of 1 lb. of beef in France is 8s. l½d., in the United States 8s. l½d., in Italy 7s. 2d., and in this country 5s. 3½d. The price of mutton is very much the same and the price of butter is in much the same relation. So a very real saving has been achieved, primarily through our price support policies.

As the Committee will be aware, this year's review has not been accepted by the National Farmers' Union and has been open to very wide criticism by the industry as a whole. I do not think that it is because we have docked the odd £9 million off the Bill. It is something deeper, more genuine, that is worrying the industry.

What concerns us is that while the industry as a whole, with the benefit of varying levels of tariff protection, is able to increase production, absorbing rising costs and reducing prices, it has to absorb those rising costs and to reduce its prices on the basis of a limited home market and the denial to it of an export trade in the interests of European trade agreements.

This, on the face of it, may appear to have some validity. With all due respect to my right hon. Friend the Minister of Agriculture, the current White Paper tends to give colour to this argument. In paragraph 14 we are certainly told either to reduce production or to hold it at its present levels on almost all the review commodities. I am certain that while there may be room for increases in efficiency and for lowering costs, agriculture cannot hope to share in the increase in the living standards that we all look forward to unless production can be increased and outlets found for that increased production. If subsidies are standing in the way of these outlets, then subsidies must go wherever this is possible. What is disappointing about the White Paper is that this dilemma has not been faced.

My right hon. Friend the Chancellor of the Exchequer, in introducing his Budget yesterday, said: The main source of increased production has been a most welcome rise in output per head. In the long run—we cannot too often remember this—this is the only way in which, as a nation, we can earn an increase in our standard of living."—{OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 38.] I ask the Committee to consider how the small farmer, employing perhaps one or, at most, two men, can possibly increase his productivity unless he also increases his production. I have no doubt that if the farming community is to share in the rising standard of living that we all hope for and all anticipate, then we have not only to increase our productivity but also our production and also to find the outlets for that extra production.

It is always dangerous to generalise about agricultural matters. It is something that none of us should ever do, because each item on the list is totally different and requires to be dealt with differently.

I would draw the attention of the Committee to milk. Milk, with a turnover of £343 million per annum, is only subsidised to the extent of some £8 million, which is infinitesimal. I do not think that even the former Member opposite who once used the phrase "feather-bedding"could say that the dairy industry was being" feather-bedded." I am particularly disappointed with the reference in the Agricultural White Paper to milk. There we are told that we have to gear our production to the liquid market. There is no mention of the manufacture of cheese or of butter or of dried milk. That, apparently, is to be entirely denied to us. This is an industry which has placed itself in a high state of efficiency, and now we are told that we have to cut down on production.

It may be that with European trade agreements this slight and infinitesimal subsidy which we are now receiving is preventing us from going into the European market, from manufacturing cheese or dried milk to sell in Europe. If that is so, let us abolish the subsidy, let us get the thing on a rational basis and try to look overseas and see what new markets we can make for. In the end, that is the only way in which the agricultural industry will have any future.

The position of beef is exactly the same —a large turnover with an infinitesimal subsidy of about £3,500,000. Why cannot we sell our beef in Paris, in Rome or in Bonn? We are going to enter the stage when we talk of reducing tariffs and opening world markets. I hope that when that time comes the President of the Board of Trade will not forget that British agriculture wants extra markets and extra outlets, and that in quality it can hold its own with any products in the world.

I also mention New Zealand lamb. The sheep producers in this country have only 40 per cent. of the lamb and mutton market, and the remaining 60 per cent. is taken by New Zealand. All of us admit the importance of Commonwealth trade, and none of us would wish in any way to do anything prejudicial to it, but it appears to me that a home industry, such as sheep farming, which has tremendous possibilities for expansion, should have some slight increase in its possibilities in the home market. I cannot but think that if some increase were given it might well be possible to reduce the subsidy which is at present paid on lamb.

The essence of a maiden speech is that it should be short, and I am conscious that I have already spoken for far longer than I should have done, but I wish to impress upon the Committee that there is a genuine feeling of unease and apprehension in agriculture, and it springs from the fact that those concerned cannot see where they are heading. The White Paper has not helped to clear the vision.

For my part, I am quite clear that if ever the subsidy bill is to be reduced— and I think there are few people here who would not like to see it reduced— and if ever agriculture is to share in the increased living standards which we all hope for, not only must its productivity increase but also its production.

I am only too conscious that I am standing here, however temporarily, on the periphery of what I may be excused for calling a "blue zone". Nevertheless, I feel very strongly that these subsidies are not, in general, in the best interests of the agricultural industry, and that, although in selected parts of it they may be essential and may continue to be so, there is a large part of the industry which, if given a chance to compete in external markets, could do so on its own merits.

We have the best land, the best farmers and the best quality food. In a world of shrinking distances and falling tariff barriers, a world of expansion and rising living standards, surely there must be room for all that we can produce. I hope that there will be no more talk of restriction, but that everything possible will be done to encourage the industry to go out and find new markets.

7.20 p.m.

Mr. John Cronin (Loughborough)

It is very agreeable to follow the hon. Member for Clitheroe (Mr. F. Pearson). Although he said that he had an insignificant interest in farming, I thought that he made a very significant speech. It was delivered most agreeably and pleasantly and it contained much of substance and of considerable value to the Committee. But for his politics, I would say that Clitheroe was very fortunate to have him as a Member. I have only one criticism of the hon. Gentleman's speech and it is that it was not long enough. We would have liked to have heard more of him, but no doubt we shall do so on some other occasion.

I want, first, to draw attention to two disappointing circumstances of the Budget. The first and most disappointing is that nothing has been done for retirement pensioners, for the sick and disabled. The second is that there has been no relief at all of the tax burden on the whole community, in either indirect or direct taxes.

Mr. Nabarro

Join our group.

Mr. Cronin

However, before I start to do that, it would be ungraceful if I did not compliment the Chancellor on some of the desirable aspects of the Budget. Some parts of the Budget are Socialistic and for that we must congratulate him. I have heard that there is a possibility that the Chancellor will be retiring from politics in the near future. That will be a loss, because he is the only member of the Cabinet who does not have the cloven hoof. Nevertheless, if the right hon. Gentleman does retire after this Budget, I will personally write to the secretary of the local Labour Party and ask him to get in touch with the right hon. Gentleman. That might do some good.

I know that hon. Members on this side of the Committee frequently refer to the plight of retirement pensioners and that may sometimes be considered a somewhat hackneyed theme, but it is a matter which ought to be pressed again and again. It does not require any apology constantly to reiterate the plight of these unfortunate people. In our constituencies, we all come across old-age pensioners who are suffering hardship and misery. We know how so often they are short of food, decent clothing and fuel and other reasonable amenities of modern life. All that is simply because there is not an adequate scheme for ensuring that they retire in comfort and dignity.

There is a qualitative aspect of the problem. It is that present retirement pensioners belong to a special category. They are the people who, in the 1920s and 1930s, suffered the severest hardships when Conservatism treated them very harshly. They are the very people whom one would consider most deserving of the good will of the Government, but, unfortunately, they do not have it.

Professionally, I often come across elderly people and few hon. Members are more familiar than I with the hardship and deterioration of health which they often suffer as a result of their inadequate incomes for obtaining the necessities of life. I recollect that in Ireland, in the last century, in the "Hungry Forties", it was common for people to die of starvation. At that time, Lord John Russell was Chief Secretary and Irish juries at inquests on people who had died of starvation brought in verdicts of "Wilful murder by Lord John Russell ". In many circumstances and in many cases when retirement pensioners leave this world prematurely the Government are by no means completely free of guilt and completely free of having produced some contributory factors—malnutrition, lack of heat, lack of proper clothing.

One of the most deplorable aspects, as was pointed out by my right hon. Friend the Leader of the Opposition yesterday, is that in their election manifesto the Government specifically promised to do something for retirement pensioners. They said that pensioners would share in the good things which a steadily expanding economy would bring. It is particularly unfortunate that the Government should choose retirement pensioners as the class of people to suffer from the Government's failure to keep their electoral promises. It is generally recognised in this country that promises made before elections are not regarded with the strictest exactitude, but on this occasion the failure to keep a promise is particularly mean and particularly deserving of censure.

I now turn to a subject which is probably much more interesting to hon. Members opposite, the burden of taxation which falls on the whole community through both indirect and direct taxation, through Purchase Tax as well as Income Tax. The Government frequently suggest that they have substantially reduced Income Tax, but that is not the case. In col. 115 of HANSARD for 23rd June, last year, the Chancellor admitted that 2½ million more people paid tax in 1959– 60 than in 1950–51. In the same passage, he also admitted that the yield of Inland Revenue had increased by £494 million since 1951.

Those are very large figures and are some indication of how the tax burden has been getting worse and worse and more and more pressing upon the community. In 1951, the yield of Purchase Tax was about £338 million and it increased to about £500 million last year, a very great increaes.

The Financial Secretary to the Treasury (Sir Edward Boyle)

The hon. Gentleman will recognise that the standard of living of the ordinary wage earner rose about 20 per cent. during the 1950s, so it is hardly surprising that the yield of tax has risen. To say, therefore, that the burden of taxation has risen equally sharply is going rather too far, because the burden of taxation is not felt so strongly when the standard of living generally is rising.

Mr. Cronin

I am not prepared to accept the suggestion that the real standard of living has increased 20 per cent. I think that that figure is erroneous. Secondly, I was talking not about how much taxation is felt, but about the actual gross amount of tax which falls on the community, and that has unquestionably increased. How much people feel it is an entirely different matter.

I see that I have the hon. Member for Kidderminster (Mr. Nabarro) with me and he appears to be using his dagger in my favour, an unusual circumstance. I always think of the hon. Member for Kidderminster as being a tiger in a fight, usually, though, with strict vegetarian principles. But now he is certainly showing his teeth and is becoming much more effective in coping with his own Front Bench.

Mr. Ede (South Shields)

He is only showing them; he is not using them.

Mr. Nabarro

It is a welcome surprise to find the right hon. Member for South Shields (Mr. Ede) awake in the Chamber.

Mr. Cronin

That is a remark of extraordinary frivolity and inaccuracy.

Miss Margaret Herbison (Lanarkshire, North)

And not the least bit clever.

Mr. Cronin

And typical of the hon. Gentleman.

Mr. Nabarro

Speak up.

Mr. Mitchison

Shut up.

Mr. Cronin

The Financial Secretary may ask where the money will come from if we reduce taxation. If we reduce the Purchase Tax on clothing and household essentials—which we regard as an important step forward—it may be asked where the money will come from. Where will we find the money to reduce the lower rates of Income Tax, or even the standard rate of Income Tax? I should like the Financial Secretary to cast his mind back to the last Budget.

