BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 18 April 1961 vol 638 cc976-1108

3.44 p.m.

Mr. Harold Wilson (Huyton)

I should like to join my right hon. Friend the Leader of the Opposition in congratulating the Chancellor of the Exchequer on the manner in which he presented his Budget yesterday. Content apart, it was one of the crispest, clearest and most vigorous Budget speeches which we have heard. I should also like to congratulate him on his decision to defer it until after the county council elections. We were told that the reason for that postponement was the bearing on the Budget of the Prime Minister's Washington discussions, but it was not very evident yesterday what bearing they had.

This is the present Chancellor's second Budget. The first was introduced two months ago by the Minister of Health, and we have to take both of them together. Both impose taxation and yesterday's remitted taxation. The people on whom taxation was remitted yesterday were, in the main, not the people on whom tax was imposed two months ago, and yesterday's Budget provided hardly a farthing of tax relief to any taxpayer earning less than £2,000 a year. £40 a week.

The measures of last February, even ignoring the incidence of the health charges or the imposition on welfare foods, added 10d. a week in the shape of a poll tax on everyone, irrespective of income, and, as we warned at the time, that was setting the stage for the Budget. It was raising taxation in advance and in aid of the Budget, taxation raised in the most regressive and unjust manner, taxation which has now been dissipated in an even more unjust manner.

The February impost put 10d. a week equally on the tycoon, the £8-a-week wage earner, and the 10s. widow. Under the Chancellor's proposals, the £5,000 a year married man has £9 a week handed back and the £25,000 a year man—and I gather that these figures are not unknown in British industry—has £1,775 a year handed back, £35 a week in spendable tax remission.

The Prime Minister, who is not here at the moment, likes talking about masters and men. We can calculate that it would take additional weekly stamp contributions of 840 men to provide the Surtax relief of one of the masters. That is the way in which this tax has been handed out, divested of every canon of fiscal justice. For example, it is more favourable to the single man than to the married man with a family. A single man earning £5,000 a year has £512 handed back, nearly £10 a week, but the married man with two children gets £445. That is the Government's concept of social justice, or presumambly they would not have done it. I will return to that question when I examine the proposals in detail.

The other criticism of the Budget is its monumental irrelevance to the urgent problems of the nation. Most of these proposals are as relevant and as up to date as the Ottoman Guaranteed Loan, 1855. First, however, I want to address myself, as the Chancellor did, to the economic situation with which he was supposed to deal.

Last year, our balance of payments was by far the worst since the Korean War. Chancellor after Chancellor has told us that we must have a minimum surplus of £450 million to cover our overseas capital obligations, including our somewhat misdirected private overseas investment, that is, £450 million each year on the current account surplus.

What have we achieved? The Chancellor, as he told us, has just revamped his balance of payment figures and one result is to reveal that after the 1958 surplus of £291 million, in 1959 the figure turned out to be a miserable surplus of £51 million. That was a year when the Prime Minister was telling the electors: Today the British economy is sounder than at any time since the First World War. Sterling has been re-established as a strong and respected currency. Our balance of payments is strong. … I do not remember any time in my life when the economy has been so sound. That was the Prime Minister's own conclusion. If the Prime Minister had conducted his business life on the same ethical basis as inspires his false prospectuses at election time, he would have been "doing time".

But 1960 was worse. Instead of the miserable surplus of £51 million, which we had in 1959, with favourable conditions and with an unprecedentedly favourable balance of payments we had a deficit of £344 million, £400 million worse than the previous year and about £800 million down on the minimum figure which the Home Secretary, when Chancellor of the Exchequer, set as the surplus which we needed to achieve. The currency last year was protected only by the precarious hot money borrowed by the Chancellor at penal rates of interest.

The Chancellor was very perfunctory yesterday about our balance of payments—£400 million worse in a single year. Visible trade, exports against imports, worsened by £300 million; invisibles by £100 million. We used to hear a lot about invisible exports from hon. Members opposite. Now they are going down the drain. We know, of course, that we had to pay £35 million more on interest charges because of the high Bank Rate which we had to pay to attract the hot money which we did not want. In addition, Government expenditure abroad was £57 million worse and this was mostly net military expenditure. Every Minister of Defence that we have gets more expensive.

Under the last Minister of Defence, now the Secretary of State for Commonwealth Relations, we had to pour out £100 million of taxpayers' money to save his face on Blue Streak. The present Minister of Defence has managed to spend overseas £57 million a year more than his predecessor. I seriously suggest to the Chancellor that he should dig his toes in. It is no use making nostalgic, Gladstonian references to candle ends while he allows this to go on.

The Chancellor referred to German payments. Last month he went cap in hand to Bonn, an undignified posture for a Chancellor of the Exchequer, and he was promised £60 million in quicker repayment of Germany's post-war debt. I congratulate him. The Government have avoided international bankruptcy by a speedier repayment of the loan which the Labour Government made to the Germans, and we are glad to be able across the Committee, and across the years, to help the right hon. and learned Gentleman.

Turning from the current account to the capital account, we see that there were two special items in the White Paper. We got £131 million, according to the White Paper, from Ford's for the sale of Dagenham and we remitted to the International Monetary Fund the £127 million that we had borrowed in the 1956 emergency. As Chancellor of the Exchequer his record last year was that he sold the British-owned assets of the Ford Company, one of our major industrial undertakings, to pay off the balance on the Suez debt which he had incurred as Foreign Secretary. The figures just about balanced.

