AMENDMENT OF THE LAW

HC Deb 17 April 1961 vol 638 cc871-928

Question again proposed, That it is expedient to amend the law with respect to the national debt and the public revenue and to make further provision in connection with finance, so, however, that this Resolution shall not extend to making amendments of the enactments relating to purchase tax so as to give relief from tax, other than amendments making the same provision for chargeable goods of whatever description or for all goods to which any of the several rates of tax at present applies.

Mr. Rankin

I was just saying that the Budget will be popular with the Tories. The evidence for that was to be found in the welcome which hon. Members opposite gave the Chancellor today when he sat down. It was very different from the ones which he often received when he finished some of his performances on foreign affairs when he held the very important office of Foreign Secretary.

The Budget fits generally into the growing attitude within the Tory Party that as much as possible of State expenditure covering social welfare and other national obligations should be transferred from the State and put on the shoulders of the individual. In my view, this is merely a beginning, and the process which has started today will be extended in further Tory Budgets.

That view is reinforced by the fact that in the Budget the Government have taken two very wide powers. We are to some extent to be governed by Statutory Instrument. In my view, that hits at the idea of democratic government, because we cannot discuss a Statutory Instrument in the same way as we can discuss a Government Measure brought in in the usual fashion.

The second power deals with the surcharge on employers, and that is one which may hit Scotland very badly indeed. If the provision for a tax of 4s. placed on an employer to cover those employees who might, in the view of the Government, be released for work elsewhere, is applied rigorously in Scotland, it will merely result in increasing the numbers of those who are already unemployed. Because of that, I am sure that the new power will be regarded with great dissatisfaction among trade unionists and other members of the Scottish community.

This attempt to transfer obligations from the Government to other sources is recognised in the White Paper to which the Chancellor referred, which covers the financial and economic obligations of the nationalised industries. I should like to ask the Financial Secretary whether or not the Ministry of Aviation is among the nationalised industries, because our airports are nationalised and yet there is no mention of them in the White Paper, and no reference to them in the table of financial results shown at the back of the White Paper. The charges at the nationalised airports—the landing fees and so on—are a matter which engaged the attention of the Minister of Aviation a few weeks ago.

I hope that the Government will utilise this White Paper with the very greatest care. B.O.A.C. and B.E.A., in which I feel a special interest, and in which many hon. Members are also specially interested, are in a position somewhat different from any of the other nationalised bodies. They deal in a foreign market. All our other nationalised organisations are concerned largely with buying and selling on the home market. The two Corporations, one of them international, and the other European and extending somewhat beyond Europe to the Middle East, are, therefore, in a different position. And when we come to judge them we have to think not merely in terms of finance but in terms of the job which they have done.

Those of us who are familiar with the work of B.E.A.—all of us, I hope—will pay tribute to the immense expansion which it has carried out during its fifteen years' existence. On my route, only fifteen years ago we were flying in the little D. H. Rapide from Renfrew to London, and the aircraft was able to carry only five, and that was then a crowd. On 1st April this year the Vanguard started, carrying 150–160 passengers. Whereas fifteen years ago it took us 3¼ hours to do the journey from Renfrew to London, now we are doing it by Vanguard in an hour and five or ten minutes.

All that new technique had to be introduced quickly because of the competition, about which hon. Gentlemen have talked so much, from places outside the United Kingdom, with the result that, having to spend so much on equipment, and having to spend it so rapidly, the Corporation had little chance to collect the resources on which the Chancellor is now basing what I do not deny is a legitimate demand.

It had to equip itself quickly and expensively, and the latest addition to the fleet is a machine that costs £1 million. These things have to be kept in view. I hope that the policy enshrined in the White Paper will not be applied to harshly.

The British Overseas Airways Corporation is in an even worse position. Up till recently, it was competing against American competitors who were being heavily subsidised. Pan American World Airways was granted about 100 million dollars each year by the American Government to gather up, off Cape Canaveral, the failures projected into the air in order to try to keep pace with Russia. That was a subsidy, and that is what B.O.A.C. had to compete against.

B.O.A.C. is in an international market which is heavily competitive, but the balance of revenue account and the general reserves show that it is fighting back despite the difficulties of the past fifteen years, with the intensive competition not only from outside but the competition now being fostered by the Government in its Civil Aviation Licensing Act, which could also adversely affect the nationalised Corporations.

If we are to subsidise the private operator, as we are doing indirectly, then we shall make it still more difficult for B.E.A. and perhaps B.O.A.C. to produce better figures. I do not think that anyone will dispute that the private operator is being helped, because the shipping companies are behind many private operators and the shipping companies are being subsidised by the Government. Today they were given a guarantee by the Chancellor that their subsidy would not be touched for at least another year. Whether we could regard that as a Budget leak I do not know, but it is rather an unusual type of guarantee.

The Chancellor spent some time in examining the scope of the economy during the past year. The Committee will have noticed that when the Economic Survey for 1961 was produced, the Economist described it as a …curiously rambling and imprecise affair. The Spectator went a little further. It asked have you ever seen such a frightening mess? The New Statesman said The Survey gives no hint that Mr. Selwyn Lloyd either plans or expects to do much to restore health to the British economy. If he cannot restore a measure of health to the economy by the enormous powers he is to take, then indeed the Government will be in much worse shape than they appear to be at the moment. The hon. Member for Ilford, South emphasised our complete dependence on one great country, the United States. It is a terrible thing that we should hear that from a Member opposite.

Mr. Cooper

The hon. Member must not misrepresent me. I talked about the United States, Europe and the world as being trading associates. I said that if trade fell away in any one of them, it affected us.

Mr. Rankin

The hon. Member should be glad that I misrepresented him. I apologise to him, but it gave him another chance of coming back into the debate. The Chancellor also had his say in the Economic Survey. Paragraph 28 on page 10 of the Survey says …for a country in the international position of the United Kingdom, it is axiomatic that the growth of the economy must be interlocked with the growth of exports—otherwise the balance of payments situation is bound to frustrate growth and force a reversal of direction. Endeavours by Government and industry to foster the growth of the economy will succeed only if they are also designed to improve the country's competitive power. Growth and competitiveness can never be separated. A lot of speeches are contained in that paragraph, but I propose, for the satisfaction of both sides of the Committee, to make only one of them tonight. How has the growth of industry been carried out during the year since we heard the former Chancellor present his last Budget? Whenever I look back at previous Budgets, I often wonder how much Chancellors really know about what will happen and how much they are chancing their arms. The figures of industrial growth are given in paragraph 29 on page 20 of the Survey.

In the first quarter of 1960 the index figure was 120—taking 1954 as 100. In the second quarter it was 121; in the third quarter it was also 121; in the fourth quarter it was again 120. That was an average over the year of 120. Thus, industrially we finished 1960 exactly where we started it. In the last six years there has been an increase in production of 20 per cent. which, if my arithmetic is correct, is an average of 3⅓ per cent. per year. In Germany over the same period the increase was 62 per cent., in France 52 per cent. and in Japan 108 per cent. We neither had growth comparable with other countries, nor, lacking that, did we have the competitiveness which the Chancellor told us today was essential for the development of our industrial position.

Mr. William Clark (Nottingham, South) rose—

Mr. Rankin

I do not mind giving way provided I am not charged afterwards with making too long a speech.

Mr. Clark

I am following the hon. Member's argument with great interest. Will he say, at the same time, whether those countries have full employment?

Mr. Rankin

I cannot answer that question by producing statistics in the same way as I can produce statistics with which the Front Bench has kindly provided me. As far as I know, however, the industrial position in those countries—and I have been in two of them—concerning employment is, if not better than ours—

Hon. Members

It is worse.

Mr. G. Thomas

West Germany has full employment.

Mr. Rankin

There is plenty of time. I am in no hurry if those on the benches opposite are in no hurry. My information is that the employment position in Germany is better than it is here. If that is wrong, I am sure that statistics disproving what I say will be produced during the debate. That is the position as I understand it. Therefore, both on the growth of industrial production and on the issue of competitiveness, the Chancellor's case as presented in the White Paper has not materialised over the past year.

Let me turn to another aspect which is shown on page 13 of the White Paper, where, to some extent, we are consoled for these failures because we are told that during the year wages and salaries have increased by £930 million. The White Paper, however, does not go far enough. It does not tell us how many persons were affected. We are shown by other Government returns that this number is nearly 25 million.

When one brings that increase in salaries and wages down to figures per head per year, the average increase in wages, of which we have heard so much, works out at £37. When we recollect that within that wage and salary earning group are people earning salaries of £5,000, clearly there must be a considerable number of people in our economy at working-class level who have not had anything near the 15s. per week rise which the Government claim to be widespread.

Another problem contingent upon the one with which I have been dealing concerns the other type of employee. This is dealt with on page 46 of the White Paper. These are the people who draw their incomes from self-employment and from rents and dividends. We find that during 1960, their gross increase was £359 million. When we realise that there are a million and a half of them and that on this basis the average increment for this section of the community works out at £240 a year, we see that not only do the Government in their survey show that they have failed to increase exports and failed in production and in competitiveness; they have also shown a lack of fairness in distributing with a reasonable measure of equity the resources which have been produced.

Today, the Chancellor referred to investment. He used a careful phrase. He said that the rise in new house building, taking both public and private building together, had been quite good. If, however, we take public and private house building separately, we are shown by table 9 in the White Paper that the output of public authority houses has fallen by £4 million. It is those authorities who, as in my constituency, are trying to house people who have been waiting twenty years for new houses. According to the White Paper, however, 1960 saw a fall of £4 million in the output of public authority houses, whereas the private speculator has increased his output by £56 million. It is not strange to me that the Chancellor lumped the two types of building together and said that the year had been successful. It has been a successful year for the private developer in house building.

If we consider other new work, the public authorities have been compelled to reduce their output by £3 million, but the private developers, on the industrial side and in what is called the miscellaneous side, whatever that may be, have increased theirs by £79 million. Thus, not only is there a disbalance in the distribution of products; there is also a disbalance in regard to the purpose for which output of house building is being used. Both of these things are wrong. The Government axe carrying out a policy which rests upon the private individual whose aim is to make profit and to create wealth for himself and not for the community. The Budget will encourage that system to grow and it will grow at the expense of the rest of the people, most of them in the working class.

Because of those reasons, because the Government are not governing on behalf of the country as a whole, this is a Budget which does not have my approval and a Budget which, I hope, we will oppose by vote when we come to decide about it on Thursday.

7.29 p.m.

Mr. E. H. C. Leather (Somerset, North)

I find it difficult to follow the hon. Member for Glasgow, Govan (Mr. Rankin). I listened spellbound by the incisiveness and clarity of his argument, but I found it a little difficult to get the point of it. As for the league table statistics which the hon. Member gave us, which, obviously, he has taken from the speech that his right hon. Friend the Member for Huyton (Mr. H. Wilson) is to give us tomorrow—

Mr. Rankin

On a point of order, Sir William. Is it in order for an hon. Member to accuse me of theft? In fact, there is more to it than that. The hon. Gentleman is accusing me of the theft of something which has not yet materialised.

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

I did not take the hon. Member's remarks as going as far as that.

Mr. Leather

I thank you for your protection, Sir William. I hope that I will not need to ask for it again.

Mr. Rankin

It is I who need protection.

Mr. Leather

The answer to the hon. Gentleman's point has been given on many occasions. He has used the production statistics of Germany, France and Japan. If he used similar statistics for countries like Canada, Australia and the United States of America, he would prove precisely the opposite. We know the situation. One starts from a different base. One starts with a devastated industry which a kind victor completely reforms and presents to one with written-off capital charges. I wish that somebody would set me up in a business like that. I would show him something then. The whole basis of comparison is wrong.