On that occasion the standard rate of Income Tax was reduced by 9d. and the lower rates of Income Tax were reduced by 6d. Those reductions cost the Revenue about £229 million. Is this money available? I suggest to hon. Members on both sides of the Committee that this money could be obtained by comparatively easy means. I fear that this is the point at which the hon. Member for Kidderminster and I part company, but that will not distress me unduly.

The first and most obvious way of raising money is by a capital gains tax. I know that holds a prominent position in the demonology of the Conservative party, but there can be little doubt that it would raise a substantial sum. The Royal Commission on Income Tax, in 1920, considered the matter comparatively favourably, although it did not give a definite decision in favour of it. The Royal Commission on the Taxation of Profits and Income, in 1955, produced some very useful facts about it. The majority of the Commission dissented from the idea of a capital gains tax, very largely because they were dealing with figures which have no relevance to the contemporary situation.

The dissenting minority of the Commission came down heavily in favour of a capital gains tax. They estimated that a capital gains tax would bring in about £200 million a year. I think that even the President of the Board of Trade, when he spoke this afternoon, was prepared to accept that a capital gains tax would bring in £50 million a year, but I do not think that one can accept that figure because when the Board of Inland Revenue put it before the Royal Commission on the Taxation of Profits and Income it was based on capital increases and decreases over the previous thirty years, and those figures have no relevance to the contemporary situation because they include the period of one of the biggest slumps in history.

If there is any truth in the idea that Keynes' doctrines have found a comfortable niche in the Governments of the world, there can be no likelihood of such a gigantic slump occurring again. The figure of £50 million as a prospective yield from a capital gains tax is based on figures which have no relevance to the present situation. We ought, therefore, to look at figures which are more appropriate to present day conditions. We find that from 1950 to 1959 equity share values increased by £4,000 million. The Royal Commission was not cognisant of that figure when it came to its conclusions. We find, in addition, that over the last year there has been an in- crease of £1,000 million in share values. Thus, over the last ten years, equity share values have increased by £5,000 million.

It is difficult to believe that a capital gains tax would yield only £200 million. I think that its yearly yield would be very much higher. Why have the Government rejected this obvious way of increasing revenue? If they increase revenue by a capital gains tax, Purchase Tax could be reduced, the standard rate of Income Tax could be reduced, and the old-age pensioners could be given something. Anybody who is suffering financial hardship from taxation can have only this consolation, that he is assisting in the acquisition of large tax-free capital gains.

There are certain objections to a capital gains tax. It can be argued that capital gains are often caused simply by inflation, but that argument applies also to ordinary savings, and they are not immune from inflation. Why should a person who holds large stocks of equity shares be immune?

It has been pointed out that capital gains are affected by interest rates. That, again, affects anybody who wishes to save money at any time. Interest rates can always seriously upset, either upwards or downwards, the value of anyone's savings at any time.

It has also been said that capital gains are often irregular and unsought, but that situation can be dealt with by taking the actual period of assessment over several years. There is, of course, the question of capital losses, and they have to be set against capital gains. Nevertheless, if one made the assessment over a period of years capital losses would easily be looked after. There is no question but that if one studies the trend of equity shares during this century there has been a steady and massive appreciation, and there can be no doubt that a capital gains tax would bring in a handsome and substantial revenue.

I have referred so far to a capital gains tax applied to equity shares, but it could equally be applied to speculations in property. Judging by the enormous increase in property values, there is little doubt that a capital gains tax would produce more from property than it would from equity shares. We know that a capital gains tax has been operated successfully and lucratively in the United States of America since Income Tax was introduced into the Federal Code in 1913. The capital gains tax has been a complete and continuous success in the United States.

What is the difference between our economy and that of the United States which suggests that they should be treated differently? I suggest that the only difference is that we have had a preponderance of Conservative Governments over the last twenty-five years. That is the only reason why we have not had a capital gains tax. The Scandinavian countries operate a capital gains tax with success and derive a substantial income. There is no reason why a capital gains tax should not be operated in this country and used not just to cope with the mounting burden of Government expenditure, but to give tax relief to those unfortunate people who have to pay Purchase Tax, and Income Tax at reduced rates.

I should like to consider now another possible source of Revenue. The Chancellor has increased Profits Tax to 12½ per cent. Is there not a good case for a larger increase? If one looks at the figures, one finds that the average company pays tax at a standard rate of 7s. 9d., which is 38¾ per cent., and will now pay the new tax of 12½ per cent. The total tax paid will, therefore, be 51¼ per cent. Let hon. Members visualise the position across the Atlantic, where a corporation tax of 52 per cent. is levied on all large firms. Even with the increased Profits Tax, companies in this country are taxed more lightly than their counterparts in the United States.

The matter can be carried still further, because when a shareholder receives his dividend it is assumed that the Income Tax paid by the company is paid by him. On the other side of the Atlantic, corporation tax does not affect, except to a minor extent, the liability of the shareholder to Income Tax. The shareholder across the Atlantic is thus much more roughly treated than the shareholder in this country. It seems to me, therefore, that there is a substantial case for increasing the Profits Tax further than has been done already.

Such an increase would not seriously interfere with investment, because initial allowances and investment allowances take away much of the sting of the combined Income Tax and Profits Tax. If one looks at the financial columns of the newspapers or the Financial Times, hardly a day goes by without an announcement of a substantial increase of profits and dividends in large companies. Surely, therefore, no time could be more appropriate for a more substantial increase than 2½ per cent. in Profits Tax.

I turn now to the question of expense accounts against Income Tax. We on this side agree that this is one of the most fantastic fiscal abuses of the age. The country is divided into two groups financially. There is the master race, those who are taxed under Schedule D, and there are their inferiors, who are taxed under Schedule E. I am speaking in purely financial terms.

We might well look at what is said on the subject by a magazine which is not noted for its Left-wing politics. [Interruption] I am sorry that this disturbs the hon. Member for Kidderminster, but it is one's duty to refer to these matters. The Banker's Magazine of August, 1956, at page 131, in an article by Mr. Dow, Deputy-Director of the National Institute of Economic and Social Research, said that Five per cent. of food taken in restaurants … 30 per cent. of purchases of new cars (allowing here for the sale of second-hand cars by business to persons); something like 25 per cent. of travel expenditure; and 5 per cent. of drinks are expenses against Income Tax and that these alone total £300 million.

Mr. Dow goes further. He points out that if one considers the service element of restaurants and the running costs of business cars and expenditure abroad, one arrives at a grand total of about £500 million a year in expenses which are used against Income Tax. There is, at least, scope for obtaining a substantial increase in the revenue if action were taken to reduce the abuse of business expenses.

We have heard frequently from the Chancellor of the Exchequer and from the President of the Board of Trade that there should be moderation in wage claims. But how can they seriously expect moderation in wage claims when trade unionists see these gigantic accretions of untaxed profit to a select and limited number of individuals? Bearing in mind that the people who obtain these tax-free accretions of income form the core of the Conservative Party—for that very reason, I see that there is considerable irritation and impatience on the other side of the Committee—for the Government to ask for restraint in wage claims is rather like Billy Bunter emerging gorged from the tuck shop and saying that tuck is no good for the boys.

One of the more unhappy aspects of the Budget is that nothing is being done to increase capital investment. We are lagging seriously behind the rest of Europe and all the other countries as a consequence. Savings are clearly inadequate. Perhaps one of the reasons is that a lot is being spent on armaments. There is a lack of confidence on the part of the business community, which certainly will not increase its capital equipment to the extent which is necessary.

The Government are doing nothing helpful to increase the amount of capital investment. We have an investment allowance, but there would certainly be a strong case for having differential investment allowances to ensure that capital investment was channelled into the right and most helpful directions for the community.

Another unattractive aspect of the economic position is that the balance of payments situation is steadily deteriorating. If one looks around, one finds that the United Kingdom's share of world trade is steadily diminishing and that Germany is becoming a particularly impressive competitor. The Trades Union Congress suggested to the Chancellor that there should be a public inquiry into why our export trade was not improving. There is little doubt that a public inquiry into sales technique, relative prices, delivery dates, quality, design and trade terms would be helpful. The T.U.C. also suggested the setting-up of an exports production council to assist in the export drive. This suggestion also has been turned down by the Government. One of the distinctions of the Budget is that it has turned down without exception every recommendation made to it by the Trades Union Congress.

If one turns to some of the minor items in the Budget, it is not clear why the Chancellor has reduced the duty on all heavy wines. There is certainly a case for reducing the duty on port, in view of the desirability of bringing Portugal into the European Free Trade Association without undue handicaps in trade, but why do we have to have a reduced duty on the other heavy wines, such as sherry? Why do we have to have a reduced duty on wines imported in bottle? As both sides of the Committee know, wines imported in bottle are usually the finest and the most expensive. The chateau-bottled clarets and the domain-bottled Burgundy, for example, are wines which are particularly delicious and expensive.

Mr. C. Osborne

Will the hon. Member tell that to his old-age pensioners next time he goes to them for their votes?

Mr. Cronin

I am glad that the hon. Member made that suggestion. It would certainly be of interest to the old-age pensioners in my constituency to know that although nothing was done for them in the Budget, something was being done for those connoisseurs of wine who drink only the finest wines which are imported in bottle.


Mr. Nabarro

And in conclusion.

Mr. Cronin

I ought to reassure the hon. Member for Kidderminster that, so far, I have only been making preliminary remarks.

The cessation of the tax-free compensation for directors is a bit of Socialist policy which we have been advocating for a long time and we must congratulate the Chancellor on adopting it. But I have the feeling that he has omitted to cope with another serious piece of fiscal privilege for these members of the community, and that is the top-hat pension scheme. The directors of large companies will still avoid taxation on an enormous scale by means of top hat pension schemes.

We shall watch closely the coming Finance Bill provisions for tax avoidance by hobby farmers, but, so far, we feel that these provisions are of the greatest value. The same situation applies to dividend stripping, but there is a vast virgin forest of tax avoidance which has not yet been touched by reforms. We hope to induce the Government to go further in that direction.

It is difficult to understand why the Government have made things easier for gifts inter vivos. One of the most curious situations is the very large reduction in the yield from death duties although there is a great increase in capital value. I hope that the right hon. Gentleman will accept that since 1948, at least, there has been a fall of 21 per cent. in the yield from death duties from British securities which have formed part of an estate and that during that period British securities have increased by 64 per cent. It does not make sense that the death duty yield should decrease while securities have increased enormously in value.

One of the disappointing things about the Budget is the reference by the Chancellor to the Iron and Steel Holding Realisation Agency. I will not go into that in detail, but, obviously it is a disappointment. This concept of restoring everything possible from public ownership in the steel industry is dug up from the deepest subterranean layers of Conservative thought and one cannot achieve any effective purpose by bringing it to the surface now.