I now turn to production. The election over, we have had, of course, another twelve months' stagnation. Production this January was the same as a year ago. It is the old familiar pattern—the election spurt, and then a long period of stagnation while other countries go marching ahead. Since we have now had nearly ten years of right hon. Gentlemen opposite, I think that it is not inappropriate that I should give the Committee comparative international figures for the period since 1951. Taking 1951 as 100, in Japan production has gone up by 253 per cent.; in Russia by 166 per cent.; in Germany by 113 per cent.; in Italy by 108 per cent.; in France by 79 per cent.; in the Netherlands by 75 per cent.; in Canada by 44 per cent.; in the United States by 33 per cent.; in Britain by 32 per cent. and in Belgium by 18 per cent. Are hon. Members opposite proud of our standing in that league table?

I could give the export figures which show an even more miserable relative performance. I could give the figures of investment not only outside investment figures but within the total figures for the growth of major industries, which show that most other countries expanded a great deal more than we did in the metal-using industries, the chemical industries, in the industries providing goods which the world wants, while we, of course, led Europe in the provision of consumer services.

These figures have two very pointed lessons in the terms of the Budget and our position in world affairs. Let me tell hon. Members opposite what our position would have been if we had increased production in this country since 1951 only as much as the rest of Western Europe. It is not much to ask, but I think that hon. Members opposite will agree that it was too much for them.

Mr. Cyril Osborne (Louth)

That was just after the war.

Mr. Wilson

I am grateful to the hon. Member for admitting that 1951 was so close to the end of the war. It is not exactly the current theme of Conservative propaganda on the other side. If it were any comfort to him, I could give similar figures to those that I have given, taking 1956 as the best date, when the present Prime Minister first became Chancellor of the Exchequer. The hon. Member would find that the figures then were worse than those that I have given. It depends, as the hon. Member says, where one starts.

Mr. Osborne

Can the right hon. Gentleman give the figures of production and the sale of exports by the coal mining industry in the last ten years, and explain to the Committee why both production and exports have failed in that nationalised industry?

Mr. Wilson

The hon. Gentleman gets a little tedious with his questions. We have had that from him many times. The Committee knows perfectly well that production rose a great deal more under public ownership than it could ever have done under private ownership, until the Government's fuel policy caused a decline in coal production two years ago. I can understand the hon. Member not wanting to hear the figures which I am about to give.

If we could have done that, I think that he would have agreed that it might have been possible for this country, under a Tory Administration, to increase production as much as the rest of Western Europe has done. If this had been done our national income would be nearly one-fifth greater than it is today. This would have increased Government revenue at existing tax rates by £1,000 million a year, enough to double our public investment in education, housing, and the health and welfare services, and to double the level of aid to underdeveloped countries. On top of that, we would have increased personal incomes by over £2,000 million, equivalent to more than £2 a week extra to spend for every family in the country.

Of course, the second result would have been the immense strengthening of this country's position abroad. I think that we were all a little concerned a couple of weeks ago when our economic weakness was shown in the recent Washington meeting, where the whole world could see the Prime Minister, the man who, five years ago, said that he intended to make Great Britain great, in the rôle of a rather seedy uncle at the receiving end of some well-chosen homilies from his wealthy, forward-looking nephew. Our position at that meeting, and the image which we gave to the world, would have been immensely stronger but for the debilitating effects of Tory freedom. As President Kennedy said in his election campaign, quoting Lloyd George: A tired nation is a Tory nation. The never-had-it-so-good boom which won the Tories the last election barely survived the election, but now, thanks to the courtesy of the Chancellor and the White Papers which he has published, we have the figures of that boom. We can look at it over the whole period and it is right that the Committee, concerned, as we should be, with social justice, should see how different sections of the community fared in that boom, as recorded in the White Paper. Let us see who it was who cashed in—those who never had it so good: old-age pensioners, no increase; National Assistance recipients, up 11 per cent.; wages up 11 per cent.; gross profits up 20 per cent.; dividends on ordinary and preference shares up 34 per cent.; dividends on ordinary shares up 43 per cent.; index of ordinary shares up 52 per cent.; dividends on property shares up 110 per cent.; and the index of property share prices even higher than that.

As the Prime Minister said so movingly on election night: We are one country. We are one people. These were the main facts which the Chancellor faced when he prepared his Budget—all these figures were known to him—and his Budget should have been dictated by them: first, a disastrous balance of payments position, secondly, stagnation of production, and, thirdly, a manifestly unjust distribution of the national dividend. The inspiration directing his Budget should have been a determination to remedy them by positive and vigorous action.

The Chancellor began yesterday by examining his expenditure commitments. He faces, as did his predecessor last April, a formidable increase in Government expenditure. Five years ago the Prime Minister pledged himself to reduce Government expenditure by £100 million. Since then it has risen by £1,300 million. During the last General Election he produced blood-curdling and marrow-chilling speeches saying that if the prodigal Socialists were returned Government expenditure would rise at the end of five years by £1,000 million a year. In eighteen months it has risen by £600 million, so we are more than half-way there already.