I mean no personal disrespect to the hon. Gentleman but I could not help feeling that he, like the right hon. Gentleman the Leader of the Opposition, trotted out the old story about stagnation, and all those who use these figures must have carefully studied that great classic work in economics "How to Tie with Statistics".

Mr. Rankin

I was using the Economic Survey for 1961 which was produced by the Government. If there are mistakes in my argument the mistakes are in the Survey.

Mr. Leather

The hon. Gentleman misunderstands me. What I am talking about is not the arithmetic of the figures, but the conclusions drawn from them. That is where he is wrong. The Leader of the Opposition said, in reply to my right hon. Friend, that British industry was stagnating. He also said that we had more employment this year and that we would get lower production and, therefore, the stagnation was worse. This is not true, for one simple reason. There are more people employed in British industry, but not in British manufacture. I put this point seriously to the hon. Gentleman, and, indeed, to my hon. Friend the Financial Secretary, because Ministers are sometimes inclined to give false impressions.

I believe that the primary reason why these production statistics, which, after all, were designed ten to fifteen years ago, have, over the last two or three years in particular, shown up such a depressing picture, which is belied by the evidence of one's eyes every day of the week, is because they no longer apply to our situation.

We have passed into what the Economist calls a service economy. We have passed the point, as the United States, Canada and Australia have done, where less than 50 per cent. of our population is employed manufacturing things. We have had a vast increase in the service industries which only the most highly developed and prosperous societies can afford. It is only when one becomes prosperous on a wide, national scale, as we have in this country, and no doubt even in Scotland, that one can afford many of the industries which we have nowadays.

Consider the position in any town or city. The increase in the number of restaurants in the last two or three years has been fantastic. There are now more people providing services, and they are not shown in the production statistics. Experience in Western Europe shows that one reaches a point—which the United States of America reached about ten years ago and we reached two or three years ago—where the whole nature of the total value of the national product changes, and more than 50 per cent. of the people are employed profitably and make contributions in taxes to the welfare of the State, but not in manufacturing. The vast tourist industry is another good example, but none of these activities is shown in the production statistics. I therefore believe that the statistics give a false impression of the true state of affairs.

My answer to anyone who talks about stagnation over the last few years is that one only has to look at one's constituents, at the new cars on the streets, at the new shops being built and at the quality of the goods in people's houses, to know that that whatever else they were doing they were not stagnating. They were becoming more prosperous.

Mr. Rankin

Does the hon. Gentleman not agree that those are the things which are causing the disbalance in our balance of payments position which causes the Chancellor of the Exchequer so much trouble?

Mr. Leather

That is true to a certain extent. We would have no problem of balance of payments, and Britain would have the most colossal gold reserves anybody ever dreamt of if the living standards of our people had been kept depressed, but the party opposite cannot have it both ways. The hon. Gentleman and his hon. Friends have been making much of the dreary, dismal, state of the poor depressed people under this "wicked, exploiting" Tory Government. The hon. Gentleman now acknowledges my point. Our exports rise every year. Last year they rose by 6 per cent., which was a great achievement because of the setback in the United States of America. Our demands have risen even higher, and this is due to the immense increase in the living standards of the broad mass of our people.

I turn now to one or two detailed points in the Budget. I welcome, and I am sure that we are unanimous in this, the reliefs which my right hon. and learned Friend has given to the victims of Nazi persecution. While, normally, I thoroughly disapprove of retrospective legislation, in this case I welcome most warmly and sincerely not only the gesture but the fact that it has been made retrospective. One feels that there is here a touch of warmth and humanity such as we have not seen from the Treasury since my right hon. Friend the Leader of the House left it a good many years ago. I can recall some friendly touches when my right hon. Friend was at the Treasury some years ago. We had all-night sittings, but he managed to do a number of kindly things and it is only fair to remember them.

I am grateful, also, for the relief given to some of the clergy. I am sorry that the case of the Easter offering has not been put right, but I hope that hon. Members know how to deal adequately with that matter between themselves and their local vicar, as I have done for many years.

I am intrigued, and I confess that I did not entirely understand what my right hon. and learned Friend said about the overseas tax reliefs. I hope I understood him correctly, that in future tax reliefs given in overseas countries would be allowed in full by the British Treasury. This is something about which those concerned with investment and trade in Commonwealth countries have been annoyed for many years. My hon. Friend the Financial Secretary will remember that during our discussions on the 1956 Finance Bill I had the good fortune to move the Amendment dealing with overseas trade corporations, which first got some concessions out of the Treasury.

To take the most striking case, the tax holidays allowed in the West Indies are affected by this. I want to refer to this, because the lessons to be learnt from this have so far gone over the heads of hon. Gentlemen opposite. The Governments of all the West Indian islands have the terrific problem of raising the living standards of their people and they have all been wise enough to realise that the best, the quickest, and the most economic way of doing that is to give every incentive that they possibly can to capital and management, which will then do the job for them.

That is exactly what is happening. In most of the West Indian islands and other parts of the Commonwealth capital and management can get a deal that no Tory Government in this country would dare suggest. The party opposite would have apoplexy if it were suggested. They can get a ten years' tax free holiday. They can have the whole of their profits without paying tax for ten years. Why? Because the Governments know that that is the quickest and best way to attract capital, develop industry, and raise the living standards of their people.

It has long been a complaint of ours that Whereas foreign companies going into the West Indies and other countries can get the whole benefit of this tax free allowance from money earned, in Jamaica, for example, and put it into their own pockets, and that this is an incentive, up to now the British Treasury has stuck by rigid principles and confiscated the lot in the interests of equality, so it says, but of a kind which has always eluded me.

I hope that I am right that the Clause in the Finance Bill which the Chancellor proposes will now put that right and that whatever is earned in an overseas country, and the overseas country does not tax it, the Treasury here will allow the company to get the benefit and not take it away from it and completely nullify the effect of what was intended.

Mr. Sydney Silverman (Nelson and Colne)

The Chancellor did not say that?

Mr. Leather

If he did not go all that way, I hope that my hon. Friend will tell us clearly how far he did go.

The Financial Secretary to the Treasury (Sir Edward Boyle)

We shall have a full opportunity to discuss these matters when we come to the Finance Bill, but I think that I ought, in fairness to my hon. Friend, to say that the Chancellor's proposal was more limited than the suggestion often made in this House, which my hon. Friend has just been putting forward.

Mr. Leather

lam sorry to hear that. Perhaps my hon. Friend will mobilise his arguments for the Amendment which will be put down on the Finance Bill when it comes before us. Until that principle is admitted, particularly in dealing with associated companies instead of branches, many of us will not be content or will not admit that the Government have fulfilled the pledges given by the Prime Minister when he first agreed to overseas trade corporations legislation.

Before I leave the argument of the hon. Member for Govan and the question of statistics and the size of the revenue I should like to say that, on balance, I welcome the Budget. I think that it is a good and courageous Budget and I am quite prepared to support it. It contains tax increases of about £80 million. I am not convinced that these tax increases are really necessary. We are now at a stage where we have a gross national product of about £26,000 million. We have a Budget of about £6,000 million and we are apparently budgeting for a surplus of over £500 million on current account.

We are seriously told by experts from the Treasury, and by those who write for the Economist and the Guardian and other learned papers, which I do not pretend to understand, that they can calculate to a nicety that £20 million this way or £30 million that way will be inflationary or deflationary. At the end of the year they have to admit that they cannot even get their sums right to within £300 million. If they cannot do that how do they know that £20 million, £50 million or even £80 million will have the slightest effect on the economy one way or the other? With the greatest respect to my hon. Friend, I suspect that this is expert humbug and I shall want a great deal of convincing.

If we are to have tax increases at all these are comparatively pointless. I am not convinced that they were even necessary and I do not think that there is anything in the arithmetic to convince anyone Chat one can positively say that £80 million will be deflationary. I do not believe that even my hon. Friend knows, and I give him credit for a good deal of skill on this subject.

Finally, I turn to what is, I think, the most controversial issue in the Budget, the main question of the changes in Surtax. My right hon. and learned Friend said early in his speech that the No. 1 priority which he had to face was the expansion of our exports. He said, later, that we needed to be kept in a keen competitive position. The Leader of the Opposition agreed with it. What can we do about this? If both sides of the Committee accept that better exports are what this country needs, and what we all want, how do we go about it?

It was said by the hon. Member for Govan that we had long got past the stage when exhortations would do any good. We have had fifteen years of that and it has worn itself out. The hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) spoke at length on what he chosed to call his national plan. I think that when he has succeeded in selling his national plan to the great vested interests, primarily the trade union movement, we can then perhaps discuss it seriously here. I do not think that wage control and those things inherent in what he said are taken seriously as ideas for increasing the country's exports.

Whatever we do we cannot force foreigners to buy our goods. Therefore, I believe that the method of exhortation is useless. The method of national planning, or of any kind of nationalisation or control, is quite irrelevant to this problem and cannot possibly contribute to the solution. What else can we do? We have the services of the Board of Trade and, in my view, most of them are extremely good. There is that excellent organisation, the Exports Credit Guarantees Department—to which some of us paid tribute again only last week—with its new measures. I have some personal experience of this and I believe that there is no serious criticism of them which can be made at this time. As I would expect, and I believe that most people would expect, the financial institutions in the City of London rose to match the new facilities of the Export Credit Guarantees Department and announced their new measures within 24 hours. But those things have been anticipated and steps taken.

I am not one of those who believe that the Government can do more by practical help, by exhortations, credit or financial facilities. If anything more of substance can be done I have yet to hear of it, and I probably know as much about this subject as anyone else. I believe that the only practical step that the Government can take is the one which they have taken. The only big incentive is to allow people to keep the fruits of their own labour. There surely can be no argument about this. We have not heard today about the retired bachelor, who had £100,000 a year unearned income, who played such a famous part in our debates a few years ago—although, at the end of the Finance Bill, no one succeeded in finding out who he was.

We are talking in this debate only about earned income. We are talking about the fruits of one's own efforts. Surely the basic position is clear. Hon. Members opposite are very keen on talking about social justice. If a man does a good and honest job; if he carries immense responsibility and works hard and displays a great gift of leadership; if he goes out and brings back hundreds of millions of pounds worth of business to keep the workers in his factory busy and to help the country, is it socially just to confiscate 50 per cent., 60 per cent., 70 per cent. or 80 per cent. of every penny he earns?

Mr. S. Silverman

I am following the hon. Member's argument closely. He is defending the Surtax proposals as providing a just incentive to the export trade. I cannot understand why the Chancellor should limit his Surtax proposals to the export trade. If the proposal is to cover the whole range, why is it an inducement or reward to a man for devoting himself to the export trade rather than to the easier job of selling in the domestic market?

Mr. Leather

Perhaps the hon. Member will put that very interesting debating question—to which he knows the answer quite well—to his hon. Friend the Member for Sowerby (Mr. Houghton), who is sitting on the Opposition Front Bench, and who will explain to him the great principles of equity in our tax system.

Mr. Silverman

I am not talking about equity, I am talking about money.

Mr. Douglas Houghton (Sowerby)

I am grateful to the hon. Member for Somerset, North (Mr. Leather) for his reference to me, but I have nothing to explain to my hon. Friend. I am waiting for the hon. Member for Somerset, North to explain how he expects this relief which is coming to 350,000 Surtax payers with earned income to reflect itself in a boost to our export trade.

Mr. Leather

I am doing my best to make the point clear. I am sorry if the hon. Gentleman does not get it.