I am seriously concerned that nothing more has been done about hydrocarbon oils. Nothing has been done to deal with the real difficulties facing the coal industry. We are in the absurd position of having an almost unlimited supply of coal in these islands, yet oil is given an enormous advantage as a fuel.

Mr. C. Osborne

On a point of order, Sir Samuel. May I ask your guidance? In view of the fact that the protest has been made so many times by backbenchers about Privy Councillors speaking for long periods, and that at least 20 hon. Members wish to take part in the debate, is it possible for you to appeal to the hon. Member for Loughborough (Mr. Cronin), who has been speaking for 40 minutes, to curtail his speech?

The Temporary Chairman (Sir Samuel Storey)

That is not a point of order.

Mr. Cronin

I am sorry that the content of my speech causes so much dismay to the hon. Member for Louth (Mr. Osborne). I fully realise that all these things are very unpalatable and that they touch the pockets of the wealthy members of the community. It is a painful duty to have to say disagreeable things, but one is handing out very unattractive and nasty medicine and there is no way of making these things attractive.

One of the most absurd features of the Budget speech was the muttered threat about a monetary policy. Are we once again to have the brakes applied to the economic advance of the community? Goodness knows, we had complete and absolute stagnation of investment and production in 1957 and 1958. In 1959, there was some advance. Is there now to be a further application of brakes? I warn the Financial Secretary to the Treasury that the country is becoming seriously disturbed by the tendency of Conservative Governments to use monetary measures to diminish production, investment and employment. That is the stock Conservative concept of a cure for inflation and, of course, it holds the country back. We know that the amount we spend on investment per head of the population and our production figures are the lowest in Europe and certainly among the lowest in the industrial countries of the world.

One matter upon which no one has yet commented, but which I consider of some importance, is what is to happen about the Finance Bill. It would be nice to have a reassurance from the Financial Secretary on the subject. Is the Finance Bill to be debated in a Standing Committee, or will it be debated on the Floor of the House? We know that the Chancellor is experiencing great difficulty. The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), the hon. Member for Kidderminster and several other hon. Members opposite are proposing to make a lot of trouble, and it will be difficult to hush them up.

Are we to have the Committee stage discussions on the Finance Bill taken partly in a Standing Committee, or will all the discussions take place on the Floor of the House? The Leader of the House hinted during the debate on procedure that part of the discussions might take place in a Standing Committee. I warn the right hon. Gentleman that that would rouse the greatest opposition from hon. Members on this side of the Committee.

The Government are spending nearly one-third of the income of the country and it is essential that Government spending, and the means taken to meet it, should be debated on the Floor of the House and in full view of members of the public. I hope that the Financial Secretary will give us some reassurance about that.

At the time of this Budget we find ourselves facing a sombre scene. Europe is now divided economically into two groups which are engaged in a trade war that will certainly grow worse. We find that our capital investment is greatly diminished and those gigantic industrial countries, the United States, Germany and Russia, are towering over us. China is overtaking us. These are grave circumstances, and I ask the Committee to consider whether this Budget will make any contribution towards the solution of those problems.

7.58 p.m.

Lady Tweedsmuir (Aberdeen, South)

The hon. Member for Loughborough (Mr. Cronin) made a speech which covered such a wide range that I find great difficulty in recalling his main theme. However, I remember the first five minutes of his speech when he spoke about the Conservative Party which in his view had not reduced taxation. I will merely say briefly that when we took office in 1951, 31 per cent. of the national product was taxed and now the figure is only 25 per cent.

I wish to deal with the industrial prospects that this Budget will or will not encourage. Yesterday my right hon. Friend the Chancellor of the Exchequer told us that 60 per cent. of the economy was in a condition of great prosperity, a boom condition, and that there was a shortage of labour. I wish to talk about the other 40 per cent. I think it very likely that some of the most important measures which may be taken in the future are not included in this Budget. In particular, I refer to the remark by the Chancellor that he would be ready at any time—as I think he implied—to put on a credit squeeze. Now we are told that the object of the Budget is to secure price stability and continued expansion without inflation. Therefore, I think one must pose the questions: what effect will this have on the areas of high unemployment, and will this Budget in fact achieve its object?

The President of the Board of Trade, in his opening speech today, talked about what he called the unbalance of the economy and of how some solution would have to be found. It is in this context that I should like to examine the position that is before us. The Chancellor of the Exchequer, in reviewing the past year and in forecasting future prospects, paid tribute to what he called a striking policy of expansion. Therefore, I am very glad that the Chancellor has not sought to discourage or to dampen down the economy by fiscal means more than he has.

Without doubt the present position has helped to some degree the unemployment areas, wherever they are found, and, of course, I refer particularly to Scotland. The problem of the boom areas, mostly in the Midlands, has meant that many employers have sought skilled men and women from Scotland, and also the negative powers of the Board of Trade have meant that in these boom conditions some industries have sought, and are seeking, to establish themselves in the development districts.

We know perfectly well the problems of the Chancellor. We have decided here in Parliament that we will take one-quarter of our national income for defence, education and the social services. That does not take into account the very large expenditure on roads, transport and other services which we here have all agreed are necessary. It is quite true that in those parts which are outwith the areas of boom we are taking great advantage of industrial development, particularly on roads, and also, in Scotland, on such measures as the steel strip mill, and we are hoping that much more will come from the Local Employment Act.

As the Clydesdale Bank Review said in March, speaking about the position in Scotland: There is a steady increase in employment of men and resources which may be looked for in the months ahead. Therefore, one is bound to ask whether this Budget, timed at this moment, will in fact help in a situation which is a difficult, struggling one, to remodel industries in those areas and to attract new ones.

I am very glad that the Chancellor has left the investment allowances as they are. I would have liked to see them increased if they were coupled with the development districts. I welcome the measures taken to improve savings. Obviously, all this will help. But I question whether it is wise to increase taxation at this time. It seems to me that the Chancellor has been unable to resist carrying out what Colbert calls the art of taxation, that consists in so plucking the goose as to procure the greatest quantity of feathers with the least possible amount of hissing.

However that may be, it is always easy to impose a tax. The other day the Chancellor of the Exchequer, speaking in a television programme, said that he put the tax on tobacco because it was a direct tax on spending and he said, in answer to a question, that it would have been very wrong to tax earnings. He repeated that it would be very wrong to tax earnings. I ask the Committee how one would describe the Profits Tax except as a direct tax on earnings. It seems to me that we in this country have not yet decided as a Parliament, irrespective of party, that success is respectable.

I think that this Profits Tax may very well defeat its own ends, because the investment allowances which are given to industry mean that the products which are encouraged by these investment allowances are just coming to fruition when Profits Tax is imposed or increased. I suggest to the Committee that this is psychologically very discouraging indeed. I should have thought that at this moment when we have, as the President of the Board of Trade said, this unbalance in the economy, the Chancellor could have afforded to have more of a standstill Budget and not to give what I consider to be a direct discouragement.

I also question whether these forms of taxation designed to restrict consumer expenditure are not in themselves inflationary, because they reduce funds for businesses which will probably be raised by other means, or it is very likely that prices will be increased and the burden will be cast on to the consumer. The hon. Member for Loughborough who has now left the Chamber, said that the total tax on industry was about 50 per cent. I suppose that one could argue that the 2½ per cent. increase could be absorbed by the majority of industry, but I suggest that the only argument at this time in favour of the increased Profits Tax is that it strengthens the Chancellor's hand when he calls for earnings and salary restraint.

I am very concerned with its effect in the development districts. I think that here the Chancellor has been unwise and that he should consider some measure whereby he could have some form of tax reduction or tax allowance, or no increase in Profits Tax, which is related to the development districts and for a particular purpose, provided that it was for a period of time.

This is not in fact an unusual procedure. I was fortunate enough in January and February to visit Australia again, and that part of the Northern Territory where there are great geographical difficulties, great difficulties of climate, and great problems of distance from raw materials and from the main markets. There, for a period of years, the Government gave a form of tax allowance to industries which were prepared to establish themselves in those very uneconomic conditions. Even today there is a direct personal tax allowance for anyone who works and lives in those areas for a period of time. If all that can be done in a country such as Australia, which has such outstanding economic development at this time, I should have thought that it was well worth considering in relation to the unbalance in our economy.

I should like to say in relation to any future action which the Chancellor may think he might like to take to curb consumer expenditure that I hope he will not reduce imports into this country that would have a very bad effect on any increased industrial expansion which we hope for in the North. May I again take the example of Australia, because it has great problems of inflation, yet everyone will acknowledge that its production is increasing by leaps and bounds. It has vast public expenditure on basic services, on houses and on roads. It has an enormous immigration population of over 1 million in the last ten years, and it has a wage system which in many cases is automatically tied to the cost of living. Therefore, this is potentially a very inflationary situation. What has Australia done? Steadily over the years it has increased the imports into the country, so that now 90 per cent. are free, in order to allow the breeze of competition to blow against industries and so to steady the price structure and to increase production.

When the Chancellor talks of the necessity for exports, there are for enterprising manufacturers in this country enormous opportunities in Australia. We are Australia's best customer and we are easily still her best exporter of capital. Capital goes to Australia because the Government there are prepared to assist capital. Even when faced with this inflationary position, they do not increase tax on profits and earnings of companies which have established themselves. On the contrary, in the last Budget in August, they took off 1s. in the £A from the total tax liable to be paid by the individual. It was called the "1s. tax reduction ". Their view is that, despite the inflation in the economy, the increased spending power brought about by these reductions will be offset by the far greater production which will come about through the encouragement and confidence given to industry as a whole.

I do not suggest that at this time we should reduce taxes, but I feel that we would have been wiser to have had a more standstill Budget when there is this great imbalance in the economy between the booming Midlands and the areas of very high unemployment. Lastly, it is all summed up by the statement that, if we in the country and in the House of Commons believe in the future industrial expansion of Britain, we must make our fiscal policy fit in with our beliefs and be quite sure that we think that success is respectable.

8.12 p.m.

Mr. James Dempsey (Coatbridge and Airdrie)

This week I have seen for the first time the presentation of the nation's Budget. I paid particular attention to its submission by the Chancellor of the Exchequer and to the presentation of the Opposition's reaction by my right hon. Friend the Leader of the Opposition. I even noted, among other things, the exhibitionism of the hon. Member for Kidderminster (Mr. Nabarro). This week it has been quite an experience for me to be a Member of the House of Commons.

I repeat that I paid very close attention to the speech and to the various proposals made by the Chancellor of the Exchequer, but as a new Member I felt rather disturbed that action which could have been taken was not taken to introduce certain reforms for the benefit of the nation. As one of the candidates at the General Election, I was led to believe that the country had never had it so good, that our gold and dollar reserves were sound, that our export trade was second to none, and that the wheels of industry were turning like well-oiled machines and producing the goods and services which were making Britain mighty. These were the stories to which I listened.