In the debate on the Report of the Public Accounts Committee last December I said that the House cannot expect to secure major reductions in Government expenditure except on the basis of major changes of policy, and that it is dishonest for an hon Member to vote for certain spending policies one month and then complain when the Chancellor presents the bill. I said that it was the duty of the House—aided by the Estimates Committee and the Public Assistance Committee—[Laughter.] I am sorry, but after the White Paper that we had last week, referring to the £401 million to private industry, I am not sure whether that would not be a more accurate title. Anyway, it is the duty of the House, aided by the Estimates Committee and the Public Accounts Committee, to secure value for money, and this, quite manifestly, we are not getting.

The Chancellor was brutally critical of his colleagues yesterday in the matter of waste, but he should start with himself. Since last year there has been an increase of £46 million in interest payments on the National Debt, as a result of his own monetary policy, and his estimate for this year shows that that figure is likely to rise by another £20 million.

Let us look at the Chancellor's colleagues—as I think he would prefer. Let us take the Admiralty Accounts, published last month. We have the normal overspending on individual items. We are all used to an admiral-warship coefficient greater than unity—more admirals than ships; but this year we have something even more interesting. Let us consider the figures for Admiralty educational establishments—the Royal Naval College at Dartmouth and the Royal Engineering College. They both have a staff-pupil ratio of more than 1 to 1. There are more teachers than pupils. Meanwhile, the right hon. Gentleman who presides with such elegant complacency over our national educational backwardness stands at the Dispatch Box and tries to justify classes of 40 pupils and over in our primary schools.

Let us consider other major spending Departments, and the vast amounts poured out by the Minister of Health, without check and without even obtaining figures of costs of production and advertising, to the American pharmaceutical subsidiaries—the one-armed bandits of the National Health Service. Let us consider the missiles programme. Blue Streak was scheduled to cost £600 million, but was mercifully stopped at the £100 million figure; but it is still costing £1 million a month. Seaslug was estimated to cost £1½ million; it is now estimated to cost £70 million; Thunderbird was estimated to cost £2½ million, and is now estimated to cost £40 million; Firestreak was estimated to cost £4 million, and is now estimated to cost £33 million, with another £20 million required for the cost of the Mark IV variation.

There are a lot of candle ends for our Gladstonian Chancellor there. His failure to deal with them—his failure to stand up to the costly ambitions of the Prime Minister and the Service Ministers—are of direct relevance to this Budget and the unequal burdens falling upon the British people.

I now turn to the Chancellor's proposals. The first of the powers he seeks to introduce are his new economic regulators—devices for regulating the economy between Budgets. The right hon. and learned Gentleman is different from the Home Secretary who, when Chancellor, used to give us autumn Budgets instead. The Chancellor complained about the jerkiness of existing policies. He seemed to say that we suffered from Government by jerks. I welcome his clear repudiation of the monetary weapon as the main economic regulator. Year after year we have argued this point, and our arguments have been sustained by the Radcliffe Committee.

The best epitaph for this now discredited policy, which has been so ruinous to this country, was contained in an article a few weeks ago by the City Editor of the Spectator, in which he said: This Government will go down in history as the purblind administration which abused and disintegrated the gilt-edged market, which brought ruination to thousands of trust funds for whom the Trustee Investments Bill is now intended to bring some overdue relief. The theory behind this monetary folly is that in a free economy the long-term rate of interest must be allowed to find its proper level—the so-called 'equilibrium' rate—which on the high side will check an inflation and on the low side will check a deflation. The theory is moonshine because the 'equilibrium' rate which will really stop an inflation is so high—over 12 per cent. at least—that all forms of investment—industrial and social investment in council housing and public works—become too expensive to undertake. In fact, it kills both expansion and the Welfare State. It also kills itself, for it raises rents to such a high level that the enraged trade unions perforce demand higher wages and so add to the inflationary pressures. We are now to have two new regulators, and the House of Commons will want to consider these very carefully on the Finance Bill. The first gives the Chancellor power at any time to vary the broad field of indirect taxation by fiat, subject to the affirmative Resolution of the House of Commons.

These are very big powers to give to a Chancellor. There will be many who will object to relinquishing this House's control, at Budget time, of the total revenue with which the Government are to be entrusted for the year ahead. There will be many fears that a Government in trouble will increase the taxation on commodities of general consumption while still leaving Surtax untouched. Under the proposal we might get an autumn Budget every year, without the all-night sittings and the other things that, as the Home Secretary well remembers, normally accompany an autumn Budget of this kind.

We must also face the fact that there will be serious uncertainty for trade and industry. The effect upon traders' stocks might be very serious from time to time as speculation arises whether the Chancellor will use his new regulator and, in consequence, it may be far more of a destabiliser than a stabiliser. We can also visualise the pre-election use that might be made of it by a Prime Minister of the same high electoral principles as the present incumbent.

But what strikes me as odd is the Chancellor's willingness, indeed his desire, to introduce this power when he and his predecessors have rejected the proposals that we have made year after year, that Chancellors should have power, by Order, between Budgets, to make illegal new tax avoidance devices which might be losing the Revenue tens of millions of pounds. We have made this proposal year after year and have said that what the Treasury was trying to do about the dividend stripper was outflanked by dividend strippers and other tax avoidance manipulations before the ink was dry on the Finance Bill, but we have always been told that such action would be undemocratic. Now the Chancellor is proposing to do it so as to have freedom to raise a couple of hundred million pounds excess revenue in any year. Why use it for raising indirect taxation and reject it as a step to curtail the activities of tax dodgers?