I prefaced my argument by saying that I believe the only course of action left open to the Government is in the sphere of personal taxation and incentive. The figures are thoroughly well known to everyone and have been for many years. In this country if a man is in a position of responsibility, earning £3,000, £4,000 or £5,000—for such positions I do not think that anybody will argue that that kind of remuneration is unfair; such work will not be done for less—and if he works harder and puts in a greater effort, he is lucky if he can keep 5s. or 6s. in the £ of the money he receives for his additional effort.

Were he a German, an American, an Australian, an Italian, or a Frenchman he would get 8s., 9s., 10s. and perhaps as much as 12s. in the £ for his additional effort. In this country the money is confiscated.

Mr. Houghton indicated dissent.

Mr. Leather

I see the hon. Member shaking his head, but I have here the figures relating to earnings above £10,000 a year. The ordinary Englishman is allowed to keep 4s. 9d. in the £ of the next £1,000. The comparable figure for an American is 10s. and for a German 10s. 6d., which is more than double.

Mr. Ledger rose—

Mr. Leather

No, I cannot give way again. I have been interrupted a great deal and I do not wish to detain the Committee.

I have talked about whether it is socially just to confiscate this amount. I do not believe that it is. But, to put it on a lower plane, from the point of view of sheer self-interest is it wise to do so? Do we really achieve anything of value by taking away so much of people's earnings that we deliberately put on a brake and make it difficult to find people to fill positions of responsibility?

This concerns far more than the 350,000 people to whom reference has been made. It concerns all those others who ought to be sweating their guts out to achieve those kinds of positions. But many will slow down and say, "It is not worth it"—and one cannot blame them for saying that. They are not to be allowed to enjoy the reward for their labours. It seems to me that anything which allows them to keep a bit—not a substantial bit, but just a bit—more of the reward for their own labour is not only socially just by all the definitions used by hon. Members opposite, but is highly desirable in the interests of the country if we wish to get more dynamism and more steam into the British economy.

My hon. Friend the Member for Ilford, South (Mr. Cooper) referred to us trying to do too many things at once. Undoubtedly, that is true and it has been acknowledged at various times by hon. Members on both sides of the Committee. It has been one of our weaknesses. We have all such great ambitions and desires that we have tried to do everything at once and that has frequently overstrained our economy. There have been substantial improvements in nearly every Measure for the Welfare State over the last few years. Not enough, of course. It is never enough. We could always wish for better pensions, more public assistance and more schools. But surely it must be agreed that tremendous strides have been taken over the last ten or fifteen years and that Governments of both parties can share the glory.

We all want to do more, and surely the best way to do that is to create greater wealth, which can then be shared. The more production we have, the more we can build up the strength of our economy, the more we shall be able to afford the welfare benefits which we should like to provide for the poor, the aged, and those who have fallen by the wayside. I believe that the measures which my right hon. and learned Friend has taken represent a substantial step towards giving our economy some dynamism which will produce more wealth, if we have patience for a year or two to enable the economy to get into top gear. Then we shall be able to do more and afford more with less effort from everybody, and that will be to the good of the whole country.

7.56 p.m.

Mr. G. A. Pargiter (Southall)

I listened with interest to the peroration of the hon. Member for Somerset, North (Mr. Leather) about persons receiving the fruits of their own labour. That has been a good Socialist principle for a long time. The trouble is that so many people are living on the fruits of the labour of other people. When the hon. Member talks about someone who goes and brings back millions of pounds worth of orders and so on, we must remember that such a person does not now exist. What is achieved is part of the collective effort of industry as a whole. The individual cannot sell something which is not there or something which is of no use. His individual efforts are only part of the whole and the sooner we treat everyone as part of the whole and provide them with an adequate reward the sooner we shall see a considerable change in industry and in the economic structure of the country.

It was interesting to hear the rather ingenuous way in which the Chancellor commenced his Budget speech. He gave us his idea of what he would like to do at the Treasury. But when he got there he found how difficult it was to change things. He found that there were some things which could not be done. FOR example, he found that a capital gains tax would be far too difficult to apply. The fact that it has worked for years in America does not seem to have provided any lesson for this country. We can learn many lessons from America, but that does not appear to be one of them. But, of course, when it comes to the question of a payroll tax—something which might be thought very difficult to apply—it is surprising to find that it can be slapped on overnight.

I do not accept these arguments that things cannot be done or that the structure of our Income Tax and Surtax could not be altered and simplified if the Treasury chose to do so. The fact is that there are some ingenious people at the Treasury, and, by and large, whatever a Government want as a matter of policy they can get—so we do not want to hear arguments that these things cannot be done.

It was interesting to listen to what was said about this payroll tax, or employer's surcharge as it is called, because it is not an employer's surcharge at all. It will be a charge on industry. I do not know what effect it will have on British exports. Those of us who know anything of industry know that it is not possible to take people and drop them down in some place where there may be employment for them due to some temporary fluctuation in trade. That is fantastic. The hon. Member for Somerset, North referred to the number of people employed in providing services. The problem is that the structure and nature of industry is changing all the time. There will always be an increasing number of non-producers compared with the actual producers and it will be interesting to note the developments which will follow the imposition of this payroll tax.

For instance, one cannot suddenly run a bus with less than two people operating it. One can try, but it will be a job to run a double-decker bus with less than two people. One can run a single decker bus with one person and a good deal of that is done. If the stand is to be taken that there will be a tax on the number of people employed, its effect will be not to decrease to a large extent the number of people in the employment of any industry or firm. It will be to increase the general cost to the industry. Perhaps the Government will be satisfied with that, but it does not seem to tone with their exhortation and desire to cheapen the cost of exports so that we can more effectively export and compete with European countries.

Mr. E. Fernyhough (Jarrow)

This is a very roundabout method. If the Government were anxious at certain times to make wages costs rather higher, all that they would need to do would be to ask the trade unions to apply for an increase and the effect on employers would be precisely the same as the payroll tax.

Mr. Pargiter

I do not think that the effect would be quite the same. The effect of a payroll tax is to bring some additional money into the Treasury. The effect of an increase in wages would probably be to increase expenditure to some extent, which I gather is another thing which the Government are not particularly anxious to do.

It will be interesting to see how the novelty works, because I cannot see it achieving the object the Government have in mind. We are no longer at the stage in industry of having two or three people employed when one of them could be dropped quite easily. The complicated machine of production is such that it is not easy suddenly to say that in one week 5 per cent. fewer workers are wanted than were necessary the previous week. In places like Scotland, South Wales and certain other parts of the country, where they are probably employing men in some cases less usefully than they need, the tendency will be to increase the amount of unemployment. Where there is already a satisfactory labour market, the effect will be to increase the amount of unemployment. In areas where there is a scarcity, an employer will chance this impost and pay it. He will charge it against his product, if he can, and there will not be a change in the flow of employment. If underemployment exists, as it does in some cases, I am satisfied that the payroll tax will not change the pattern. The nature of industry in itself will prevent it doing so. I do not know whether it will have the effect of closing down some of the restaurants to which reference has been made, but I do not regard that as a very serious matter with which we should be concerned.

We have heard much about the necessity for incentives. We are told that Surtax is a tax on incentive. We have heard that the relief is to be limited to earned incomes. It will interest me, as I am sure it will interest the Financial Secretary, to know how long it will be before the clever boys get busy and decide how unearned income can become earned income. I can think of one or two ways in which it can be done. I have no doubt that some people will think of them much quicker than I did. It will not be long before we shall find that the amount of unearned income in these brackets will be considerably decreased and the amount of earned income considerably increased. I shall be interested to hear what measures the Treasury has to deal with that situation.

We have heard about technicians and supervisors and all the people who help to get production going, but amongst the people who should receive some consideration are those in the £1,000 to £2,000 a year class, of whom there are vast numbers. They are vitally important in considering the question of incentives to production. They are more important than high-powered salesmen. A high-powered salesman has to sell what other people produce. Whether he does it efficiently or otherwise may have a marginal effect, but the fact remains that the article has to be competitively produced. If there is to be an incentive, it should be given to the people in the £1,000 to £2,000 a year class.

At least the Chancellor of the Exchequer will go down in history as having broken the sound barrier of Surtax. His feat will not compare with the achievement of the Russians in their space flights, and I am not sure that it will be received with such universal approval. However, he has done this, and he has done it on specious grounds. He has done what people on this side of the Committee said that he intended to do. We said that his object in increasing the Health Service charges was so that he could nicely balance a reduction in Surtax. I have no doubt that that will be denied and disclaimed, but it is interesting that the figures so nearly balance. They will satisfy the Treasury, at any rate. It has given away £58 million and has a compensating figure without any material trouble.

My right hon. and hon. Friends and I think that it is completely immoral and wrong that people in high income groups should receive benefits because of the national conditions generally, whilst the poorest sections of the community are mulcted for further payments. It is one of the things which we on this side will be most strongly opposed to.

There are other factors. For example, a vehicle tax on commercial vehicles is hardly an incentive to production. This is altogether apart from a vehicle tax on private cars. Transport enters very largely into costs of production. That is recognised on all sides. If the cost of transport is increased, the cost of production will be increased. If the cost of production is increased, the cost of exports will be increased and our chance of exporting more will be reduced.

The underlying thought of the Chancellor of the Exchequer in this is that it is a long time since there was an increase in this tax. What an approach to taxation that is. The right hon. and learned Gentleman's argument is that, because it is a long time since there was an increase, it is time the tax was increased. It has not been examined from a proper point of view. It could well be argued that the relative positions of oil and coal have changed to such an extent that an increase in the tax on heavy oil is justified, but the same argument cannot be applied to an increased tax on vehicles. If the general desire is that costs should be kept down, it is surprising that this tax has been increased.

Instead of the Budget being a general Budget of incentives, as we were led to believe was necessary in the country's interests, in order to encourage a greater measure of production and so that our export industry could flourish, there is virtually nothing in it which can have any material effect on the export drive. It is in direct line with the general Tory philosophy, which is to reduce direct taxation and increase indirect taxation. There is nothing strange about it. The Chancellor of the Exchequer has not introduced any new principles from that point of view. He is merely pursuing a policy which will undoubtedly be applauded by hon. Members opposite and by his supporters in the country, at least to some extent, although I imagine that some of them will have second thoughts on the question of the 10 per cent. surcharge or rebate which is to be used as a matter of flexibility. Some Government supporters will want to learn a good deal more about how the 10 per cent. is to work.

One of the problems of Purchase Tax and similar types of taxation is that of taxation on existing stocks. One of the great complaints about Purchase Tax is that when changes are made they have the effect either of increasing the value of stock or decreasing the value of stock at any one time. A 10 per cent. surcharge which could be slapped on all types of goods at any time, perhaps within a week, would certainly have a considerable effect upon trading turnover and the stocks carried by traders, especially as it would operate at the lowest level, at the point between the retailer and consumer. If it is not put on at that level, it will not be much good. It will be no good putting it on at any other level, because the Government will never be able to calculate how it will be paid. I am not sure now how the Treasury will calculate this tax and the amount to be paid if it is to operate quickly and efficiently.

This is a most significant admission that the Government's monetary policy has failed. Their policy of high rates of interest attracts undesirable money to the City—hot money, unreliable money—which increases the overall burden on the economy by increasing the cost of investment and the cost to the nation of the service of the National Debt, which has again gone up by many millions of pounds. This is an admission that that method of dealing with our economic problems, and of deciding whether the economy is outrunning itself or wants stimulating, has failed.