I can remember the slogan of the Conservative candidate and the Conservative Party in my constituency. It was, "We have prosperity. Trust Harold, and it will continue". I am very happy to be here tonight, knowing that my constituency did not trust him. Indeed, I am delighted to say this evening that not even Scotland trusted him. It is obvious that there must be a sound reason why the people of Scotland rejected "Harold" at the last election. I do not intend to delay the Committee unduly, but I want to refer to some of the reasons.

When the Budget statement was submitted, I noticed miscellaneous ways in which we are to raise income during the current year. I paid particular attention to the important suggestions. I was not surprised at the decision to extend the post-war credit rebates, because I knew that the Opposition had been hammering for that reform for many years. Indeed, outside the House of Commons not only the Labour movement but many public organisations have demanded the same concession. I regarded that important statement by the Chancellor of the Exchequer at a tribute to the Opposition. It was glaring evidence of the old philosophy of the constant dripping of water wearing away the stone of resistance.

I was also happy to note that, at last, greater minds had been brought to bear in the Treasury on the removal of cinemas from the Entertainments Duty. I am sure that the right hon. Gentleman must have had in mind the fact that not only in villages, but in many towns in Scotland of which I can speak with authority, where many cinemas have been closed, he actually contributed to the elimination of one of the most traditional forms of enjoyment and entertainment possessed by the local community. The cinema industry is at present organising Sunday-night club entertainments to try to keep cinemas going in large towns and villages. It is compelled to do so because of the past effect of the Entertainments Duty on the industry. I was convinced that if the representations from all quarters throughout the country made themselves sufficiently felt the Chancellor of the Exchequer would grant that concession.

I have heard it argued that, looking at the situation generally, the Budget is a standstill Budget. [HON. MEMBERS: "Nonsense."] Even if that statement is nonsense, with which I entirely disagree, it is being made. I cannot accept the implications in the statement, because of certain assertions made by the Chancellor. He warned us of the balance of payments problem. Inherent in that warning were warnings of possible steps to be taken in the event of an adverse situation arising. I paid special attention to his remarks about the levels of personal consumption. I wondered what was implied in that, because we have had experience in the past of the implications of such a saying. Are we being prepared, in the Budget statement, for a Britain in which "we do not have it so good," probably before the end of this fiscal year?

Talk about the level of consumption carries with it many consequencies. It infers the possibility of a wage freeze, as was mentioned by one of my hon. Friends. It carries with it the possibility of other squeezes, such as the credit squeeze. It infers that there could be a capital investment freeze. That is not a standstill Budget. It seems to contain warnings of intending bad. I hope that I am wrong, but I must remember that the policy before a General Election is always different from—sometimes it is fundamentally opposed to—the policy after a General Election. We are dealing with the after-element of the last General Election, which makes me suspicious.

That would be a very dangerous road for the Chancellor of the Exchequer to take. The position is serious enough in Scotland without talking about a credit squeeze and inferring that there may be contraction in capital investment. We have enough unemployed at present without the Government putting more people out of work. I should like someone on the Front Bench to tell us the implications of that warning.

I noted particularly the announcement of the reduction in the duty on wines. That does not affect me, because I do not drink wine, and I am sure that millions of other people do not drink wine and are not likely to gain any benefit from this. It seems to be a contradiction in terms to hint, on the one hand, that the Government will control personal expenditure and the amount of money available for purchasing goods and services and, on the other, to make more money available by reducing the price of wines. We are making it available to those who least need it, but we could have made it available to those who need it most.

This Budget will probably be regarded as the "cheaper wines and dearer smokes" Budget. The increase in the Tobacco Duty will cause consternation. It is rather tragic that the old-age pensioners should have had their tobacco tokens withdrawn two years ago and should now be asked to pay more for their tobacco and cigarettes.

The Chancellor did not even mention some of the policies that I should like to see adopted. Local authorities are very much affected by Stamp Duty. It costs the large authorities a very considerable amount and quite a substantial sum is paid in that way by the smaller ones. The Chancellor could have reduced that duty. I do not know how much is involved here, but local authorities believe it to be a substantial total throughout the United Kingdom. The right hon. Gentleman might consider a reduction in this tax.

I was very intrigued by the right hon. Gentleman's reference to the need to see our resources more fully utilised. Hon. Members representing Scottish constituencies know that we have more than 90,000 such "resources" who are unemployed and who are not being fully utilised. It would be sensible to utilise them to increase the production of the wealth of the nation because, apart from producing goods and services for export, and for consumption at home, we would also get tax revenue, directly and indirectly, from the employment of those labour resources existing north of the Cheviot Hills, and economise in the payment of unemployment and other benefits.

I am sorry that the Chancellor made no special reference to that problem. I am glad to see that the President of the Board of Trade is here with us. He and the Chancellor should recognise that this is a special problem. I am sure that the President of the Board of Trade is coming round to that view. Only last week we had a meeting in Glasgow— it was practically a Scottish Parliament —agreeing to send an all-party deputation to meet the Prime Minister—

Mr. Bence

There were a lot of absentees, though.

Mr. Dempsey

—to ask him to stimulate enterprise, drive and initiative so that these resources may be fully employed for the betterment of the nation. I would be glad to know that that is to be the attitude to this social problem, and that if there are not sufficient funds in the Board of Trade "kitty" the Chancellor will make them available for this special purpose.

Attending my first Budget day in this House, I had thought that because of the booming Britain which we are told now exists we might have had some Purchase Tax reductions. Different treatment could be accorded to items bought once in a lifetime and to those purchased month by month—especially household goods. I thought that the Chancellor might have made some effort to give some relief to the overburdened housewife—

Mr. Nabarro

Hear, heat.

Mr. Dempsey

It is very encouraging to have support for this plea from the benches opposite. Instead of hearing the hon. Member for Kidderminster saying "Hear, hear" I had expected the old question, "Where will the money come from?" My right hon. Friend the Leader of the Opposition has pointed out that we shall have £320 million more this year. Where did that come from? It did not come by waving a wand, nor did it drop from the heavens. It came from the people who produce and distribute our wealth and goods. If we can find a sum like that in one year, we ought to be able to find enough to give greatly needed relief to the housewife.

I know that the Chancellor intends to take action over business expenses, but will he be willing to go far enough? The total cost of hospitality given to and by business executives, their friends and the like is substantial. I remember that a few years ago the Government increased the cost of school meals by Id.—interfering with the "tummies" of innocent little school children—while allowing tax evasion to continue on a large scale. When that happened I felt that the Government had failed in their duty to the nation.

We have ample opportunities to raise the revenue that the country needs. One has only to go to different parts of the country to find hotels crammed at lunch time with business executives entertaining their guests, their trading interests, their administrators and all the rest of them. The Chancellor should leave no loopholes there, but should ensure that those who are earning the money are adequately taxed. Not only will he be guaranteeing the nation that that loophole is closed, but the so-called patriots of industry will need to be patriotic also by ceasing to be tax evaders.

I join the chorus of appeals from this side of the Committee, and, indeed, in one or two cases, from the benches opposite on behalf of old-age pensioners. There are thousands of old-age pensioners in my constituency and I know their circumstances well. It would be very remiss of me if I did not press their claim. When I decided to raise this matter, I came across a statement made by the Prime Minister. At the beginning of the year, in his New Year message, the right hon. Gentleman said that the country could look forward to a continuation of prosperity which should be used to expand wealth in which all sections of the community could share.

We learn in this Budget that we are to be about £320 million better off this year, yet there is no mention of any share for the old-age pensioners. Are they not a section of the community, too? According to the Prime Minister, every section of the community is to share in Britain's progress. This is another promise made and broken by this Government. The Prime Minister went on to say: We have given a pledge to the old-age pensioners in this respect, and we will keep it. This Budget is a deplorable contradiction of the Prime Minister's own words. Within four months of the pledge being given, the promise-makers have become the promise-breakers. This is a very regrettable record. The Government will be greatly discredited in the eyes of retirement pensioners and other sections of our society who have the welfare of the old folks at heart; they will arouse great opposition and dissatisfaction. Only a week ago it was admitted in the House that the £2 10s. pension in terms of 1946 prices was worth only 3s. 8d. more than it was nine years ago. These are figures quoted by the Minister of Pensions and National Insurance which can be read in HANSARD.

If one deducts the value of the tobacco token concession, that little increase is reduced to about 5d. a week—a disgraceful record for any Government claiming to represent our Christian civilisation in Britain. The Chancellor of the Exchequer and his Cabinet colleagues ought at once to face the implications of the pledge their leader gave last January to the nation.

We must remember that when we speak of retirement pensioners we are speaking of 5 million people who are eking out a poor existence as best they can. If we have any millions of pounds to spare, it should go to them rather than to the wine consumers or the wine producers. The Budget has failed lamentably to meet this very deserving need.

I have listened to most of the speeches which have been made during the past two days. I am convinced that a Budget which, after all, plans for the next year the distribution of the nation's resources, can never succeed unless that distribution takes into account the need to employ those who are unemployed and who are anxious to work. It must provide the means whereby they may have an opportunity to develop and use their talents and productive capacities. A Budget which fails to make this provision shows a startling omission. More- over, in any distribution of the results of the nation's productivity the most deserving section, the old-age pensioners, should receive their fair slice of the national cake.

A Budget which fails to do this is a Budget of failure. I trust that, as a result of continual pressure, we can look forward to a solution of Scotland's unemployment problem, on the one hand, and to an adequate pension on which old-age pensioners can live—not just exist—on the other.

8.35 p.m.

Mr. Gerald Nabarro (Kidderminster)

I am pleased to be called quite late in this debate, for the Chancellor of the Exchequer has now returned to his place, having appropriately fortified himself for the rigours of the next twenty to twenty-five minutes. The Chancellor was in a position to take appropriate stimulant yesterday. My speech will not be so lengthy, and I shall not attempt anything of a stimulating character. I start in the most charitable possible fashion, having regard to the circumstances.

In the very limited sector of agreement between the Chancellor and myself, I am able to welcome one or two of my right hon. Friend's proposals. I welcome the sweeping away of the last vestige of Entertainments Duty upon the cinema. I welcome the modest Income Tax reliefs which my right hon. Friend has been able to give, and the post-war credit proposals. I welcome in manifold forms the action he is taking with regard to tax avoidance. I am not a hobby farmer. I am not a bond washer. I am not a dividend stripper. These practices do exist, and, as they are fraudulent in character in my view, I am delighted that the Chancellor has been able to take these steps, although I must say that I do not think that any very great sum is entailed. I also welcome the very modest and restricted relief which my right hon. Friend is giving in respect of Estate Duty covenants.