My right hon. Friend pointed out some of the objections to the payroll tax. He referred to its unfairness between industries, and its blunt instrument effect as between different areas. The Government would be most likely to introduce this payroll tax at a time of balance of payments difficulties, such as we had in the autumn of 1957. Had the Government had power to do this at that time it is clear that it would have intensified the depression and the growth of unemployment which was already on the way. The idea amazes me.

We had a half-hour homily yesterday about labour costs being too high, but a tax on wages would make them higher. If the right hon. and learned Gentleman thinks that wages are too low to secure a real economy in the use of manpower the answer is obvious. He should press for higher wages instead of following the usual procedure of condemning wage increases for three years and then taking credit for them at election time. Has he considered the effect that the new proposal will have on industrial relations? Does not he feel that the workers will consider themselves to have been cheated when they think that employers can afford, or can be made to afford, to pay the labour tax to the Government—while, at the same time, those same employers are refusing to give them wage rises? Does the right hon. and learned Gentleman really think that this measure will be effective? Does he really feel that 4s. a week in this form of taxation will secure an economy in manpower?

Suppose that the Chancellor wants to persuade an industry that is working short time—such as the motor car industry was doing a short while ago—to streamline its labour force. What will happen if that industry considers that the market will improve—in a very similar way as the motor car market did improve not long ago? Does the right hon. and learned Gentleman expect the leaders of that industry to discharge its workers for the sake of a 4s. a week tax? When we consider that an industry will continue to pay wages, it is hardly likely that it will streamline its manpower force because of this proposed 4s. a week tax.

Has the right hon. and learned Gentleman considered the effect of the proposed 4s. payroll tax on the different industries in Britain? How, for instance, will it affect the hospital service, or local authorities, or the other one hundred essential services and industries in this country which are quite incapable of introducing automation?

So much for the economics of the matter. Now I come to the proposals, some of which we welcome. We welcome, for example, the relief proposed to be given to victims of Nazi persecution, for which some of my hon. Friends and some hon. Gentlemen opposite have fought very hard for many years. Secondly, we welcome the Excise duty on television advertising revenues, which we pressed on his predecessor year after year. Although the original suggestion came from this side of the Committee, we are glad that it has now been accepted. We consider that the duty is at too low a rate, but at least it is a start.

I was interested to see yesterday that the Chancellor actually confessed to having been one of the originators of commercial television. Admittedly, he is a poacher turned gamekeeper, but, in admitting that, I was surprised at his frankness. Last night, on television, the Chancellor admitted quite freely that this fantastic and, in many cases, degrading advertising is, in fact, paid for by the consumer. He did not seem to mind that the tax was passed on to the consumer as a result of higher prices in the shops. Nevertheless, we welcome what he has done in this direction and we further suggest that he should put a tax on patent medicine advertising and, in our view, that he should use the revenue from that tax to abolish the charges for National Health Service prescriptions.

We welcome, also, the tax on fuel oil for heating. This was first proposed from this side some years ago, both for the sake of removing an anomaly and as a measure which would make this country less dependent on highly precarious imported oil and help the use of indigenous fuels, such as coal. We consider that some of the revenue should be devoted to removing entirely the tax on diesel oil used by road passenger transport. We are all aware of the serious difficulties of some country bus services. There has recently been a report proposing a Government subsidy for them. Since we are all aware of the difficulties of these bus services, we hope that the Chancellor will devote some of the revenue to that quarter.

We are seriously concerned about one part of the changes that the right hon. and learned Gentleman proposes in the oil duties, and that is the increased tax on paraffin, or kerosene. We are all surely aware that this commodity is used in many country districts, not only for heating but in some cases for lighting. On the whole, it is a poor man's fuel—unlike central heating, which is a rich man's luxury. This particular proposal of the right hon. and learned Gentleman will mean serious increases for some people who cannot afford the extra money, and I warn the Chancellor now that we intend, during the Committee stage of the Finance Bill, to move an Amendment designed to exclude this fuel from the operation of this tax.

We welcome, of course, the additional relief of insurance contributions, but again, this was pressed upon the Chancellor by my hon. Friend the Member for Sowerby (Mr. Houghton) some time ago. We welcome that concession just as we welcome the minor relief given to ministers of religion who pay tax as the beneficial occupiers of manses and vicarages.

I pass over without comment some of the minor measures—double taxation relief, the ad valorem Stamp Duty on bills of exchange, Schedule E assessments, the returns made by industrial and provident societies, even the final redemption of the Ottoman Guaranteed Loan, 1855—as these are appropriate matters for the Committee stage of the Finance Bill, late at night.

Turning to Profits Tax, this has been appearing with surprising regularity in successive Tory Budgets and the figures I have given of the rise in profits, dividends and share values suggest that it will not impose hardship, although I press upon the Chancellor the need to revert to a differential Profits Tax with a low rate for profits ploughed back in new investment and a high rate on profits distributed as dividends.