Instead of having restrictions on hire purchase, and the like, there is to be an imposition rising to 10 per cent. It is an interesting innovation, and I should like to know how it will work. I hope that we shall get a fuller explanation, but this seems to be an extraordinary thing to introduce now.

Our trade balance has worsened over the year, and there is nothing in these proposals that will mend it. Apart from the incentive to Surtax payers, the things that have been done would appear to lead to increases in the cost of production. If we are to have an increase in the cost of living of up to 10 per cent. wage claims will follow, and we shall not easily get rid of the inflationary spiral. As a result, I think that we shall see the complete bankruptcy of Tory financial management, and then, perhaps, we may return to saner days.

8.13 p.m.

Mr. T. H. H. Skeet (Willesden, East)

The hon. Member for Southall (Mr. Pargiter) denied the extraordinary impracticability of introducing a capital gains tax, and referred to the tax in the United States. I would point out, however, that in the United States the tax is operated without a Stamp Duty which, in the United Kingdom, brings in £59 million a year. I assume that that would have to be abolished. In addition, we are told in the Royal Commission Report that the next gain from the tax, taking into account profits and losses on the year, would be about £50 million.

The hon. Gentleman also referred to the payroll tax on industry. Curiously enough, that has been introduced in order to provide economy of labour—[An HON. MEMBER: "Unemployment"]—no, not unemployment. If we look at the West German Republic today, where there is a payroll tax of 0.2 per cent., as has already been mentioned we find that there is now full employment although this was not so a little while ago—

Mr. S. Silverman

Will the hon. Gentleman explain to me? Economy of labour means not employing more labour than one needs, and that means that there must be a surplus of labour. What becomes of it?

Mr. Skeet

It may be desirable for industry to move labour around a little to that part of the economy—the export trades—whore it will be of the greatest value. That is perfectly true in a place like Birmingham—

Mr. Silverman

Pure mysticism.

Mr. Skeet

People are constantly talking about the miracle achieved in Western Germany. There they have achieved economy of labour in two ways. The first is by very heavy impositions on the employers for the payment of the national welfare charges. For example, for old-age pensions and disability insurance there is an imposition of 14 per cent. half payable by employers and half by employees. In respect of health insurance, each side of industry pays between 3½ per cent. and 4½ per cent., and there are other impositions. Coupled with that there is what is called the payroll tax or duty.

As I see it, the payroll tax could be operated as it is in Australia. In order to encourage the export industry a rebate is made. Here if there is unemployment in certain parts of the country it may be necessary to have a rebate of the levy. After all, we have been told only this afternoon that there is to be a payroll tax. We do not yet know its form, but Her Majesty's Government have indicated that, above all else, they will continue to support a policy of full employment. When one has full employment then, as a temporary expedient, a tax like this may prove rather useful in getting mobility of labour—

Mr. Pargiter

Do I understand from the hon. Gentleman that this tax will be so selective, and that such careful surveys will be made that in particular industries, or even sections of an industry, that the Chancellor will be able to put the tax on that section, and offer a rebate to another section of the same industry? That certainly does not appear from the Budget Resolution. In fact, the precise opposite appears to be the case; that it is in respect of all persons engaged in industry. I see that the Financial Secretary nods his head, and I am fairly certain that that is the intention.

Mr. Skeet

I am obliged for that interruption. So far, we have been told what it represents only in broad outline. It can be selective, as in Australia, and one could have a rebate to give an incentive to the export trade. It might be quite practicable in the United Kingdom, where we have a tight labour situation in certain parts, to have a payroll tax in operation. Where there was current or potential unemployment in another part, it might be possible to have a rebate of the tax. When we see the distinctive terms of the proposal we shall have a clearer view of its possibilities. The Leader of the Opposition said this afternoon that, apart from the one point that operated in his mind, such a tax should not be ruled out altogether.

I want to emphasise that not just two but more countries have been experimenting with this idea, and an authority in the banking world, Sir Oliver Franks, said earlier in the year that it could be a valuable instrument for getting mobility into industry. It would also persuade many industries to automate more, to introduce fresh techniques, and so forth. Nevertheless, it is Her Majesty's Government's policy to have full employment, and with employment as it is now I do not think that, as a temporary expedient, a payroll tax could lead to any great disadvantage.

The hon. Member for Southall taunted the Government with raising the Surtax limit, but my right hon. Friend plainly indicated that the cost of that would be offset by a heavier Profits Tax. Hon. Members opposite should refer on this subject to what has been said by the hon. Member for Bosworth (Mr. Wyatt), who is not now in the Chamber, and also to what Lord Lucas said in another place. I shall quote exactly what he said about this. He said: I said from the Front Bench quite bluntly that I believed that one of the deterrents to any increase in the production of Great Britain"—

Mr. G. Thomas

On a point of order, Dr. King. The hon. Member is proposing to read verbatim from the speech of a noble Lord in another place during this present Session. Is it in order for him so to quote?

The Temporary Chairman (Dr. King)

It is not in order for the hon. Member to quote, except from a Ministerial statement, in the other place, but he may give the sense of what the noble Lord said.

Mr. Thomas

The hon. Member ought to apologise.

Mr. Skeet

I apologise for reading the actual words used in a speech in another place. I certainly do not mind giving the sense of the words that I wanted to quote, and it is this. It is that the young executives in industry do not have any strong incentive. I say to the hon. Member and his hon. Friends on the other side of the House that if they would only follow the principles which have been outlined by the hon. Member for Bosworth and by Lord Lucas, they would possibly understand why it is essential to give some encouragement on the export side of our affairs.

I am not making my case on that basis alone. One could approach it in this way. In the first instance, this country is not the most highly taxed country amongst the leading nations. If we take the total tax paid in Germany, France, Norway and Sweden, the United Kingdom comes at the end of that list with a figure of 29.7 per cent. That includes direct and indirect taxes, taxes on capital and contributions to social security. In Western Germany, in 1958, the percentage was 34.7.

There is another way of looking at this matter. The executives in the United Kingdom should be in the same position as executives in other countries. For example, in the United Kingdom on the lower earnings less tax is payable, while more tax is payable in the Federal Republic of Germany. But when we consider the higher brackets, more is paid in the United Kingdom and less in Western Germany. If we take earnings of £1,000, the percentage of gross income taken in tax at that level is 6 per cent. in the United Kingdom, 11 per cent. in France, 10 per cent. in the Federal Republic and 9 per cent. in Sweden.

If we go to £3,000, the corresponding figures are: United Kingdom 24 per cent., France 23 per cent., Western Germany 21 per cent., Sweden 27 per cent., and the United States of America 15 per cent. The higher one goes up the table the heavier is the levy.

I therefore say that it is time that we looked at this question of Surtax. The Chancellor of the Exchequer has considered it in its broader context. Listening to his speech today, what appeared to be uppermost in his mind was how we in the United Kingdom could achieve more exports. This can be done very simply. It can be done by economy in selectivity of investment, not by a system of controls. We have been told that investment has been rising. We have learned that over the course of the years immigrant money into the United Kingdom from the United States has been valuable to this country. If we consider manufactured goods exported from Britain, American firms or subsidiaries here account for about 11.8 per cent. of the total. Further, if we take the export of goods from the United Kingdom to the U.S.A., the American subsidiaries account for just over 24 per cent. of the total. One of the things that we have done in the course of the years has been to give encouragement to immigrant capital.

The other thing to bear in mind is the heavy rate of investment of overseas resident capital. The American companies have tended to invest more and more in the United Kingdom. In fact, they have ploughed it back rather than remit it home.

Another course of action could be to reduce selected tariffs, allow European goods to come into the United Kingdom and thus encourage us to become more competitive. It seems to me that we have been trying more and more to satisfy the requirements of the home market. In fact, our trade has been oriented towards the home market. The traditional practice in past years has been somewhat broken.

It is worth bearing these figures in mind. If we go back to 1913 visible exports were 22 per cent. of the gross national product. In 1938 they had dropped to 10 per cent. In 1950 up to the present day they have risen to only 17 per cent. of the gross national product. If we add in invisible exports there is not much improvement, because the figures have dropped from 37 per cent. to 15 per cent. and are now only 25 per cent. This country is thus doubly worse off. It has not got the necessary potential in the export field. It is also earning very much less from invisible exports which it had prior to the war.

Bearing all these matters in mind one should consider what action the Chancellor had to take. He had to look for a little more taxation. He had to ensure relative stability. He had to bear in mind, too, that our share of trade in world manufactures has been going down over the course of years. He had to bear in mind that our share of trade in the sterling area had dropped. Have we got what is essential in both investment, and also incentives to put this country back on its feet? Are we showing that dynamism that we had at the beginning of the century and earlier? The Chancellor has gone as near to it as he possibly can.

We should remember what was done in February of this year through the President of the Board of Trade when certain bills of exchange were allowed to be discounted through the Bank of England, allowing fresh money to be utilised in export credits. Also, there are the recent proposals which have enabled the small exporter and the medium-term exporter, to have certain advantages. The advantage that I am particularly interested in is that of long-term borrowings through the E.C.G.D. to facilitate freer trade in capital goods and, if necessary, to operate with the advantages of loans through Section 3 of the Export Guarantees Act, 1949. These steps have been taken. I dare say that a lot of persuasion had to be used to get the Treasury to accept these proposals.

But I come to one point which has caused me some anxiety. As soon as Mr. Robens of the National Coal Board starts a drive to popularise coal, we find the Chancellor of the Exchequer placing an imposition on the motor car industry and on the oil industry. It comes in this form—2d. a gallon on fuel and heavy oils. It was I think in 1909 that the tax on hydrocarbon oils was introduced, and it was probably as a result of some ingenuity that it was abolished in 1921. My right hon. Friend the Member for Woodford (Sir W. Churchill) initiated the tax again in 1928 and it has been with us ever since. The yield from this source from about 1939 to 1949 was approximately the same, about £57 million, and, if one takes all the receipts which come from oil, from licences and from Purchase Tax, they should well exceed £600 million.

What is the purpose of these impositions? Is it to give assistance to the coal mining industry in its fight against oil? Is it purely and simply for collecting additional revenue? The way it will develop, I think, is this. Heavy oils in the form of Derv have a 2s. 6d. tax if used for road transport, but the rest, until 1947, were spared. That tax has come back again. We have a precedent to which we may look. In Western Germany, the Bundestag decided to have a tax on heavy and light oils. The effect was rapidly absorbed and it did not greatly help the coal industry of Western Germany.

What will be the position in the United Kingdom? It is the only tax raised this year, with the exception of Profits Tax and a small imposition on advertisers on commercial television.

Mr. Fernyhough

And the poll tax on the sick.

Mr. Skeet

That is not on the sick. I am talking about the Budget.

Mr. Ledger

It should have been in the Budget.

Mr. Skeet

Hon. Members are talking about the contributions which were discussed on another occasion. I thought they had in mind the payroll tax, and that is not on the sick.

The principal target for taxation is the man buying a car. The £12 10s. per year has shot up to £15. I wonder whether the Chancellor read the observations of Professor Kahn in the Financial Times two days ago in which he recommended that very tax. Obviously, my right hon. and learned Friend has to read everything in the course of time, and perhaps he thought that this was a very good way of collecting revenue. But where will the tax on oil and motor vehicles end? If it is to be used as a milch cow over the years, we shall find it rising progressively.

I welcome the Chancellor's decision to take power through Statutory Instrument to alter taxes during the course of the year. Both Purchase Tax and the duty on hydrocarbon oils fall inside that bracket, and I dare say that they can be moved up and down within the 10 per cent. range during the year. Will the tax on oils be raised further? I say no more about it now, but I am a little disturbed.