There I part company from the Chancellor of the Exchequer. I say it literally that the sector of agreement between the Chancellor and myself on this occasion is very small and limited. I disagree with many of the fundamentals upon which his Budget propositions are based. I particularly feel queasy—[HON. MEMBERS: "Hear, hear."] My stomach is in poor order as a result of the Chancellor's behaviour in a strictly party political sense.

I make this analogy between 1960 and 1955. In 1955, the Conservative Party, led by Sir Anthony Eden, was returned to the House with a majority of nearly 60. We came back from the hustings, in the full flush of victory, early in June of that year, largely re-elected on a ticket of continuing reductions of taxation. Within four months, an autumn Budget which slapped up taxes was introduced. [HON. MEMBERS: "Hear, hear."] The cacophony from the benches opposite will not be unusual in the ears of my right hon. Friend the Chancellor. He suffered the same thing yesterday when he resumed his seat—stony silence from the Tory benches and a cacophony from the benches opposite.

I was not particularly pleased with the then Chancellor in 1955, although I was persuaded not to vote against the autumn "pots and pans" Budget of that year, in spite of feeling the position very keenly. I had crusaded all over the country—and "crusaded" is the proper word. I had stumped the country—a latter-day version of Richard Oastler— advocating continued tax reliefs. I am therefore not a little dismayed that there has been a repetition of these events in the last few weeks—and I am choosing my words very carefully tonight.

In October, 1959, the Conservative Party was returned to this House with a substantially larger majority—a majority of more than 100. Although many factors contributed to the large Conservative victory at that time, my assessment of the position—and I believe that it was the assessment of professional psephologists—was that the principal contributory factor was the Prime Minister's assurance that there would be continuing reductions in taxation. In this Budget the Chancellor has seen fit to raise taxes very considerably. I thought that once, in 1955. was bad politically; I think that twice in five years is disgraceful politically.

I am sorry that I have amused the Chancellor. He is laughing so loudly that I must be amusing him. I wrote before the Budget, I said on television before the Budget and I said on radio before the Budget, that if, after the assurances given last October, the Chancellor of the Exchequer chose deliberately to flaunt public opinion and raise taxes in this Budget, it would be an act of political turpitude, and I repeat that charge this evening. It is an act of political turpitude.

That is why, for the first time in at least two decades, about 12 Government supporters—I am not sure of the exact number — yesterday spontaneously reacted to the Chancellor's Budget, as a matter of fundamental principle, by sitting on these benches and refusing to vote. My noble Friend the hon. Member for Dorset, South (Viscount Hinchingbrooke) and myself, and many other of my hon. Friends who will doubtless speak in this debate, have been called rebellious for doing so. We have been called mutinous. I do not consider that to adhere closely to the political principles that one has espoused prior to one's election to this House is a matter of mutinous or rebellious behaviour. On the contrary, there is a deep cleavage between the Chancellor of the Exchequer and myself. The Chancellor thinks that he is right; I think that I am right.

Mr. Charles Pannell (Leeds, West)

The hon. Member for Kidderminster (Mr. Nabarro) is more right than the Chancellor.

Mr. Nabarro

I am grateful to the hon. Member for Leeds, West (Mr. C. Pannell) for saying that I am more right than the Chancellor. I do not claim that, but I claim that the framing of Budgets and propositions in the fiscal sense is largely a matter of judgment. I am glad to see that my right hon. Friend so warmly agrees with me. I do not consider that the Chancellor's judgment on this occasion has been sound.

I have said that the Chancellor has raised taxes very considerably. He has been guilty of sins of omission and of commission. The sins of omission are a deliberate failure, in the Economic Survey and in his Budget speech yesterday, to draw attention to the unloading of Government expenditure on local authorities, which are now faced with having to raise local rates all over the country. It is highly embarrassing to the Chancellor to hear that from one of his hon. Friends. It is highly embarrassing to him to hear me say that I searched the Economic Survey from cover to cover and could find no reference to local rates, but that my assessment of their increase, aggregated in respect of the forthcoming year, is approximately £50 million. The Chancellor has increased direct taxes by £72 in a full year. He would be more honest and less disingenuous if he told the nation that in this Budget he is raising taxes by a total of £122 million.

I ask every Member of the Committee this evening to consider within the context of local rates that this is not only a matter of domestic hereditaments which are facing an increase in the rates poundage. When my right hon. Friend the Chancellor of the Exchequer talks about additional taxation for industry, would he consider the triple effect of, first, a large increase in rating valuation upon industrial hereditaments about two years ago, and second, the reduction of the volume of derating from 75 per cent. to 50 per cent., which doubles the first factor to which I referred? And as in many instances the valuation of industrial hereditaments has sprung up by as much as four times for rating purposes. I find many industrial concerns paying eight times as much in rates as they were two to three years ago, and that is a direct addition to their taxation in exactly the same sense as the Profits Tax.

Why did not my right hon. Friend warn the Committee of that fact both in the Economic Survey and in his Budget speech yesterday? There have been big increases in industrial taxation Let me compare them with the influences which have been at work in the last twelve months. In April, 1959, the Chancellor of the Exchequer reduced taxes by, so far as I am aware, the largest single measure of tax reduction in any Budget in peace time. A sum of £360 million was lopped off taxes, and what has resulted?

Mr. Bence

The party opposite won the election.

Mr. Nabarro

That is in the political sense, and I am not afraid to deal with that later. I am talking in the economic sense for the moment.

A sum of £360 million came off taxes and three things have resulted. The first was an increase in production of 10 per cent. The second was an increase in the volume of exports of 14 per cent. The third was an increase in personal savings of 15 per cent., and in that 15 per cent. is included an increase in National Savings of no less than 20 per cent. I do not wish to over-use the word "records", but I hope that the Financial Secretary to the Treasury will note these facts and have careful regard to them.

Never before in the history of this nation have we increased production in a single year by 10 per cent. Never before in the history of the nation have we increased the volume of exports in a single year by 14 per cent. Never before in the history of the nation have we increased personal savings by 15 per cent. I believe passionately that all of these desirable results have flowed from the policy last April of reducing drastically the incidence and the level of taxation. I believe that they are most largely a direct result of that policy, but what are the budgetary considerations? I hope that my right hon. Friend the Chancellor of the Exchequer, who is drawing such an elaborate doodle on his knees in front of me—he is now drawing that addled egg laid on his window sill—

Mr. Bence

It is not an egg; it is a moustachio.

Mr. Nabarro

May I please continue? I was hoping that the Chancellor would write down on a piece of paper—

Mr. C. Pannell

On a point of order. In view of the fact, Sir William, that there seems to be a document circulating between the Chancellor and hon. Gentlemen opposite, should it not be laid on the Table?

The Deputy-Chairman (Major Sir William Anstruther-Gray)

It had occurred to me that both hon. and right hon. Members should address themselves to the Chair at all times during debate.

Mr. Nabarro

I am grateful to you, Sir William. May I continue with the figures, which are of a serious character, which I was about to give?

The Chancellor of the Exchequer, in April, 1959, budgeted for an above-the-line surplus of £102 million. He achieved an above-the-line surplus of £386 million. The Chancellor of the Exchequer, in April, 1959, budgeted for an overall deficit of £721 million, and he achieved an overall deficit of £314 million. So really he had an above-the-line surplus nearly four times as much as he had budgeted for and he had an overall deficient of less than one-half of his Budget figure. The margin of inaccuracy of the Treasury on the above-the-line surplus was as to four times and the margin of inaccuracy as to the overall deficit was a mere matter of £407 million. When one achieves—and I use the word "achieves" sardonically in this connection—margins of error of that kind, my faith in Treasury advice is destroyed.

The Chancellor, in April, 1959, was so wildly inaccurate in his Budgetary statement that I thought it a masterpiece of under-statement when he used these words in his Budget statement of this year. Yesterday, he said: Any burden of remorse I may feel for the inaccuracy of my marksmanship is, I own, somewhat lightened by consideration of the benefit which has accrued to the public purse." —[OFFICIAL REPORT, 4th April, 1960; Vol 621, c. 34.] I wonder if the Chancellor—I see that he is nodding his head—would have been so sanguine about matters if his margin of error, as it might well have been, had operated in the opposite direction. I have no confidence in Treasury budgeting after reading such wildly inaccurate figures as were contained in the Budget of last year.

That brings me to a matter of equal importance. The Chancellor has said that it is necessary for him to raise taxes in order to restrict spending or to place a restraint upon spending or to curb spending. I think that the effect of his raising taxes is not likely to affect spending at all. I think that spending will remain at the same level, if not increase, and that what it will affect is savings. The Chancellor will get a lesser volume of savings and a level of spending at least equal to what he had in the last year.

I think that having regard to the position as it exists today, there is room in the economy for very substantial tax reliefs this year. I do not accept the view that tax reliefs would be inflationary. I take the view that as a result of our experiences in 1959-60, and even discounting the wild inaccuracies of the Chancellor in his Budget statement last year, a relief in taxation would have two important effects. The first is that it would continue to stimulate the level of personal savings. The second is that it would provide those incentives so necessary for a continuing rise in the level of production and productivity. Putting on extra taxation has exactly the opposite effect.

I hope that the Chancellor is not going to quarrel with those principles, for they are the same principles as he himself used to enunciate from the benches opposite when he was a private Member in Opposition. He used to say then that the way to gat bigger production and bigger productivity—attacking the Socialist Government on this side—was to provide the incentives springing from reduced taxation. Now that he is on these benches he says the opposite—

Mr. Bence

He is the Government now.

Mr. Nabarro

Yes, he is the Government, and that is why his statement yesterday was received in stony silence by his own side of the Committee and why all the cheers came from the Socialist Opposition. It was precisely for that reason, his failure to curb Government expenditure and his failure to curb the extravagant rate of investment in nationalised industries. All are contained within the considerations of this Budget.

If the Chancellor of the Exchequer practises Socialist spending and Socialist philosophy in his year of office, he can expect to be placed in the inevitable position of bringing in a Socialist Budget, and that is what he has done this time. I strongly disapprove of the increases in taxation. I believe that the interests of our economy, without strain to the balance of payments—for reasons I am prepared to explain in a moment—would have been best served by a modest but widespread reduction of taxation under five heads.

The first would have been 3d. off the standard rate of Income Tax. The second would have been the total abolition of Schedule A tax on owner-occupied houses. I shall be quite candid about Schedule A tax. I said that before the last General Election, and I followed it up at a crowded meeting in my constituency by telling several hundred listeners that I have never paid Schedule A tax since the day I owned a house, which was the day I was married, to be greeted by a loud voice from the back of the hall asking "How do you fiddle it, chum?". This launched me on a dissertation as to how to claim maintenance relief, properly balanced over five years, in order to attract the maximum maintenance relief on the Schedule A assessment, which results in the house owner paying no Schedule A tax at all. The fact is, and I am sure I carry hon. Gentlemen opposite with me, that if every home owner was properly instructed by the Inland Revenue and others as to how to make a maintenance claim for Schedule A, the Chancellor would not collect the £34 million from 7 million home owners that he collects this year. He would not get any of it.