In connection with Profits Tax, I record one of our major disappointments; the failure of the Chancellor to do anything about a capital gains tax. The arguments for this have been put forward from this side not only as an act of fiscal justice, but as an essential instrument in the hands of the Chancellor if he is to stop tax avoidance. Our warnings have been given point, because in a newspaper article this morning there was an account of the way in which yesterday—Budget day—a man, through marketing his property shares on the Stock Exchange, made £1 million tax-free in that single day. Yesterday, we heard from the Chancellor all about hardship and the miseries of the poor Surtax payers. Well, that was one result.

Vehicle Excise duty was, I suppose, a sitting target. It was clear that the Chancellor would not be able to keep his hands off it. I will not weary the Committee, nor embarrass the Chancellor, with long quotations from the speeches made attacking the level of road vehicle taxation, then very much lower than today, in the Budget and Finance Bill debates of 1950 and 1951, by a distinguished Tory back bencher, then described in HANSARD as "Mr. Selwyn Lloyd (Wirral)." In passionate words he condemned the fact that road taxes had risen to £275 million in that Budget. They will be running at nearly double that rate now.

I do not suggest that the increase will mean hardship for every car owner. Far from it. But many families with small cars, will feel it, including those who have just invested in one. No one objected, twelve years ago, when the horsepower tax was replaced by a flat-rate tax, but £15 is very heavy as a flat-rate tax. Without going back to horsepower tax, with its distortions of engine design, I feel, as we have urged before, that there is a case for taxing cars by their ground area; the amount of space they occupy on the Queen's highway. It is quite wrong that a small Austin, Morris, or Anglia should pay £15, the same rate paid by some of the American obscenities that are coming over in increasing numbers, and which are taking up so much parking and road space.

I deprecate the chicken-hearted attack the Chancellor made on the business-owning motor car racket. There is a slight increase in the calculation of annual value and a limitation of capital value to £2,000. The Welfare State no longer covers Rolls-Royces or Bentleys. It draws the line at the Daimler, the Cadillac, the Princess, or the Jaguar. However, the subsidised business-owned fleet will still be running as a charge on the national resources of between £120 and £130 million a year—and this in a country which cannot afford to provide small runabouts for paraplegic ex-miners or ex-Service men unfortunate enough to have had both legs amputated just below instead of just above the knee.

I suggest that the Chancellor should do the following four things: first, abolish the initial allowances; secondly, provide that the annual value of car use allowed to any employee of a company shall not exceed, say, 4 per cent. of the individual's declared income for tax purposes; thirdly, tax each allocated car on an assumed 50 per cent. private use—this may be over-generous—except where full log-books are kept proving a higher figure; and, fourthly, limit tax-allowed cars to being driven by the firm's employees and not their wives.

As for business entertainment, since this is presumed to increase orders and profits and since, as the Chancellor admits, it is being greatly abused, I suggest that only 50 per cent. or a similar figure of total business entertainment expenditure be allowed for tax purposes. This is not a triviality. Business entertainment expenditure on drink alone is estimated by the Government—and this is a very conservative estimate—at £40 million a year. Business entertainment expenditure on food and other things must run into hundreds of millions of pounds a year, and I suggest that the Chancellor should deal with it.

I have just had handed to me an advertisement from The Times. I quote: Experienced Butler, 40/50, required for the director's suite of a world-famous company in the West Middlesex area; duties will involve the control of three dining rooms and a staff of two or three waitresses, including wine service; hours … with possible overtime, evenings and weekends (with pay). This is a permanent staff appointment with a good wage and bonus, excellent working conditions and staff facilities. The taxpayer, through the Chancellor, is paying for this. Why not deal with the problem instead of merely preaching sermons?

Now I come to the Chancellor's Surtax proposals. Let us right away strip this argument of the humbug and hypocrisy. Why does not the Chancellor "come clean"? This is what the Tory Party is in business for. This is class legislation of the most blatant type, made all the worse this year by the increase in the National Health poll tax. The Chancellor prefaced his proposals with an appeal for restrant in wages, for restraint in personal expenditure, and this is the example he sets. Certainly, never has a tax change been more carefully prepared in the public Press than this one over the past few months. We have even had speeches from the President of the Board of Trade. It is all to be done in the sacred name of incentives and exports. This is a new development of Tory folklore.

We have all known for a long time that all Stock Exchange investors were widows and orphans—and the orphans have been fairly active recently in the take-over bids. Now we find that all Surtax payers are exporters. The argument is that if we cut their tax, they will work harder and export more. It is a fairly serious slander on the business community to say that they have not been trying full-out because they resented the level of Surtax that they were paying, that they were weary Willies and tired Tims and all the other things that used to be thrown at the British workmen by right hon. and hon. Members opposite.

I do not believe that to be true. I believe that the vast majority of our businessmen have been working full-out for export and in other directions as far as they felt able, having regard to the pull of the market. It was not the pull of the Surtax that was holding them back. The argument now—the Chancellor put it frankly on television last night—is that the Surtax-paying exporter will work harder, that he will export more and that our balance of payments will prosper. That is the argument, is it not? Suppose, however, that the businessman is an importer. Will not this incentive make him work harder to import more and sell more on the home market? Of course, he may not be engaged in international trade at all. He may be a take-over bid tycoon, a television advertising manager, a property speculator, or a tax avoidance specialist—because we were told about the professional man. They will all work harder. He may be the owner of a strip-tease parlour that flourishes under the expense account racket. All these will work harder. Will they all equally help our exports?