I understand the predicament of any Chancellor of the Exchequer. He has to raise money for essential purposes, and no Budget will be popular in all parts of the Committee. People will construe what he does in different ways. The Budget as a whole is a balanced one. My right hon. and learned Friend has in mind the central theme, which showed clearly from time to time: either exports must continue at a higher rate or we shall fall further into the mire. We have witnessed the revaluation of the Deutschmark, but I do not think that we in the United Kingdom will be inclined to revalue our currency. What we wish to avoid is a devaluation of the currency such as occurred during the Administration of right hon. and hon. Members opposite in September, 1949. Devaluation has not occurred under the Conservatives. As time goes on, we are taking the necessary steps to ensure that we have a steady and buoyant economy.

I am happy to know of one or two further concessions which have been made. I have in mind particularly those who were persecuted by the Nazis during the war and who received compensation from Western Germany. If a man opted to receive a lump sum, he paid no tax. If, on the other hand, he agreed to receive an annuity, he was liable to United Kingdom tax. A legalistic argument developed, and I am glad that it is now to be thrust aside.

I should like to see something done about Schedule A, for which, I think there is no justification. Also, I wish that there could be an increase in small income relief. The same applies to allowances for old age; I should like to see a little more done there. I dare say that one has to adopt a patient approach, considering all Budgets in the course of time as part and parcel of the whole, and I hope that it will not be long before some of the matters I have mentioned are considered. Personal allowances have remained as they were for many years at £140 and £240, and I feel that it might be a good thing to move them ahead. I hope that all those matters I have mentioned may be candidates for consideration before very long.

8.35 p.m.

Mr. Frank Allaun (Salford, East)

This Budget stands condemned because it increases our fantastic expenditure on arms of £1,600 million a year by a further £48 million. The Government are now spending 6s. of every pound of taxation on war preparations. Eighteen shillings of every pound spent by the Government on research goes on so-called defence work. The best scientific brains of our country are working in this field. I think that the British people would have rejoiced if the Chancellor of the Exchequer had come to the Dispatch Box today and said, "We will slash this expenditure by £600 million, starting with £100 million this year, a further £200 million the year after, and so on". Even if we cut this expenditure to £1,000 million a year we should still be spending far more than we were spending in the years up to 1950–51, when the figure was £770 million.

What could not we do with this money? Instead of crippling the National Health Service, we could be extending it. Instead of raising pensions to the miserable figure of £2 17s. 6d. a week, we could be increasing them by pounds a week. Instead of the Government cutting council housing, more money could be spent on housing. I feel very strongly about this matter because five out of ten houses in my constituency have no bath, no hot water and no inside toilet. That will be the position for years as things are. Yet we could solve the housing problem if we were not wasting our substance in this way.

Our export and production problems are also tied up with this. I believe that with the £600 million saved on armaments we could start to build …Jerusalem, In England's green and pleasant land. In these circumstances, it is hypocrisy to talk about helping the underdog in Africa and Asia, where there are people who have not had a square meal in their lives and who are far poorer than the poorest in Britain, although there are plenty of poor people in Britain today. "War on Want" is just an empty slogan if we spend £1,600 million a year on arms and increase it each year by £48 million or similar sums. We tend to talk about this knowing in our heart of hearts that we cannot relieve poverty in the under-developed countries if we spend the money on armaments.

Not only is this right but it is also extremely popular. If any party, whether Conservative or Labour, went to the country with a programme of this kind, it would sweep the polls and would deserve to do so. It could quite easily be done. After all, we have ended conscription, much to the pleasure of hon. Members on this side. This means that 220,000 fewer lads will go into the Forces. Surely some economies should result from that.

It could easily be done from savings on nuclear weapons, where approximately £250 million a year is spent. We on the Labour side have our differences of view, but we are agreed that Britain should end its independent nuclear deterrent—all of us, from the Front Bench to the back benches. That would save £250 million a year, and it would solve the problems that the Chancellor has to face.

The next point that I want to raise concerns Surtax. I believe that the Chancellor has committed an act of public indecency by reducing taxation on the very rich by £58 million a year at the very time when it has been increased on the poor by £65 million a year. This shows a lack of sense of public decency. An hon. Member earlier referred to social justice. Do not let us make any mistake about this. This will benefit not only those in the £2,000 to £5,000 a year class. It will benefit those in the top ranges of Surtax.

Mr. Dan Jones (Burnley)

Those with £10,000 a year.

Mr. Allaun

Yes, they will benefit far more than those earning between £2,000 and £5,000 a year.

If hon. Members opposite are concerned about social justice, what about the engineering labourer? It may shock some hon. Members to know that the basic rate of the engineering labourer is £8 4s. 2d. a week and for the skilled engineer, £9 15s. 2d. It might be said that they can earn more by working overtime and getting bonus, but they have to put in the overtime and the hard work to get those extras.

There are thousands of good, honest workers who work as hard in their way as the man who was talked about earlier who gets orders for the country. Many are in a position where they can earn no overtime or bonus. When they have paid their health, unemployment and pensions insurance, they take home £7 14s. a week net. When a man in hat position learns from tomorrow morning's papers that the Surtax payer is to be relieved of taxation in the way proposed by the Chancellor, what will he think? He will think that this is a Government which stands for the rich and against the poor. He will be dead right. I believe that the right hon. Member for Woodford (Sir W. Churchill) once said this fifty years ago. Today, we have had an example of how right he was. The man earning £8 4s. 2d. a week will pay more for his Health Service, for his council house and for his pension, and those earning £5,000 a year will pay less. This is a case of Robin Hood in reverse.

The payroll tax is an incentive to dismissals, an encouragement to cause unemployment. Do not let us forget that there are 300,000 men and women out of work at a time when we are supposed to be in full employment. Our efforts should be directed to finding them work and not finding unemployment for people who are in work. Things look very different when you are at the receiving end. Probably the Chancellor has never been in that position.

I believe that the Chancellor has today made a bid for the leadership of the Conservative Party. In a number of newspapers lately, there has been discussion about who will succeed the Prime Minister. Most people, I suppose, have their share of ambition and the Chancellor is no different from any other man. He certainly hopes to please the backwoodsmen of his own party and to receive their backing in his bid for the premiership.

Sir E. Boyle

I will give the hon. Member this point: that my right hon. and learned Friend will be more loyally supported by the whole of the Conservative Party than the Leader of the Opposition is supported by the hon. Member.

Mr. Allaun

The Financial Secretary says that his right hon. and learned Friend on this issue will be unanimously supported by the Members on his side, and I am sure that he will be.

Mr. Fernyhough

Is it not true to say that 90 per cent. of hon. Members opposite will get an immense financial benefit from these tax proposals?

Mr. Allaun

I think that my hon. Friend is probably right and that the Financial Secretary will admit that what the Chancellor has done this afternoon will be received with delight by hon. Members opposite and by the whole of the class which they represent. What he has done will be extremely popular among the Conservative Party hierarchy. There are many sincere hon. Members opposite—

Mr. G. Thomas

There are only eight hon. Members on the benches opposite.

Mr. Allaun

They confuse what is good for their own class with what is good for the country, and I can assure them that they are gravely mistaken. This will go down in history as a class Budget.

8.46 p.m.

Mr. Edward du Cann (Taunton)

I should like, first, to comment on a point made by the hon. Member for Salford, East (Mr. Frank Allaun) on the subject of defence. I agree that the burden of defence is extraordinarily heavy. I agree with him when he said, by inference, that we should do all we can to see that we are spending money wisely. But I, for one, do not grudge money spent on defence if it is wisely spent, any more than I grudge paying that part of my rates which goes to pay the police force which sees that I sleep securely in my bed at night. Indeed, I would go as far as to say that I do not care how heavy the bill for defence is in Britain provided that Britain stays free. That is all that matters to me and, I believe, to the country.

I turn to the Budget and refer, in particular, to the speech of the Chancellor of the Exchequer. I think that in its content, quality and delivery it was outstanding, even as a Budget speech, and I was very struck and pleased by the note of confidence which my right hon. and learned Friend appeared to me to strike. This is a point of particular significance at this time, for in England we have suddenly become very Kennedy-conscious. We realise that in the United States a young man is at the head of affairs. I do not say necessarily that young men are the best at the head of affairs, but there is no doubt that Mr. Kennedy has infused the United States with a new sense and spirit of urgency, and there is no mistaking the fact that our economy has suffered from a certain sense of stale-ness lately and that we have urgently needed a new dynamic. It is probably much too early as yet to say whether we shall get that new dynamic from this Budget. Personally, I regard it not as an entity in itself but as one of a series of Budgets, and I look forward to the further development of my right hon. and learned Friend's plans.

I fed that the Committee has every reason to congratulate the Chancellor both upon his courage, whether hon. Members agree with him or not, and upon his imagination, again whether or not they agree with the measures which he has introduced. That is a very good sign.

I should like to discuss shortly the size of the surplus for which he is budgeting, the almost horrifying large size of the surplus. We are to have a surplus above the line of £506 million, over £200 million more than his predecessor, Lord Amory, budgeted for last year, and a total deficit of only £69 million, by comparison with the £318 million for which Lord Amory budgeted last year or the £394 million which was the out-turn.

I dare say that when we read our newspapers tomorrow, and particularly the economic pundits, we shall find that many of them say that the Chancellor has been over-cautious and has been pessimistic about the advance of 3½ per cent. in consumer demand and of 3 per cent. in the public sector to which he referred. They will say that he has taken very drastic action, so to speak, to contain the effects which this large volume of increased expenditure would be likely to have upon the internal purchasing power of the £ sterling. I remember precisely the same criticism being made of Lord Amory last year, when he budgeted for a smaller surplus than this.

My views I can sum up very shortly. I would say again that I am prepared to trust the Chancellor's judgment. He may be right, he may be wrong, he may be over-cautious. I would not fault him for that. Where I should fault him would be if he took risks with our economy, or budgeted for a smaller surplus than in his heart he thought appropriate.

I said when I began that I think it is probably right to construe this Budget as one of a series, and I would sooner that we budgeted for a larger surplus today in order to be safe, with the possibility, maybe, of future tax reliefs, than that he should be profligate and incautious with the economy at this stage in our affairs.

As to the individual proposals which my right hon. and learned Friend has for raising taxes, I say that I dislike them with impartiality. I loathe all taxes, and I hope that is the general opinion of the Committee. None the less, if revenue has to be raised, it is a matter of judgment whether to put it on petrol or on motor vehicle licences, on the Profits Tax, and so on. I do not think that in that respect my right hon. and learned Friend has done a bad job. I do not think that his choices are bad.

The reduction in Surtax rates was a very much overdue reform. With great respect to those hon. Members on the other side who made the point, it is very easy to say that this is a class matter, and so on. That is an oversimplification, as everybody knows. The level of direct taxation and Surtax has been far too high for far too long. I do not fault my right hon. and learned Friend for having reduced this; I fault earlier Chancellors for having funked it. The need has been obvious for long enough. There has been a moral obligation upon a Conservative Chancellor to allow the people who earn their living honourably to keep more of what they earn, and I am glad that my right hon. and learned Friend has honoured that obligation.

What is rather curious is that it has probably not yet been generally noticed—at any rate, it is not a point that I have heard made in the Committee—that, far from there being a shift from direct taxation to indirect taxation, precisely the reverse is the case. I am not in agreement with my right hon. and learned Friend upon that point, as I think that it is appropriate to endeavour to reduce direct taxation, and, if it is necessary to raise revenue, to raise it from indirect taxation.