Mr. Marcus Lipton (Brixton)

How did the hon. Gentleman get out of it during the first four years of home ownership?

Mr. Nabarro

The hon. Member for Brixton (Mr. Lipton) has just come in. Perhaps he would allow me to make my speech? The fact is that £34 million would be the cost of abolishing Schedule A on 7 million homes. It should have been the second item in the Chancellor's Budget. The third should have been further progress towards consolidation of the Purchase Tax. Here I draw the attention of the Chancellor of the Exchequer to his statement last November, when he used these words: … I have recommended to Parliament, and Parliament has approved, a reduction of something like £120 million in Purchase Tax… I hope that my right hon. Friend will write that on his spare sheet of paper. He claimed £120 million in Purchase Tax reductions. If I were an American comic I should say "Oh, yeah?" Let me give the Chancellor the sums he has raised from Purchase Tax in the last few years.

In the tax year 1958, he raised £494 million from Purchase Tax. In 1959 he raised £498 million. In 1960 he raised £501 million, and in the current year my estimate is that he will raise a sum of £535 million. For the benefit of the Committee, because this is an important point which I hope will not be lost, I repeat—in 1958, £494 million; in 1959, £498 million; in 1960, £501 million; in 1961, £535 million. I repeat also to the Committee the Chancellor's proud boast on 10th November: …I have recommended to Parliament, and Parliament has approved, a reduction of something like £120 million in Purchase Tax …" —[OFFICIAL REPORT, 10th November. 1959; Vol. 613, c. 177.]

All the Chancellor has done has been progressively to increase Purchase Tax, yet claim mendaciously to the House and the country that he has reduced it.

Hon. Members


The Deputy-Chairman

I am not sure if I heard the word "mendaciously". If I did, it would not have been a proper word to use.

Mr. Nabarro

I apologise to you, Sir William, and to the Chancellor at once.

Mr. C. Pannell

I am interested in that expression in so far as I once used it. I claim a precedent from when Mr. Clynes used it to Mr. Baldwin. It passed the Chair in 1926 and since then it has had honourable usage in the House of Commons.

The Deputy-Chairman

That may or may not be so, but I do not like the word in Parliamentary usage in the Committee.

Mr. Nabarro

I unreservedly withdraw the word and accept your rebuke, Sir William. I apologise for having used the word, and I substitute the words "gross inaccuracy". In fact, the Chancellor's claim, or boast, to have reduced Purchase Tax by £120 million is only as wildly inaccurate as his budgeting last year, the margins of error being not dissimilar in character. That is why I have little confidence in his Budget proposals and his taxation increases at the present time.

The fourth proposal should have been that the commencement level of Surtax be raised from £2,000 to £3,000, a bonus for brains. [Interruption.] If the hon. Member for Brixton thinks that is funny, may I point out to him that if he looks up the number of scientists, technicians, teachers, and doctors who left Britain in 1958 to seek their living in the Commonwealth and foreign countries, he will not find the figure very amusing. These men very largely—not entirely— leave this country because of the less onerous burden of taxation in the countries of their destination. I hope that next year the Chancellor will accept that advice, which obviously is so warmly supported by many of my hon. Friends.

Fifth and last, I make to him a proposition in connection with Profits Tax. Profits Tax is highly inflationary. The addition of 2½ per cent. to the Profits Tax will simply mean that a large number of companies with a steady record of profits will recoup the increase in Profits Tax by an approximately commensurate rise in the prices of their products—[HON. MEMBERS: "Oh."]— Oh, yes. I am in no doubt about that. That is why Profits Tax is inflationary.

I make a suggestion which has not been made in the Committee this year and which was not made last year. I I want to see Profits Tax, the whole 12½ per cent., totally abolished and at the same time I want investment and initial allowances totally abolished. The total cost of abolishing Profits Tax will approximately be offset by the abolition of capital allowances to industry. I have always been sceptical, and so have many of my hon. Friends, of the value of initial and investment allowances. They are of very dubious benefit, excepted only to a small, impoverished and struggling firm, and in one or two special cases, such as shipping.

In business, I do what I am sure many of my hon. Friends do in business, which is to take the initial or investment allowance and put it into a suspence account and deal with it annually by withdrawal or re-application for the length of life of the asset concerned. It does not enter into the profit and loss accounts of the company one iota and it means nothing to us. Hon. Members seem to have developed into a frame of mind in which they regard an initial or investment allowance as an abatement of taxation. The initial allowance is only a manipulation of depreciation. An investment allowance means a tiny profit, 20 per cent. in the case of certain assets, less Income Tax at 7s. 9d. in the £, which simply means a residual 61¼ per cent. as a profit when the plant finally expires from its use.

I want to scrap all those capital allowances on one side and I want to equate that to a scrapping of the Profits Tax on the other side, greatly simplifying our taxation arrangements. I quote in support very appropriate words written in Lloyds Bank Review for April, 1960: In the case of companies, the present rates of tax are not excessive in comparison with those charged elsewhere. There is, however, a good case for considering whether the initial and investment allowances should not be withdrawn and industry be compensated by the total abolition of the profits tax. I hope that the Chancellor will finally consider that before next year.

I wind up on this note. We are talking of the lack of curb and restraint on Government expenditure, which this year has led to the position that the Chancellor has raised taxes. I couple the nationalised industries with it. My right hon. Friend will recall an occasion in the early hours of the morning in May, 1956, when a group of my hon. Friends and I—my noble Friend the Member for Dorset, South was included, as was the then Member for Ealing, South, Mr. Angus Maude—were highly critical of the proposal to finance nationalised industries below the line from the Treasury direct. We were told by the present Prime Minister, then Chancellor of the Exchequer, that that was an experimental arrangement for just two years. We put up with it until 1958, when we questioned it again. It was renewed for one year. We then questioned it again and we were told that we had to wait for Radcliffe. We all waited, pregnant with expectation, for the proposals in Radcliffe, and Radcliffe suggested that this method of financing below the line expenditure in the nationalised industries should be continued.

I am not here quarrelling with that principle, but the Chancellor of the Exchequer, and every member of the Cabinet, knows the views of a large group of my hon. Friends and myself concerning control of public expenditure, notably the capital investment programmes of nationalised industries. We have impressed on them over and over again that we want annual accountability for capital sums before the money is spent, and not in retrospection.

My hon. and gallant Friend the Member for Knutsford (Lieut.-Colonel Bromley-Davenport) did not mean to be hilariously funny—I do not mean to be hilariously funny, and I am sorry if I am it is my natural stance and appearance—when he raised as an example the advanced meter readers' college of the gas board which is being built in his constituency. He was ruled out of order for raising it on the Consolidated Fund debates. It was a major item of capital expenditure by one of the State boards. As a result of that we probed matters, and we were told that the only place that this could be discussed or raised was on the Finance Bill.

This year the Chancellor of the Exchequer has flouted the wishes of a majority of Members on this side of the Committee as to annual accountability for capital investment sums before they are spent by nationalised industries. I stress the word "annual". My right hon. Friend knows our feelings only too well. He slapped us, and me in particular, in the face bv bringing in—

Mr. Amory

indicated assent.

Mr. Nabarro

My right hon. Friend is nodding his agreement. I know that it has been done quite deliberately. Instead of annual—

Mr. Amory

indicated dissent.

Mr. Nabarro

My right hon. Friend is indicating his dissent now. Instead of annual accountability the Chancellor now proposes to bring in a three-year provision, far bigger than it was even in 1956. He said yesterday: In the light of the Radcliffe Committee's recommendation I propose that the power should be taken for three years …"— [OFFICIAL REPORT, 4th April, 1960; Vol. 621, c. 48.] The Chancellor has been very provocative in making that decision. He will reap his due reward. He wants a debate on the National Coal Board, the electricity boards, the gas boards, the Airways Corporations and the British Transport Commission on the appropriate Clauses of the Finance Bill. He will have it. I will see to it that he has the necessary Amendments and so long as —[An HON. MEMBER: "Will the hon. Gentleman vote?"] I do not know the constituency of the hon. Gentleman wearing a natty blue tie and brown shoes.

Mr. Richard Marsh (Greenwich)


Mr. Nabarro

I am grateful to the hon. Gentleman. He taunted me with not voting. I presume he was referring to steel. His researches did not carry him back to 27th January last, which was the last time I voted against my own side. I do not boast about it, but I happen to have voted against my own party probably more than any other hon. Member in this Committee. It is somewhat unseemly for a Socialist to taunt me with lack of sincerity, but I forgive the hon. Gentleman, who has been in this House for only three months.

The Chancellor of the Exchequer has deliberately flaunted the views of my hon. Friends and myself, and we will endeavour to repair matters during the Committee stage of the Finance Bill. I proclaim my intentions clearly this evening. I intend to continue the struggle for annual accountability of capital investment sums in all the State boards before the money is spent and not in retrospect. I want to drive the present Chancellor of the Exchequer to a position whereby—[HON. MEMBERS: "Drive him out."] No, I do not want to drive him out; he is a decent chap. I want to drive him to a position whereby he will take this Clause for financing nationalised industries out of the Finance Bill and have instead an annual Bill called—[HON. MEMBERS: "The Nabarro Bill."]—"Nationalised Industries (Capital Investment) Bill", with a separate Clause for the annual investment required for each of these State boards. By that means, we can devote appropriate scrutiny to it. [An HON. MEMBER: "Will the hon. Member vote?"] Yes, I will vote, if necessary.

I remind my right hon. Friend the Chancellor of the Exchequer of quite the most outrageous comment made by any Conservative Minister during the last few months, namely, my hon. Friend the Parliamentary Secretary to the Ministry of Power—I am sorry he is not in his place this evening—who told my hon. and gallant Friend the Member for Knutsford and myself that we had no statutory right whatever to challenge any item of capital investment by a State board.

Lieut.-Colonel W. H. Bromley-Davenport (Knutsford)

indicated assent.

Mr. Nabarro

I am glad that my hon. and gallant Friend immediately agrees with me. We were told first in a letter from the Ministry of Power; then we were told it by my hon. Friend the Parliamentary Secretary on the Floor of the House. Yet the Chancellor, in the Budget, has provided from the taxpayers' money out of his budgetary surplus a substantial sum towards the financing of below-the-line expenditure for nationalised industries.

What my hon. Friend the Parliamentary Secretary to the Ministry of Power, with the full force of the Government and the Cabinet behind him, is saying is that a Member of the House of Commons may not challenge expenditure in nationalised industries, even when the sum of money concerned is directly raised by iniquitous imposts upon the taxpayer.