We welcome the Chancellor's fine words about scientists and technologists. We would like to see these fine words matched with action in scientific education and measures to encourage scientific research in industry. Fox every scientist that the Chancellor helps by his Budget, however, he is assisting 100 non-productive financial operators who already take too heavy a toll of the nation's wealth. As for emigration—we all deplore the loss of some of our best brains to America—my impression, after discussing this question with British scientific emigrés in the United States, is that their motive is not Surtax. It is the poor promotion prospects and the miserably inadequate salaries which so many of our industries hold out.

Some of our industries are not science-minded; they hold out no prospects. Even in the case of some of the best, I have looked through last Sunday's Observer, with all the advertisements that it has for young scientists and technicians, but I could not find one firm operating a starting salary that would bring the recipient into anything like the Surtax level.[An HON. MEMBER: "Starting salary"?] Yes, starting salary. These are the people whom we talk about discouraging from emigration. Most of those of whom I have heard have emigrated simply because, having started, the prospects of promotion are so dim. First-class graduate scientists start at £700 or £800 a year in the aircraft industry, with very little prospect of promotion as time goes on.

I ask those hon. Members opposite who know industry how many firms are paying scientists on a scale even remotely comparable with public relations officers, advertising managers, or home sales managers. There are very few of them indeed.

Mr. David Price (Eastleigh) indicated dissent.

Mr. Wilson

The hon. Member shakes his head. Of course, he has a great connection with I.C.I. There are big exceptions, I agree, and I.C.I. is the biggest, as is well known. Scientists are well paid in I.C.I. We had reason to hear about this recently. Not all concerns, however, are like I.C.I. The truth is that this Surtax manœuvre, when stripped of its humbug and hypocrisy, is, in the main, a hand-out to the directors, a pay-off for years of costly and unremitting propaganda by the Institute of Directors and their fellows.

It would be improper for me to say how far it is the pay-off for their electoral endeavours. I want to be frank, however. Many hon. Members opposite know that what I am saying is true. Many of Britain's business managers and directors, particularly those who have worked their way up and come onto the board as a result of their ability in science, management, design or knowledge of exporting, or of the export drive, are as good as any in the world. But if a good half of the nation's directors—those appointed through financial tie-ups, through the old-boy network, through fourth generation dynastic appointments, simple nepotism of the kind that we see in Government appointments, or because of their tie-up with the Tory Party in either of the Houses of Parliament—if half of these directors went and were replaced by energetic young scientists, technologists and executives, Britain's industry and export trade would be a great deal healthier and more vigorous. Hon. and right hon. Members opposite know this. Given the chance, these young men whom I have mentioned would not refuse responsibility because of the rates of Surtax. They would be keen to do the job.

Of course, we want to see taxation on the middle ranges of our scientists and executives reduced. We want to reduce the glaring gap in rewards between those who do a productive job in British industry and those who make vast tax-free killings by speculation in land, property or Stock Exchange shares. That is why we have urged a capital gains tax and a determined drive against tax avoidance. That is why we believe that vigorous policies of economic expansion can produce the revenue which would enable the Chancellor to operate a fair tax system with much more generous personal, child allowances and unearned income allowances all up the scale, not merely at the top, providing incentives to all the workers who, by hand and brain, produce the nation's wealth.

The difference between a Conservative Chancellor and a Socialist Chancellor is this. The Conservative—we have debated this principle year after year—regards all taxation as a withholding of private wealth and so he concentrates his reliefs on those who pay most. "I am only returning their money", he says; so to him that hath shall be given back. The Socialist Chancellor looks at the whole complex of national wealth and income and asks in what areas, from the distortions and injustices of the economic system, we find those in greatest need. He makes them—the old, the disabled, the war pensioner and the sick—the first charge on the national wealth. The Budget should be not only an instrument of social justice in itself. It should go beyond this and act sharply and effectively to correct the distortions and mal-distributions of the national wealth and income.

Then the Conservative adds to the injustice of this approach by a new concept. We have had this now three times in five Budgets—the concept of the dual Budget, the February Budget, increasing direct taxation by more contributions, and the April Budget, reducing taxation on the rich. This now has happened in three years out of the last five. The poll-tax element in our system of direct taxation now accounts for nearly 30 per cent. of the total direct taxation raised by Income Tax, Surtax and stamp contributions. It is an element of flat-rate taxation which we on this side of the Committee have argued bears no relation to means and none to needs.

It has reached a point now where an average family man has to earn £850 a year, £17 a week, before he is paying as much in Income Tax, graduated in terms of ability to pay, as he pays in flat-rate Health and Insurance contributions. From each according to his means, to each according to his needs; that is why I assert that the time is long overdue for an integration of the poll-tax revenue with the graduated system, so that ability to pay taxation, having regard to income and to family needs, should be the theme of our entire fiscal system.

But hon. Members opposite who cheered the Surtax hand-out yesterday have voted year after year, and they will troop into the Lobbies again on this year's Finance Bill, against a tax allowance for blind persons for the cost of maintaining guide-dogs. One has the same anomalies in indirect taxation. I have referred to expense account cars, on the one hand, and paraplegic ex-miners, on the other. Last year, the then Chancellor of the Exchequer took £5 million off the tax on port, to the unfeigned delight of the overripe pheasant in the Home Office. This year, new charges are added to welfare foods, costing less than the £5 million—orange juice, cod liver oil and the rest.