Mr. Fernyhough

Whenever the Chancellor does that, he puts it on the poor in order to give it to the rich.

Mr. du Cann

That may be the sort of obvious reply which one may make, but I do not believe it to be altogether fair or altogether accurate. What matters, as I think my hon. Friend the Member for Somerset, North (Mr. Leather) endeavoured to explain, is that we are increasing the prosperity of the country as a whole, and to do that we want to liberate incentives.

It is a matter of judgment how we do it and where we do it. I personally have been familiar—and I think that hon. Members of the Committee in general may agree that this is not an inaccurate picture to paint—with the attitude of those who, when they have been offered promotion, have refused it, whether it was in the country's or the company's interests, because they said that the little bit of extra money they got was not worth it when so much went in taxation. That is a thoroughly bad state of affairs, and if we can encourage people to look for promotion, become managers and make the most of themselves, that is in the country's interests, and that is why I support the Surtax proposal.

Mr. Stan Awbery (Bristol, Central)

What we are worried about on this side of the Committee are the people on whom a greater burden is being placed in order to relieve others. An hon. Member from the other side, speaking in my constituency three weeks ago, stated that it would be impossible to alter the incidence of Surtax unless we put up the charges on prescriptions. If that is so—and from the speeches that we have heard today I think it is quite correct—the poorest people, the people who are actually sick, are having to pay increased charges for prescriptions, and the money is being used to relieve the Surtax payer.

Mr. du Cann

I understand the hon. Member's point very well. I have as high an opinion of him as I hope he has of me, and, therefore, I hope that he will not hold me responsible for what my hon. Friends may say in his constituency. Suffice it to say that I would not agree with that in the least, because I do not think that that statement is an accurate or a very sensible one.

To move on to the question of Surtax, there has been talk today, and no doubt there will be talk at other times, about what are called company expenses of one sort and another. I am the first to agree that in this matter there are scandals. I also think that sometimes the position is very much exaggerated. I was particularly pleased to hear my right hon. and learned Friend say that there are certain things which he is going to do in regard to home allowances and the rest in attempting to save members of the British public who are abroad on business, endeavouring to do their duty, from being charged unnecessarily by the Inland Revenue.

The whole point is that these scandals, such as they are—the fact that men prefer to run their motor cars on the firm, or dine out and sign the bill rather than pay for it out of their pockets—are very largely due to the high rate of direct taxation on incomes from which we have suffered far too much in recent years. My right hon. and learned Friend was right this afternoon to attempt to say by inference, "All right. I am reducing direct taxation. Now, you chaps, pay for some of these things out of your own pockets if you want to have them." That is an argument with which I sympathise and agree.

There has also been talk on the subject of a capital gains tax, or capital gains levy, as I think it is very much better called. I speak now absolutely for myself. I am in sympathy with the argument which says that persons who make very large sums of money apparently rather quickly are in some way morally offensive to the rest of the community. That is probably true, and there is, I think, some distress in the community at large that this is a situation which is tolerated today.

On the other hand, it is a situation which I believe is exaggerated. I would feel that it is a matter that has to be tackled sooner or later, and I think, on the whole, probably the sooner the better. I certainly do not agree with anybody who puts forward the opinion that here are persons who toil not, neither do they spin, that they make all this money by giving nothing or very little. Very often they make it out of ensuring that proper economic use is made of otherwise idle resources, and that is something that is to be encouraged rather than discouraged.

The longer I am in the House—after having been here only six years I am still a comparatively new Member—the more convinced I am that there is neither black nor white in the world. It is all one shade or another of grey; it may be whiter or blacker, but, generally, most things are grey. I am sure that everybody who pays attention to the affairs of this House realises that extreme points of view are rarely the most desirable ones. I should have supposed that, in spite of the difficulties, it would have been possible to make some arrangement in that respect, and if it should come I would certainly support it.

With regard to the new instruments which the Chancellor has chosen, I think he is completely right to reinforce his position here. There is no doubt that the credit squeeze and the raising of Bank Rate have been blunt instruments and not altogether satisfactory. The sales tax—for such it is, in effect—I agree with, and I think it is sensible measure to have introduced. I am not so clear or sure about the payroll tax. If it is to be regarded as a threat, I can see the strength and the force of it, but it seems to me that it can bear very hardly upon firms where craftsmanship is put at a premium, or upon firms with small numbers of employees which are not the kind of firms which I assume my right hon. and learned Friend is attempting to affect. Consequently, I hope that a minimum will be set and that the payroll tax will not be all-embracing. For example, I would hope that a minimum number of employees would be set—say, 100—so that the tax should not bear on smaller firms.

Mr. Ellis Smith

The hon. Gentleman is making a reasoned speech. I, also, am against the tax, but does he agree that once one begins to differentiate one does not know where one will get to?

Mr. du Cann

I said that I was not sure about it. No doubt we shall hear more of the matter. I agree that it is a real difficulty, and it is something which all of us need to watch with very great care to ensure that, if it is effective, then it will be effective in the right place. I am concerned at the moment that it might not be effective. No doubt the Chancellor of the Exchequer will be able to explain it in due course.

At the beginning of his speech, my right hon. and learned Friend talked a great deal about Government expenditure as a percentage of the national income. I wish that he had developed that theme further, because I believe that Government expenditure should be a fixed percentage of the national income. Until a Chancellor of the Exchequer lays down a definite and irrevocable percentage, I do not believe we shall ever see the reduction in Government expenditure which we must have.

It is all very well for successive Chancellors to berate the consumer or the public sector for spending more money and increasing consumer demand, or taking measures to slap down the consumer one way or another, but charity begins at home and it is up to the Government, whoever the Chancellor of the day may be, to ensure that the total of Government expenditure does not exceed a certain, and clearly defined in advance, proportion of the national income.

I was heartened to hear my right hon. and learned Friend say that he is to introduce new accounting procedures. Although I now serve, with many other hon. Members, on the Select Committee on Estimates, I am bound to say that the way in which accounts are presented to the House always confuses me. What has disturbed me most since I became especially interested in this subject is the open-end situation which seems constantly to exist, when the Government do not know what total expenditure can be in any year—whether it is because of wage increases or token votes of £100 which may denote future expenditure of £250,000 or more. That is an unsatisfactory state of affairs. If I ran my business like that, I should quickly be bankrupt. Better forms of accounting are urgently needed.

I criticise the Budget strongly in one particular matter. I shall here declare an interest, although it must already be well known to hon. Members. There is no incentive whatsoever in the Budget to savers. It is an astonishing omission, for the catalogue of what could be done is very long. I am tired of listening to Budget speeches which pay the most extravagant tributes to the National Savings Movement, in which I sincerely join, and at the same time do nothing to encourage any other form of savings. If it is right to exempt from Income Tax the first £15 of interest on deposits in the Post Office Savings Bank and the Trustee Savings Banks, why should not deposits in the Co-operative Bank, or in building societies, be treated in the same way? Why not have thrift banks like American companies?

There are other things that we could do for saving. I have specified them on several occasions, and I shall not do so again today, but saving and the habit of saving are vital. I note from a recent Gallup poll that about 30 per cent. of our people have no savings whatsoever. That is disgraceful, both in the national interest and in the personal interest of our people. It is up to the Government to do more, when opportunity offers, to encourage a greater degree and volume of saving.

I thought that my right hon. and learned Friend to some extent glossed over the balance of payments position. Last year was our worst trading year for a decade. In 1959, we had a surplus on the balance of payments account of £51 million. In 1960, we had a deficit of £344 million. In other words, the change was about £395 million. I acknowledge that stocks rose greatly during last year and that exports went up by about 6 per cent., £202 million—not a bad achievement—but imports went up by £499 million. In other words, the shortfall on our merchandising account was about £366 million, which is not very far from our balance of payments deficit last year—about £22 million more. In other words, our balance of payments deficit last year was very largely caused by increased imports.

There may be nothing wrong with that if the increase consists largely of a build up of stocks. Indeed, that may be to our eventual advantage. On the other hand, I was a little disappointed that my right hon. and learned Friend castigated exporters for not doing more. He retailed with pride—as he had every reason to do—the way in which the Government in general and the Board of Trade in particular had provided increased credit facilities for exporters.

That is very good, but when the Chancellor said that this had been a bad year for world trade in general—that world trade had not particularly increased—it was not reasonable to castigate exporters for not doing better. Indeed, I go further and say that it is not reasonable to expect exports to rise by more 'than 7 per cent. in any year. I do not think that it can be done, but it would be right for something to be done which has not yet been done—to castigate importers for importing so much.

I cannot understand why, supposing there are goods of comparable quality at the right price and the appropriate delivery dates in British shops, importers should import from abroad merchandise which is competing with home-produced stuff and thus adversely affecting our balance of payments. Nor do I understand why the man and woman in the street should buy it in the shops. I do not advocate a blind policy of "Buy British"—far from it—but if British goods of comparable quality, and so on, are available, our people at home have a patriotic responsibility to look after British producers before they buy foreign produce.

I have been very much impressed by what Lord Amory has been saying in another place and elsewhere. He has been calling for incentives for exporters. When he, with his recent and great knowledge of the position, can make a plea of that sort, I cannot see that it is not possible to provide financial incentives for exporters. Mere exhortation is not enough and never will be.

A short time ago, I attended an investment conference at which I had to lecture on a subject which hon. Members will be able to imagine. I was struck by the way in which leading figures in the City—I do not fault them in this, for they were talking facts—were saying that in the choice of investment it was wiser not to choose an investment in a company which was a large exporter and that it was better to invest in companies in the home market because they were not exposed to the same winds of competition and would probably do better over the years. That seemed to me to illustrate precisely the difficulty which we are facing. Unless we can get some direct financial incentive to companies doing a good job with exports we shall not get the export drive which the United Kingdom so urgently needs.

The trouble is that unless this position rights itself we shall be faced with the reimposition of import controls. That is a very serious matter and such a re-imposition would be a retrograde step. It is easy, with hindsight, now to say that the Government should not have reduced imports controls so precipitately in the first place, but at any rate they were stepping in the right direction, for Britain's chief interests depend on an increasing volume of world trade and upon people besides ourselves reducing import controls.

We have to set an example. I would be very sorry to see import controls come back, but I am afraid that there may be no alternative unless we seriously tackle this question of incentive for exporters and find some method of dealing with this. I am aware of all the difficulties—there is the Berne Agreement, from which we derive advantage—but, nevertheless, it is something which can and must be done. After all, other countries have done it successfully.

Lastly, I should like to say a word about the Budget in general, and perhaps its social purpose. The right hon. Gentleman the Leader of the Opposition concluded his speech by saying that the Budget ought to have two objectives. First, it should benefit the economy as a whole. I agree, and the question whether this Budget will benefit our economy is a matter of judgment, and time alone will tell.

I am satisfied with it so far as it goes. As I said, I look to it as being one of a series of Budgets, and I do not doubt that if the Chancellor brings to the Treasury the kind of imaginative mind which he appeared to demonstrate when he began his speech this afternoon Britain will not go far wrong.

The right hon. Gentleman said that the second purpose of a Budget was to secure the equitable distribution of wealth. I believe that to be only partly true. I am thoroughly sympathetic towards any hon. Member who says, "Let us see that the people who cannot look after their own affairs to the best advantage because they are not young enough or strong enough to do so are properly looked after as a responsibility of the community". I fully agree with that. On the other hand, I do not believe in an egalitarian society—nor do the Russians, but that is another subject. I believe that we shall prosper only if we genuinely attempt to say to our people "Stand on your own feet. Make as much money as you can, and by the sweat of your brow earn promotion. By so doing you will bring credit to your families and to your country". I think that the Budget takes a step in that direction, and because of that I welcome it.