I hope that my right hon. Friend the Chancellor of the Exchequer will reply to that this evening, if he can. Of course, he cannot.

Mr. Lipton

He will.

Mr. Nabarro

Of course, he cannot. I am being serious about this. He cannot reply to it. The case is unanswerable. It will have to be remedied if there is to be appropriate accountability to Parliament and proper control over the expenditure of taxpayers' money.

For all those reasons, I refrained from voting yesterday. I abstained on the first of the Budget Resolutions. It was a token abstention on my part, along with twelve of my colleagues, as a protest against what we consider to be an appallingly bad Budget, the worst Budget brought in by a Conservative Chancellor since we returned in 1951. It is anathema to me. It runs counter to many things I have ever advocated in the House of Commons or in the country.

In Committee, I shall reserve my position to vote against my party on several matters, not on Thursday evening next —the hon. Member for Greenwich will be interested to know this—because I could not vote then against the entire Budget without voting against, for example, the modest relief given in the repayment of post-war credits or the other modest reliefs. On the specific issues in Committee, however, I shall suggest to my group of hon. Friends— [HON. MEMBERS: "Your group?"] Yes, our group, if that is what hon. Members wish. We are the unofficial Opposition in the House of Commons.

Mr. A. C. Manuel (Central Ayrshire)

"Nabarro boys."

Mr. Nabarro

I claim that we are much more effective than the official Opposition—

Mr. J. T. Price (Westhoughton)

The "below-the-line" group.

Mr. Nabarro

—who have characterised their every action in the last few months by flatulence and by indecision on every major issue. I shall reserve my position, and many of my hon. Friends will reserve their position, until the Committee, although we will not vote against the Government on Thursday evening.

I say without sorrow to my right hon. Friend that it has been painful for me to make my speech tonight—[HON. MEMBERS: "Oh."] I grieve that my criticism has been so severe. I believe in the philosophy of lowering taxes and not increasing them and I do not believe that the Chancellor has been correctly advised on this occasion. Long after we have departed from the Budget debates and the Finance Bill this year my right hon. Friend will constantly be in trouble unless he pays heed to the careful advice given to him by my group of hon. Friends and myself. There must be much more powerful control over Government expenditure. Otherwise, we shall face a series of Budgets from a Conservative Chancellor practising a Socialist philosophy and a dismal return to what I consider the drabbest and dreariest period in the fiscal history of the post-war years, characterised by the name, "Butskellism".

9.21 p.m.

Mr. George Thomas (Cardiff, West)

We have listened to one of the most striking speeches which has been made in the whole of this debate. Even making allowances for the exhibitionism of the hon. Member for Kidderminster (Mr. Nabarro), the attack which he has made upon the Chancellor of the Exchequer is one of the most severe that I have heard during the fifteen years that I have been an hon. Member of the House of Commons.

The hon. Gentleman seemed to be supported by many of his hon. Friends as he was making a personal and savage attack upon the Chancellor of the Exchequer, upon his efficiency and equally upon his policy—

Mr. Marsh

And on his honesty.

Mr. Thomas

—and on his honesty, as my hon. Friend the Member for Greenwich (Mr. Marsh) has suggested.

It is not for any hon. Member on this side of the Committee to seek to answer the hon. Gentleman on behalf of the Chancellor of the Exchequer. Suffice it for me to note the very deep divisions which exist among hon. Members opposite over the important issue of the policy which the Chancellor should pursue at this time in our history. I believe that the hon. Member for Kidderminster has revealed a basic Tory philosophy which is rooted in selfishness and reflects the old school which was so thoroughly rejected by the electorate of the country. and which the hon. Gentleman will find out—is the hon. Member for Kidderminster leaving us?

Mr. Nabarro


Mr. Thomas

The hon. Gentleman will discover, I believe, that he is marking time when the rest of the country is marching forward from the philosophy and mentality which he revealed tonight.

I wish to criticise the Chancellor for other important reasons. I come at once to a matter on which I speak only for myself, I suppose. In this Committee we all can speak only for ourselves, but on this matter I do not know whether I shall have any support from my hon. Friends any more than from hon. Members opposite. I want to refer for a moment to the Premium Bonds scheme.

The Chancellor, I believe, is lending respectability to gambling. The Chancellor is encouraging something that ought not to be encouraged and that is harmful to the community. It is pitiful to see the Chancellor using as a major item in his effort to encourage personal savings the idea that people will save only if the gambling element is introduced. I believe that he offends—I say this at the risk of setting off my right hon. Friend the Member for South Shields (Mr. Ede) once again—certain deeply-held convictions particularly among Free Churchmen, although I know that they are shared by Churchmen in this country. I leave that, having registered my protest and having made it perfectly clear to this side of the Committee that if and when opportunity arises when the Finance Bill is introduced, I intend to register my protest.

A further objection that I have is that the Chancellor in his Budget has neglected an opportunity that any man ought to have welcomed to restore to the tattered Welfare State the principle that we are concerned with those people who are unable to protect themselves. Think of the people who had a right to look to the right hon. Gentleman for assistance at this time and for whom he had not even a word to spare in his Budget speech.

First, I think of the chronic sick, the people who are a tiny minority and who are electorally unimportant but who, in a Welfare State, ought to have priority in our considerations. At the present time, with the talk of prosperity in these islands, it is little short of a disgrace that the sickness benefit available for the chronic sick in the case of a man, wife and child is £4 15s. a week. Inevitably, the chronic sick of Britain today are being driven to the National Assistance Board. The time for an overhaul of welfare benefits has long passed, and I think that the right hon. Gentleman has failed in his duty and missed a striking opportunity to render service where it is most needed.

Several of my hon. Friends, as well as my right hon. Friend the Leader of the Opposition, have already castigated the Minister for his apparent indifference to the present poverty of our old-age pensioners. I am not seeking to maintain that concern for the old folk is the monopoly of this side of the Committee, but I say that it is humbug, it is hypocrisy, to talk of the old people sharing in the increased wealth of the nation and then for the Chancellor to make no reference at all in his Budget speech to this being done.

The hard truth is that increasingly old-age pensioners are being driven to sacrifice their independence and turn to the National Assistance Board for supplementation. While it is undoubtedly true for a large element of the population that things have not been so good in their lifetime before, for the old folk things have not been so difficult since the Welfare State began. Their proportion of the national income is smaller each year. When answering a Question tabled by me on 28th March, the Minister of Pensions and National Insurance revealed that the basic pension today represents 18.5 per cent. of the national average wage. In 1946, when the new retirement scheme was introduced, it represented 205 per cent. of the national average wage. Clearly the position of the pensioner in relation to the average wage earner is worse today than it was in 1946.

Sir Peter Roberts (Sheffield, Heeley)

That is not strictly accurate.

Mr. Thomas

This was the answer given to me by the Minister of Pensions and National Insurance a week last Monday. If the hon. Member for Sheffield, Heeley (Sir P. Roberts) cares to look in HANSARD he will see it amongst the written replies.

Sir P. Roberts

My point is merely that the period to which the hon. Gentleman refers did not last very long.

Mr. Thomas

I find it hard to think that the hon. Member seeks to defend the present position of the old-age pensioner. I find it hard that someone like the hon. Gentleman, whom I have known for nearly sixteen years, should split hairs about whether old-age pensioners had 20.5 per cent. of the national average wage for a year or six months. We know that today the basic retirement pension is worth only 18.5 per cent. of the national average wage.

That is a national scandal. It is impudence to talk of a Welfare State when we fail to honour our welfare obligations. The basis of a Welfare State is that the rich are made to help the poor and that the strong help the weak, but we have seen in our affluent society a change in these basic principles. Now the emphasis is apparently put upon personal gain and personal acquisition. I wish with all my heart that the Chancellor of the Exchequer would give a message of hope and encouragement to the old guard who laboured when things were more difficult than they are today to establish us with the greatness we have been able to achieve within the lifetime of our own people.

I am particularly glad about the Chancellor of the Exchequer's post-war credit proposals. We have had singularly difficult anomalies because a person had to be in receipt of National Assistance for three months before he could receive his post-war credits. Every right hon. and hon. Member will have had to deal with cases of particular hardship which seemed indefensible but yet fell outside the terms of the Chancellor's previous statement. Some people, for whom life is a difficult and drab business with long sickness and economic poverty, will be helped by this statement on post-war credits.

I am glad that the right hon. Gentleman has gone as far as he has. I believe that the Budget is the supreme instrument by which any Government helps to shape the sort of society they wish us to enjoy. We have been boasting now for years that the principle of the Welfare State is accepted by both sides. We have read pronouncements from the Bow Group, we have heard statements that I never expected to hear from the Front Bench opposite, but none of us can be indifferent to the extent to which the welfare services are creaking today.

They are breaking down. There is need, there is dire poverty, there is needless suffering that ought to be on the conscience of the country. Because it is on my conscience, I say to the Chancellor "Take the first opportunity to put right this serious omission from your Budget of this week".

9.36 p.m.

Mr. Robert Carr (Mitcham)

I am afraid that, unlike what was said by my hon. Friend the Member for Kidderminster (Mr. Nabarro), what I shall say is not likely to hit the headlines. I shall do something that, by his standards, would be very dull. I shall support my right hon. Friend the Chancellor and I shall support his Budget—and I suspect that in doing so I shall be speaking, in fact, for the very great majority of Conservatives both inside the House and outside it. My proximity to where my hon. Friend has been sitting perhaps illustrates the small territory over which his Whip prevails.

Before I say why I think that the Budget is a good one, I have two other pleasant tasks to perform. First, it is a pleasure to follow the hon. Member for Cardiff, West (Mr. G. Thomas). All of us were disturbed on his account recently, when he was ill. I am not sure whether this is his first active speaking performance in the House since his illness, but I should like to say how pleased we all are to see him back and in his usual form. Of his sincerity, and his care for poverty in this country wherever it may be found, none of us has any doubt.

I shall not follow the hon. Member in his references to pensions, and so forth. That subject has been raised not only by him, but by many of his hon. Friends. All that I will say on that is to repeat what we on this side said last year, namely, that normally pensions are not appropriately dealt with in the Budget. We gave a pledge at the General Election that pensioners would be given a fair share in our rising prosperity. That is a pledge that we maintained in the last Parliament, and I am confident that we shall maintain it in this one as well.

None of us should be complacent about the degree of poverty that still exists, but I sometimes think that we do a disservice to the country and also perhaps indirectly to the pensioners by exaggerating the scale of the plight suffered by some of them, and by belittling the improvements that have been achieved.

My second pleasant task is to refer to two notable maiden speeches in this debate. First, we had my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). It cannot be easy to follow such a distinguished Member as Mr. Speaker Morrison, now Lord Dunrossil. Though for most of my time in this House I only heard him controlling the House from the Speaker's Chair, I know that in earlier days he made many notable contributions from the Front Benches and back benches on both sides. The people of Cirencester and Tewkesbury can rest assured by their new Member's performance in this Committee that they have someone who can worthily represent them in the great tradition which he is following.