But a Socialist Chancellor would have based his Budget not only on social justice, but on the overriding economic needs of the country. He would have given priorities to essential investment, not by gimmicks like the payroll tax, but by provisions for a quicker write-off of capital investment, not excluding the possibility that businesses could decide their own rate of write-off—all in one year if they want.

If there is one priority overriding all others, it is the encouragement that this country needs to give to science and technology. The events of the past week lend it special urgency. We meet the Soviet scientific challenge—with what? With a national expenditure on consumer advertising of £450 million a year against a total expenditure of £478 million on scientific research, of which £370 million is contributed from public funds. Seventy per cent. of our scientific budget comes from public funds and less than 30 per cent. from private industry, which puts up £136 million, less Chan one-third of its expenditure on advertising.

This is why we have called for a crash programme to train more scientists and technologists. The Soviet Union trains 130,000 graduate scientists and technologists each year. We produce 13,000. Japanese universities have 600,000 students, a proportion ten times as much as that of Britain and, even so, they intend to double the output of scientists, engineers and technologists. The President of the Board of Trade knows what that will mean to export trade in a few years' time.

This crash programme for which we have called will mean not only a great deal more money, but a complete reorientation of our priorities and our educational structure. Our proposal to end the arbitrary 11-plus selection is not only put forward on democratic and egalitarian grounds, but it is an imperative for our national survival. We need a new policy for science teachers—what my hon. Friend the Member for Southampton, Itchen (Dr. King) has called the seed-corn of the scientific harvest. We need a new policy for the redeployment of our scientists when we have trained them.

Fifty-two per cent. of the total national expenditure on research and development goes on defence, or so-called defence. This high proportion now imperils our national survival. Far too many of the rest are deployed in private industry, on trying to produce new and unwanted gimmicks or additives to consumer goods so that the advertising managers can rush on the television screen. We shall not meet the Gagarin challenge by deploying still more trained scientists on the job of inserting different coloured stripes into the nation's toothpaste.

But we need, even more than these, a new and determined drive to apply science in industry. Some of our industries have a great record, some private and some public industries. We have the great research record of the Post Office, which has never received its due meed of tribute, the Atomic Energy Authority, in which, as the Prime Minister has boasted, we lead the world in the peaceful application of atomic energy, the new developments in publicly-owned coal, gas and electricity. Let us look at the machine-tool firms which account for 90 per cent. of the output with 25 graduate scientists and engineers between them. Shipbuilding has a record which is no better.

In industry today we are suffering from the Maginot mind. Just as the French, a generation ago, thought that their military defences were impregnable because of the Maginot Line, so we tend too often to think that Britain will maintain her exports and we can come to no harm because of an impregnable reputation for quality. But, just as the Maginot Line was turned by the gap which the Germans exploited, so we may go down because of the equally dangerous gap so far unbridged between science and industry.

Last month, when I was in the Soviet Union, I saw at first hand their top-level organisation for linking science with industry, the committees of the Presidium of Ministers, the arrangements for the engineering industries, including machine tools, for the chemical industry, for automation, for shipbuilding, for building and building materials, and for aircraft, including their not inconsiderable work in space travel. What have we to set against this? The noble Lord, Lord Hailsham, on a part-time basis.

An indication of what we can do has been given by the National Research Development Corporation, set up by the Labour Government, which is, more than anything else, responsible for the development of our computer industry and the Hovercraft. Today, for lack of funds and for lack of the necessary statutory powers, vital work is in danger of coming to an end, including a major break-through in what might be the world's finest fast computer. I emphasise to the Government that these developments, starved through lack of finances, even more through lack of drive and concern, have vastly more bearing on our national survival than many of the pet projects so wastefully financed by successive Ministers of Defence.

I therefore suggest to the Government, and especially to the Minister for Science, that they extend the powers of N.R.D.C, that where important developments are going on they come along with firm orders, beginning with the computer, to maintain continuity of production and development; that they work out a plan to increase the number of scientists on civil research and development—perhaps 15,000 today—by a further 3,000, or 20 per cent. They have not been slow to place orders for missiles and aircraft on a cost-plus research development basis. Why cannot they do the same for civil industry? Why should they not place orders for new machine tool developments, new methods of welding for shipbuilding, and so on? Why cannot we have a new shuttle-less loom for the textile industry? Let the Government get the young scientists and organise them into teams and give them a chance to show what they can do on the basis of contracts given by the Government or by the National Research Development Corporation.

These are concrete proposals. The events of last week give them peculiar and pressing urgency. I do not suggest that we should try to compete with the Soviet Union in space research. The lesson of last week is that we must begin to compete with them in the training of scientists and technologists, in employing them on national purposes and not on frivolities, and in linking science to industry.

This, in our view, is Britain's destiny in the 1960s and the 1970s. Yesterday, we saw theirs. After ten years we heard a confession of economic failure. We meet the challenge of the modern world with an effete Venetian oligarchy, a Government who themselves reflect the nation's besetting weakness of family connection and aristocratic recruitment, because this Government stand condemned not only for their crime against social justice and their monumental economic irrelevance. They stand condemned even more for their failure to produce policies which will enable Britain to recapture its lost dynamic at home and abroad.

4.41 p.m.