The Temporary Chairman

I am trying to call as many hon. Members as I can, and it would help if hon. Members would co-operate by making their speeches as short as possible.

9.13 p.m.

Mr. George Thomas (Cardiff, West)

I have been present in the Chamber throughout the day, with the exception of the time when the hon. Member for Stoke-on-Trent, South (Mr. Ellis Smith) was speaking, and I have, therefore, been able to hear almost every hon. Member who has spoken from the benches opposite criticise the Budget on some point or Other.

The hon. Member for Taunton (Mr. du Cann) made a most interesting speech. If I may say so without patronage, he is a financier of considerable standing, or so I understand from reading the advertisements. He deals in the City, in that mysterious world where stocks and shares are understood. I thought that he damned the Budget with faint praise. He gave the Chancellor of the Exchequer a rough ride on some important questions.

I was glad that the hon. Gentleman referred to my right hon. Friend the Leader of my party, because I warmly agree with what my right hon. Friend said about the general purpose of a Budget. It is, after all, the chief weapon of the Government in deciding the question of economic stability during the coming year, and also of ensuring that a fair share of the national wealth is received by all our people. We must examine the Budget from that point of view.

I believe that the proposal to benefit the wealthy people of the community will be strongly resisted and criticised outside the House of Commons. It is indefensible to bring a proposal of that sort before the Committee within weeks of pleading the necessity of charging 2s. for a bottle of medicine. It is preposterous that the Chancellor of the Exchequer should tell the Committee that we can afford to give to people earning more than £2,000 a year the considerable relief which he is offering today, when we cannot afford to give to people on National Assistance rates even the miserable increase which the old-age pensioners have enjoyed.

Mr. Fernyhough

And in a week when we shall be discussing a further charge on the orange juice and cod liver oil which babies receive.

Mr. Thomas

I am very grateful to my hon. Friend.

It is quite clear that the priorities of hon. Members opposite are vastly different from the priorities which we hold on this side of the Committee. This will be regarded as a rich man's Budget. The health of the Chancellor will be drunk in every rich man's house tonight, although not, I hope, in the same spirits that he drank before us this afternoon.

I believe that the Budget is inequitable and will fail to provide the incentives for which so many hon. Members opposite have pleaded to increase our export trade. I shall say a word about that later.

I wish that the hon. Member for Somerset, North (Mr. Leather), the hon. Member for Ilford, South (Mr. Cooper) and the hon. Member for Croydon, North East (Vice-Admiral Hughes Hallett), all of whom made speeches very critical of the workers, were in the Chamber to hear me say that I am "fed up" with hon. Members opposite admonishing the workers about restrictive practices when they know the practices which go on elsewhere, to which the Chancellor himself referred this afternoon, and about which he proposes to do nothing at all.

I am sorry that there are certain omissions from the Budget. There has been no reference to post-war credits. I believe that the time is overdue for the Chancellor to look again at the question of the repayment of this national debt to our old people. I am sorry that no reference was made to those people who have lost so much money on war loans and whose patriotism has been exploited. No comfort is given to them, and no undertaking has been given to help them in any way. I notice that the man who buys a Bentley will have to pay £3 more tax a year, the same amount as the man who buys a Morris Minor. I believe that there will be a storm of reaction about this within the next few days.

This afternoon the Chancellor referred to the fact that he is budgeting on the basis of a 3 per cent. increase in local authority expenditure. I believe that estimate to be hopelessly inadequate in particular in respect of education. We are lagging behind almost every European country in the proportion of the national income which we devote to education. The Chancellor said that he hoped that we should not be short of technologists and technicians, but unless the money is available we are bound to find the education service breaking down.

At present, a salary demand is being put forward by members of the teaching profession, very few of whom, if any at all, will benefit from the Surtax relief offered in the Budget. If they are on the basic scale teachers who have taught for forty years and are on their maximum salary will not even now be receiving £1,000 a year. It is clear that a substantial increase in teachers' salary is bound to come during the current year and that this will impose a burden on local authorities. I wish that the Chancellor had told the Committee that he is looking again at the whole question of financing local authorities.

The rating system is unjust and socially indefensible. I believe that the right hon. and learned Gentleman ought to say that he will readjust the general financial formula on which Exchequer aid is given to local authorities. That is the only way, in my opinion, that people in local government service will get a fair deal. It will be increasingly difficult for teachers, and people like them in the public service, to negotiate with local authorities for a reasonable salary—in order at least to maintain their social balance with other workers in the community—if the main burden of the cost is all the time to fall on the ratepayers.

I cannot say how much I believe that the general grant system of financing local authorities is proving a handicap. Already, it has manifested itself as a serious difficulty for local councillors. It will impede the expansion of the education service. Hon. Members will realise that all the Chancellor of the Exchequer had to say about our expanding economy will turn to dust and ashes if the education service fails. We cannot afford to cramp it in the manner in which it is cramped by the present financial system.

I warn the Economic Secretary—I hope that he will convey the warning to his right hon. and learned Friend—that those whose one concern is the expansion of our education service, and the provision of facilities for further education, are agreed that the red light is showing because of the general grant system.

I earnestly hope that the Chancellor will watch the way in which this is proving to be a Government restrictive practice which ought to be abandoned. I want to see a return to the percentage formula. It is unreasonable to expect all local authorities, whether they are rich or poor, to make the same contribution to the financing of our education service. In any case, it is unreasonable to base a person's contribution to the expenditure of a local authority upon the type of house in which he lives.

The taxation system may be disliked by us all. I suppose that every normal person shares the feeling of the hon. Member for Taunton, who does not like any taxes that he has to pay, but the others are much more attractive. At least, it is rough justice. A person pays according to his income and means. The rating system is entirely indefensible. The poorest people have the same demands as the richest people in the community. Our Welfare State has already been badly damaged, but if it is not to be damaged much more the time has now come when it is necessary for the Treasury to look again into the whole question of local government finance.

I want now to refer to the people who are called public service pensioners. The hon. and gallant Member for Croydon, North-East spent a long time in dealing with these people. I think of retired Post Office workers, retired teachers, retired railway workers and all sorts of people who were in the public service and contributed to a pension, as in the case of teachers, which would have provided them with a reasonable income and maintained their general standards at 50 per cent. of their salary. People who retired in 1947 and before then are living in poverty. People who contributed 5 per cent. of their salary for years, and who were entitled to expect the State to honour this agreement and maintain their pension at a proper value, are being betrayed by the way in which Government after Government refuse to link pensions to the cost of living.

I hope that the Treasury will realise that this is a matter for urgent consideration. The old guard have a moral claim on us to protect them in an in- Flationary society like this, because ever since the party opposite took office ten years ago, the £ has been shrinking in value. Never before in peace time was the £ worth as little in purchasing power as it is worth today. The people who suffer most are those on low fixed incomes. I hope that the Chancellor of the Exchequer will remember these people.

I believe that the Budget ought to be used to strengthen our Welfare State and ensure that the strong help the weak and the rich help the poor. We have had a Budget today in which the poor help the rich and the weak buttress the strong. There is no incentive for the workers in export industries. The incentives are all kept for the people who, in any case, will not work any harder because of what the Chancellor of the Exchequer has done today. They will have more to spend without working any harder. It is unreasonable and unjust. I hope that when the time comes my right hon. and hon. Friends will vote at full strength against the Budget.

9.29 p.m.

Mr. William Clark (Nottingham, South)

I listened to the speech of the hon. Member for Cardiff, West (Mr. G. Thomas) with interest. I am sorry that he spoiled his interesting speech by his endeavour, in his opening remarks, to give the impression that it was only his side of the Committee which was interested in the welfare of the people. The hon. Gentleman knows as well as anybody else that Conservative Administrations since 1951, and previously, have done more than any other political party in the history of the country for the welfare of the population. I am sorry that he spoiled such an interesting speech.

I was glad that the hon. Member referred to War Loan. We all have a certain amount of sympathy with holders of War Loan, and I am delighted that my right hon. and learned Friend has at last agreed to alter the anachronistic state of the Government accounting system that has, apparently, gone on since the year dot. How one can get a capital item, such as Estate Duty, shown as a Revenue item I do not know. I should like my right hon. and learned Friend to consider in the future investing in this country by reducing our National Debt. One way of doing that would be by repayment of Wax Loan for Estate Duty purposes subject, of course, to a limitation, so as to avoid speculation in War Loan.

In general, I welcome the Budget. By his treatment of Surtax, I think that the Chancellor has introduced an incentive which, since 1920, has been progressively reduced. However, sufficient has been said already by my hon. Friends on this subject, so I shall not bore the Committee with repetition.

One thing that rather worries me in the White Paper and, in fact, in the Budget—my right hon. and learned Friend himself referred to it—is the high pressure of demand, and the inflationary tendency that is creeping into our economy. We have seen the effects of inflation since the end of the war and, of course, those hon. and right hon. Members who are a little older than I have had even more practical experience of it. The danger of inflation, the high pressure of demand at home, and the danger it is to our balance of payments position requires that we should do something about this demand before it gets out of hand.

The party opposite tried, by very high regressive taxation aimed at reducing the amount of money left in the hands of the taxpayers at all levels, to cut down consumer demand. That is one way. Another, which relates to our balance of payments, is to restrict imports. Neither of these ways do I accept as the right method for this or any other Government to adopt, but there is another way in which the Government can give a lead in cutting home consumption. I refer to savings, to which my hon. Friend the Member for Taunton (Mr. du Cann) referred.

One of the most difficult things about savings is not how to get the money to save, but how convenient it is to save it. So often we find that people have very good intentions of saving, but cannot go through the rigmarole of effecting it. I should have thought that the P.A.Y.E. tax collection system, which now might be described as part of the heritage of the British working man, could be used as a savings medium.

As all hon. Members know, each employee has a certain code number, and it should be quite easy for the Revenue to give a man a savings code number so that he could save 5s., 10s., £1 a week—or whatever it might be. The Government would then have on tap as potential savers a working population of about 24 million, and I am sure that we all have had sufficient experience of people to know that what is taken at source is very much more readily given than what is taken after a man has received his pay. Consequently, I should like my right hon. and learned Friend to consider whether P.A.Y.E. machinery could be used to increase our small savings.

In increasing our small savings we must be very careful to give sufficient incentive to save. Obviously, the 2½ per cent. that is paid on Post Office savings is an extremely low rate of interest, and I should have thought that 4 per cent. would be much better. If this were done through P.A.Y.E. we should have to make sure that a man did not save too much of his income. Otherwise, the wealthy man would be saving more than a man who was not so wealthy.

Any money saved should carry with it a certain exemption for Income Tax purposes. Like my hon. Friend the Member for Taunton, I cannot see the difference between £15 interest in the Post Office Savings Bank or the Trustee Savings Bank and £15 investment income from any other investment. What is good for one is good for the other. There should be a total exemption of £15 a year on all investment income, to encourage saving in all forms.

A matter that I regret—and I raised this point last year—is the absence of any reference to a reduction in Schedule A tax on owner-occupation. In the last Budget speech my right hon. and learned Friend's predecessor said, by inference—these are not his exact words—that when there was a reduction in taxation Schedule A would have its priority. I have a vested interest in this matter inasmuch as in company with other hon. Friends of mine at the General Election, and subsequently, I am committed to saying that Schedule A is an iniquitous tax. I very much regret that this year my right hon. and learned Friend has not made a start on the abolition of this tax.