I was particularly attracted by my hon. Friend's speech because he stressed the importance to the economy of those who earn between £1,300 and £3,000 a year. I think that those were the limits he chose. I support that plea very strongly. Indeed, I referred to the same matter in the Budget debate a year ago, when I welcomed the tax relief which my right hon. Friend was able to give at that time particularly from the point of view of the help it would give to this class of person.

The second maiden speech came from my hon. Friend the Member for Clitheroe (Mr. F. Pearson). I cannot pretend to have any knowledge of agriculture. I was born and bred in a city. I have worked in industry. I represent an urban constituency. I suppose, therefore, that I am a Member who might, on behalf of his constituents, look askance at agricultural subsidies and ask what it is that urban taxpayers are getting for their money.

I am sure, that if all spokesmen for agriculture spoke as forcefully, progressively and thoughtfully as my hon. Friend the Member for Clitheroe did today, farmers would need to have no fear about winning the support they require from the rest of the community. It was a great pleasure to hear my hon. Friend's contribution. He follows the late Richard Fort, a Member much loved and respected in the House. Sad though we are for the reason of his coming here, we feel that Clitheroe will be worthily represented in the future.

Turning to the Budget itself, I think that it would be fair to say that there are three main economic purposes which a Budget today should serve. First, it should serve to maintain the stability of prices which we have enjoyed for the last two years, the lack of enjoyment of which was such an evil both socially and economically in previous years since the war. Secondly, I think that the Budget should serve to support our balance of payments and the strength of the £ abroad. Thirdly, I suggest that it should serve to encourage the expansion of our economy based on growing efficiency and competitive power.

In the long run, these three aims are, I believe, indivisible. In the short run, however, the pursuit of the third objective, expansion, can clash with the pursuit of the first two, price stability, sound balance of payments and the strength of the £ abroad. Surely, that is one lesson which we must have learnt from post-war experience under successive Governments.

Therefore, however much expansion may be essential in the long run, if we are to have price stability and be competitive in export markets we must, in the short run, take great care to see that expansion is based on increasing efficiency and competitiveness and is not followed just for the sake of expansion as such. Secondly, we must ensure that expansion is controlled in speed so that excessive demands of home consumption do not squeeze out exports and force up prices.

Last year, we had this right kind of expansion. Exports rose, production rose, real incomes rose, prices were stable. I think that it was my hon. Friend the Member for Kidderminster who said that judgment in Budget matters was what counted; and that we should not depend too much upon the arithmetical calculations of the economists and the advisers at the Treasury, and the like. I can only say that last year's results give me considerable confiedence in the judgment of my right hon. Friend the Chancellor. We had what we wanted last year, and we want it to go on. My right hon. Friend made that quite clear in presenting his Budget yesterday.

My hon. Friend the Member for Kidderminster seems to assume that this happy state of affairs will go on anyhow. He would like to give even further reliefs of a total which I tremble to calculate. I do not think that my arith-meticail powers would enable me to calculate the total volume of reliefs which he advocated, but, whatever it may be, surely the whole sum of our past experience shows how easily the good sort of expansion that we have had during this last year can turn into the bad sort of expansion of rising prices and exports being squeezed out by excessive home demand.

Surely we cannot deny that there are already undoubted signs that the latter type of expansion could return unless we are careful. Already, there are areas in which labour and materials are in short supply. These are the early signs of the sort of expansion that we do not want, or, at least, cannot afford at too great a rate of acceleration.

Surely from our experience since the war we ought to know by now that it is better to control the speed of expansion early than to leave it too late. If it is left too late, the brake has then to be applied, not in a gentle manner, as my right hon. Friend is applying it now, but in a fierce manner. Usually, when it has to be applied in a fierce manner, there is only one sort of brake which can be used, and that imposes fierce and immediate cuts on capital expenditure, the type of activity we ought to be encouraging in the economy and which so many hon. Members, particularly those opposite, keep telling us we carry on badly compared with other countries.

I therefore welcome my right hon. Friend's action in putting on a gentle brake in a form aimed more at halting consumption, because I believe that by so doing he will avoid the recurrent necessity to kill a growth in investment which, in the long run, is of the essence of our future prosperity. We cannot have efficient investment programmes if they are constantly being stopped up and then stopped just when we get them going. What I am hoping is that my right hon. Friend's judgment will enable this country to regulate its rate of expansion so that we can carry on this investment boom which is growing and keep it within manageable proportions, and thereby avoid the necessity of the great waste and loss of cutting it off in midstream, as has, unfortunately, happened in the past.

I believe that my right hon. Friend is right to be cautious and to impose restraint now, not to stop expansion, but to stop the danger of the expansion which we all want getting out of control. I also believe that the amount of restraint is of about the right order. I do not know what right or competence I have to reasure my hon. Friend the Member for Aberdeenshire, South (Lady Tweedsmuir), but I do not believe that what the Chancellor has done will reverse the expansion which is going on. I take her point about the shock to confidence.

Also, as my hon. Friend the Member for Cirencester and Tewkesbury said, it is a rather curious paradox that when things are going well we tend to give people doses of relatively nasty medicine, but that when things are going badly we dish our lumps of sugar. This is an unfortunate paradox, and I am not sure to what extent it can be avoided. I am conscious of this danger. Thus, while I welcome the fact that my right hon. Friend has applied some restraint, I am glad that he has firmly rejected the advice of some economists who wished him to take as much as £200 million a year out of the spending power in the form of taxes. That would have taken the form of a psychological shock which would have reversed the degree of confidence which we must maintain. This must be a matter of judgment. My right hon. Friend's judgment was right last year, and as far as one can read the signs we have reason to believe that it will prove right again this year.

But although we may be satisfied about the quantity of restraint we must have regard to the method of restraint. How should this restraint on demand— this brake—be applied? Some people say that no extra taxation is necessary, and that all the restraint should be found elsewhere—in other words, in the Government sector. It is unfair to my right hon. Friend to suggest that he has not curbed Government expenditure. No doubt we all wish he had curbed it more. I should be surprised if he himself does not wish that he had curbed it more. But let us consider his forecast for this year.

My right hon. Friend's forecast was that Government demand would increase by about 6 per cent. in respect of fixed capital investment, and by about 4½ per cent. in respect of current Government expenditure. We have to compare that with the increase in demand that he forecast in the private sector—a 10 per cent. increase in investment, an unknown and almost certainly substantial increase in the building up of industrial stocks, and an increase of 4 per cent. in personal consumption. We must at least give the Chancellor credit for budgeting to allow for a bigger expansion in the private sector than he is allowing to take place in the Government sector.

I would ask the Committee, and especially some of my hon. Friends, to examine the kinds of Government expenditure which will be increased in the coming year. First, there is defence. It would be impossible to go into that subject tonight, but I would point out that it should not be forgotten that half the increase in defence expenditure is accounted for by an increase in Service pay, which we would all support. Apart from defence, expenditure is increasing mainly in respect of education, health— including the building of hospitals-roads, and similar items. All those are items in which expenditure should be increased, both on economic and social grounds. I share with my hon. Friends a desire for economy in Government expenditure, but I ask the Committee to reflect upon the kind of expenditure which the Tory Party should now support.

As our society grows more affluent we must expect and, indeed, encourage individuals to look after themselves to a greater extent than they have been able to in the past. A move in that direction is thoroughly healthy. But there are certain sectors of expenditure which, however affluent our society becomes, can never be undertaken by individuals. The individual can never build hospitals, roads, homes for elderly people, schools and universities. Therefore, as our society increases in affluence not only should we be able to afford more of these things; it is our duty to afford more of them, because there is an increasing desire for better environmental standards. To the extent that Government expenditure has risen in these sectors, we should welcome it.

I conclude, therefore, that in this year restraint is necessary, and that, however unpalatable it may be, the Chancellor had to achieve this restraint by some increase in taxation. Moreover, given this unpleasant fact, I say that the taxes he has chosen to increase are the best ones he could have chosen, allowing for the fact that nobody likes increases in taxes of any kind. I do not think that it will check expansion or, in particular, that it will check capital investment. Though as an industrialist and a smoker I object to both these tax increases individually in the strongest possible terms, as a Member of Parliament trying to look at the national point of view I think that we must support the Chancellor in the steps which he has taken. Equally, we must support him in the small but, nevertheless, welcome reliefs which he has given in post-war credits, in help to widows and widowers with dependent children and dependent relatives and the like.

I should like to say to the Chancellor, however, and to this extent I agree with a small part of what my hon. Friend the Member for Kidderminster has said, that taxation is too high and must be reduced. I regard myself, as a Conservative Member, as being pledged to see its reduction in these five years, but I do not regard that as a pledge to see that no single tax is ever to be increased in any single year. I think that the best prospect of the largest decrease in taxation comes from keeping the economy steady.

I support the Chancellor in these measures and I support, also, the steps he has taken to protect the Revenue against tax evasion. I do not agree with the exaggerated estimate given by right hon. and hon. Members opposite of the sort of saving that can come in this direction; but I believe in private enterprise, and as a supporter of private enterprise I want to be in the forefront in attacking any abuse of that system. I believe that I carry the support of my right hon. and hon. Friends in saying this.

We must look carefully, as I am sure my right hon. Friend would agree, at the methods used; but about the principle of attacking abuse he has our wholehearted support, and I would rather see him trying to get adequate powers to do this successfully than be unduly timid about the methods that ought to be adopted. Unless we tackle this, the system can create an atmosphere in which national cynicism about the merits of our institutions grows, and that will serve neither our economy nor our society.

My last subject is the vexed one of Government expenditure to which I have already referred. While I am quite happy to support the position this year, I equally welcome the growing interest and the determination of the House of Commons to have more say and more control over Government expenditure. But, personally, I hope that the Government as a whole will also become more concerned in this matter. I have a feeling that perhaps one of the chief needs here is some revision of Government practice.

I have a feeling that it is necessary and that it could produce economy for the Government as a whole, in September or October each year before the "hot" Estimates season comes upon them, to look at expenditure as a whole on the basis of present policy and on a forecast not just of one year ahead, but of three or five years ahead. Then they could see the effect not only for one year, but as a projection over several years both of carrying on present policies and of any proposed changes in policy. I hope that that is something that can be considered as well as any increase in Parliamentary control of expenditure.

I conclude, as I began, by saying that I believe that this Budget is in the interest of the economy and of the society of the country. I believe that it is a basis for a further growth in our economy and that, socially, it is proof of a further move towards a responsible society in this land.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again.— [Colonel J. H. Harrison]—put and agreed to.

Committee report Progress; to sit again Tomorrow.