Obviously, to abolish Schedule A tax altogether would coat from £45 million to £50 million, and one might say that that is far too inflationary to add to the consumer demand in this country. But it could be done. A start could be made. I have said that all savers should have the first £15 of investment income exempted, and I therefore suggest that the first £15 of net annual value should be exempted. This might cost £25 million, and my right hon. and learned Friend might say that that is too inflationary.

Another method would be to endeavour to cut the amount of paper work in making maintenance claims for Schedule A purposes. I would remind the Committee that I am speaking only of owner-occupation. If the statutory repairs allowance were doubled, that would cost the Exchequer £13 million.

Therefore, my right hon. and learned Friend has these methods. He could double the repairs allowance; and he could allow the first £15 of net annual value to be exempted, to bring it into line with Post Office savings. I cannot understand how anybody can say that a man who has put his savings into bricks and mortar is a less worthy saver than a man who puts his 30s. a week into the Post Office or Trustee Savings Bank. Both are equally good savers. As I say, I am committed on this matter, and I trust that I shall during the Committee stage of the Finance Bill have another opportunity of speaking about it.

I come now to the subject of the inflation. In his Budget, my right hon. and learned Friend is raising the yield of taxation by about £80 million. With the increased allowance for the National Insurance contributions of £12 million, this gives a net increase in taxation of £68 million. If he were to adopt the principle that Schedule A should not necessarily be abolished, but that a start should be made, and if he started with double the statutory repairs allowance, that would account for £13 million, which would bring the net addition to taxation to about £55 million. As we have seen, the out-turn during this next year is an overall deficit of £69 million, and if £13 million were allocated for double the statutory repairs allowance on Schedule A, the out-turn would be £82 million deficit.

Like my hon. Friend the Member for Somerset, North (Mr. Leather), I cannot see how, with total taxation at about £6,508 million, anyone can say that £13 million, £23 million, or £43 million is, in fact, inflationary.

Mr. Bruce Millan (Glasgow, Craigton)

The hon. Member will realise that some of us are in the same difficulty about this figure of £13 million, because it is approximately the amount which the Government will derive from increased prescription charges.

Mr. Clark

That argument may be all right in some other debate, but surely the hon. Member is not trying to bring prescription charges into a Budget debate.

Mr. Millan

Why not?

Mr. Clark

Prescription charges have nothing whatever to do with the Budget. I thought that I was coming to the end of my discussion of Schedule A taxation. Why the hon. Member should try to kill my idea about Schedule A by bringing in prescription charges, I cannot understand.

Just before I was interrupted, I was saying that I could not understand how any economist could say that an increased deficit of £13 million could be inflationary when set against total taxation. I have worked it out that £13 million out of total taxation of £6,508 million is one-fifth of 1 per cent. We have said time and time again that a start should be made, and I am sure that this is the moment to do it.

We are a highly industrialised country. We had a rise in productivity in 1959. There was a slowing down during 1960.

Mr. Fernyhough

Stagnation.

Mr. Clark

Very well. It was the same throughout 1960, but hon. Members opposite will agree that there was a good rise in productivity during 1959.

Mr. Fernyhough

After three years of stagnation.

Mr. Clark

Hon. Members are very keen to get in these odd digs, but the productivity that this country has enjoyed since the Conservative Party came into office has been responsible for the highest standard of living that the country has ever had. It is a little unfair of them to say that this sort of thing is stagnation.

Mr. Fernyhough

We are not saying that there has not been some increase in productivity since the Conservative Government came in. What we say is that it is only half what it was under the Labour Government.

Mr. Clark

It is extraordinary that, although hon. Members opposite say that we do only half as well as we should, nevertheless, in every section of the welfare services, we have doubled the rate of expenditure and doubled the benefits we give throughout the entire operation. Hon. Members opposite know that, as I know it.

I wish to revert to the question of productivity. I said that in 1959 there was a huge rise in productivity. In 1960, it was static. Somehow, we must, in the next year, cut down consumer demand at home. We have to cut down the pressure on our economy. Only in that way will we be able to increase our exports and channel our goods into the export market, because it is on exports that the whole standard of living of this country depends. I believe that in certain respects the Budget takes a step in the right direction, and I hope that it will not be very long before the Government take further steps.

9.45 p.m.

Mr. Ron Ledger (Romford)

I have listened to all the speeches in the debate. There has been a considerable diversity of opinion, particularly on the benches opposite, about how any benefits that there might be in the Budget should have been shared out. I was about to interrupt the hon. Member for Nottingham, South (Mr. W. Clark), and I will say why. He said that there was a considerable increase in productivity in 1959 and that there was virtual stagnation in 1960. I agree with him. If the Government decided that there should be a General Election in October this year, I am sure that we should see another spurt, with the Government doing everything they could to enable industry to expand and production to increase. The only difference between 1959 and 1960 was that in the former year the Government had an election to win and had to prepare the ground for it. There was no reason why they should not have done in 1957 or 1958 the things that they did in 1959, except that they were not at that time prepared to have a General Election.

From experts, which is what hon. Members call themselves, we have heard some fantastic things this evening. I agree that the Chancellor of the Exchequer presented his case very ably. I listened to what he had to say about the need for increased production. He said that exports were not increasing fast enough and that we had to give incentives. I agree with these things, as do my hon. Friends. However, when I read the Budget Resolutions, I wondered why he said the things that he did say. Certainly the measures that he proposes have little to do with expanding exports, providing incentives or curtailing home consumption, as was suggested by the hon. Member for Nottingham South.

The remedies suggested by the Chancellor are concerned, not with the economic situation, but rather with the deep divisions and rifts within the Conservative Party. What he has done is to give in to the "wind and whiskers brigade" behind him. There have been deep divisions on the benches opposite concerning Africa and the need, they say, to reintroduce the birch. The right hon. and learned Gentleman has somehow to console these people for their disappointments and, therefore, he has attempted in this, the second Budget of the past two months—we debated a "budget" a little earlier—to cool them off.

I should like to refer to one or two points made by hon. Members opposite this evening. For instance, the hon. Member for Somerset, North (Mr. Leather) said that the fallacy of the arguments advanced from this side of the Committee was that the statistics used were wrong, because fewer people are now engaged on profitable work. Those are not the exact words that the hon. Gentleman used, but I do not see what that has to do with it.

Mr. Leather

With great respect to the hon. Gentleman, I did not say that at all. I did not say that the statistics were wrong. I said that the conclusions drawn from them were wrong. I did not say that that was because the work was unprofitable. I said that that was because the statistics were based on manufacturing work and the majority of our population is concerned with services, which are a quite different thing.

Mr. Ledger

That is the whole point. What difference does it make how many are engaged on services or on manufacturing work? The fact is that with the advances of technology, we expect that every person engaged in productive work will do more as the result of new and modern machinery. I listened to the argument of the hon. Member and I noticed that he was careful not to use any statistics to prove the points that he was making.

The hon. Member for Ilford, South (Mr. Cooper) made the point that it was the easiest thing in the world to produce goods but that the difficulty was to export them, and he went on to talk about restrictive practices. We on this side get a little bit sick and tired of hearing this talk of restrictive practices. When I asked the hon. Member for an example, he said that Cammell Laird was a well-known case. It is well known because there are so few cases. That is the only case that the papers can get hold of to publicise.

Mr. Leather

Rubbish.

Mr. Ledger

When I asked the hon. Member for Ilford, South for examples, that was the best he could give. It is a fairly old example and it is doubtful whether it is concerned purely and simply with restrictive practice or whether it is concerned with the breaking of agreements by employers.

The hon. Member for Somerset, North concerned himself with the problems of exporting and he said that he could not think what the real answer would be. He said that many things were being tried but that the question posed a problem for him. I have met a number of people in business who have been abroad in the past few years. One thing that impresses me is the number of people who go abroad on business expenses but who come back and say that they have not been able to arrange any business.

I suggest that much of the problem that faces us is not whether the Chancellor should give more incentive to exporting firms, but whether within industry we have the ability to export. We have the "know-how" for making the goods, but certainly, when we see the way in which we are represented on the benches opposite, I doubt very much whether we have the people of ability to sell these goods abroad.

That brings me to the first point of criticism of the Budget. The Chancellor said that he expected an increase of 3 per cent. in public expenditure. As my hon. Friend the Member for Cardiff, West (Mr. G. Thomas) said, this will mean little extra expenditure by local authorities on matters like education. In my constituency, as a result of Conservative legislation, we are years behind with our education programme. This is particularly bad at a time when we are in need of many more technical colleges. We need many more technicians. The Russians have been able to send a man into space. The only qualification for technical skill that the Government have is that they attempted to produce the Blue Streak. The whole thing was a failure.

Vice-Admiral Hughes Hallett

The hon. Member said that, as a result of Conservative legislation, his constituency was years behind in education. To which Act of Parliament was he referring?

Mr. Ledger

It is not a question of referring to an Act of Parliament, but simply to the fact that successive Chancellors of the Exchequer have effectively reduced the spending by local authorities on education.

Mr. Leather

It has been doubled. The hon. Member cannot count.

Mr. Ledger

It may have been doubled—I have no doubt that it has been—

Mr. Leather

The hon. Member has just said that it has been cut.

Mr. Ledger

If I may be allowed to finish—the amount of money may have been doubled due to inflation, I agree—

Mr. Leather

Oh, no.

Mr. Ledger

—but on at least three occasions, the programme for building schools in my constituency has had to be put back. For instance, the Church of England in my constituency has pressed me to make representations to the Minister of Education to include in this year's programme, 1960–61, a school which it had expected to complete in 1958. It is in these days, when we need more technical colleges, that the Chancellor of the Exchequer says that in the next year we shall increase public expenditure by only 3 per cent.

The main point which I want to make concerns Surtax, and the Economic Secretary to the Treasury knows what I want to say, because only a month ago, when we were debating the new Health Service charges and contributions, we made the point time and again that those charges should have been part of the Budget. We asked what was the significance of the fact that the Minister was raising £50 million when he needed only £5 million for the extra hospitals which he intended to build. Today we have the answer. The hon. Member for Somerset, North was not here in any part of those debates, nor were most hon. Members opposite, because on that occasion we were debating a poll tax on the poorer people of this country, and there were rarely more than two Conservative Members in the Chamber at any time. Now when the Chancellor is giving away £60 million or £80 million to Surtax payers, they are here to enjoy themselves.

We asked the Chancellor on that occasion whether he was raising these contributions in order that he could give something away to the Surtax payers in the Budget, but we could not get an answer. There is a coincidence in the fact that the amount which is to be given away is about equal to the amount which has been collected from the Health Service contributions.

The Economic Secretary to the Treasury (Mr. Anthony Barber)

The hon. Member realises that the cost of the Surtax concessions in a full year will be £83 million but will not be a burden on the Exchequer until 1st January, 1963, and that this in large part will be met by the increase in Profits Tax which amounts to £70 million in a full year.

Mr. Ledger

I appreciate that. In the same way, it was argued that the increase in contributions was for building new hospitals, but the additional expenditure was only £5 million and it would have taken ten years at that rate to use all the extra money collected from the extra contributions in one year. The point which I then made was that it was unnecessary to increase those charges. It would have been much simpler for the Chancellor today to have introduced a proposal for a capital gains tax which would have made it unnecessary for the Health Service charges to be increased.

I ask the Chancellor to consider increasing the amount of public expenditure so that local authorities can catch up with their school building programmes and so that we can build more technical colleges.

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again.—[Mr. Finlay.]—put and agreed to.

Report of Resolutions to be received Tomorrow.

Committee also report Progress; to sit again Tomorrow.