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

There was one phrase in the speech of the right hon. Member for Huyton (Mr. H. Wilson) which particularly caught my ear, and that was "monumental irrelevance". So far as I understood the right hon. Gentleman's speech, he made a number of criticisms of my right hon. and learned Friend, to which I will reply, but he made precious few suggestions as to how he would tackle the economic problems of the country.

The right hon. Gentleman finished his speech with some extremely interesting remarks about the importance of scientific development in industry, with most of which I agree entirely. We certainly need much more research and development in British industry, including some of the industries to which he referred. We need a greater programme, as we are having a rapidly expanding programme, of scientific and technical education. We all look forward to the time when we can transfer more of our scientists and technologists from defence research to civil research, but that time will not come until the national defence requirement permits it.

With all those points that the right hon. Gentleman made I entirely agree, but beyond that I thought that he made no positive alternative suggestion as to what should be done to deal with the balance of payments problem, or the question of economic growth, to which he often referred, but to which he had no particular solution.

Last year, the right hon. Gentleman said: A budget, in modern times, must be judged on two tests: how far it succeeds in promoting social justice and how far it helps to solve the economic problems facing the country."—[OFFICIAL REPORT, 5th April, 1960; Vol. 621, c. 215.] I entirely agree with that. My right hon. and learned Friend's Budget meets both tests.[Laughter.] Yes, because social justice is not confined to certain income groups only. People who have won positions of responsibility by their own efforts have a similar claim to social justice. Social justice does not mean equality of income. Merit is entitled to its reward, as need is entitled to its care.

During the last ten years Surtax rates have not changed at all. In that period real wages have risen by 32 per cent., the real value of pensions by about 40 per cent., and expenditure on the social services by 90 per cent. In the same period the fall in the value of money has made the burden of Surtax more onerous and has brought within the scope of Surtax many people who were never envisaged as possible Surtax payers when the tax was first thought of. The £2,000 limit was fixed in 1920 and by now has become grotesquely out of date. It was quite right for my right hon. and learned Friend to double it.

The other thing that he has done is to apply to Surtax the earned income relief given for Income Tax. What argument can there be against that? Surely there are two rates of direct taxation, Income Tax and the so-called higher rate of Income Tax. If the earned income allowance is a good principle for the one, why is it not good for the other? I can see no argument against it, and I heard no argument from the right hon. Gentleman in any way to controvert the rightness of the two steps which my right hon. and learned Friend has taken.

It is neither social justice nor economic wisdom to impose a discouraging and penal tax on people with skill and enterprise who have won their way to leading positions in our country. I have no doubt that these rates of Surtax, despite the right hon. Gentleman, have been a discouragement. They have been a discouragement to risk taking. They have been a discouragement to people taking greater responsibility. They have been a discouragement to greater effort. They have been a discouragement to people to change their jobs and go to new situations. Anyone who knows industry knows that that is true. I have no doubt that these changes will be a great stimulus to the economy as a whole and to exports in particular.

Let us look at the comparison with other countries. The right hon. Gentleman produced his usual league table to show how other countries are doing better than ourselves, but he did not go into the other comparisons. The Germans, probably the best example, have expanded their exports much more than us. They do not plan more than we do, they do not nationalise more than we do, and they tax their businessmen far less. For people earning £2,000, £3,000, £4,000 a year the amount of tax they have to pay on every additional £100 they earn by their efforts is much higher in this country than in Germany or the United States. If hon. Gentlemen are interested to know the reason why Germany is expanding faster than us, that is a very good place to look for the reason.

Mr. John Diamond (Gloucester)

I am grateful to the right hon. Gentleman for giving way so early. Will he explain to the Committee in exactly what way he will work so much harder and better as a result of the £450 a year that he will get out of the Budget?

Mr. Maudling

I do not think that anyone regards that as a serious argument. I have an incentive to dispose of the arguments of the right hon. Gentleman which money would not buy.

There is another argument, apart from the question of the relative rate of Surtax upon executives, technicians and managers. The scarcity commodity in this country at the moment is good management. We must face that. If we are to expand faster, we must depend on our resources of skill and efficient management. Looking at the other end of the scale, if we are talking in terms of social justice the rates of direct taxation in this field on people earning less than £1,000 a year are still much lower than they are in Germany, America and France and all the other countries, except Australia, shown in the recent National Institute Review.

The Surtax changes my right hon. and learned Friend has made can be justified not merely as an incentive to output and expansion in the economy, but as an act of social justice that, if anything, was overdue. The money is coming from the equity shareholder. That is also just and certainly in line with the precepts of the Leader of the Opposition, who thinks that, on the whole, owning is too profitable and earning not profitable enough. Therefore, what could be more reasonable than to increase the taxation on the equity shareholder and use the proceeds to relieve the manager, the scientist, the technologist and the people who are living on earned incomes?

My right hon. and learned Friend's proposals in this respect have a courage and realism of the type which this country's economy badly needs at present, because we are at a moment when we must take a new and dispassionate look at the problems facing us, the progress we have made and the changes we must make in future. There are many reasons for this—the development of technology, particularly in Soviet Russia; the great changes taking place in Europe; impending reductions in tariffs in the G.A.T.T. negotiations, which I hope, will be very substantial; the very rapidly growing burden of aid to the underdeveloped countries; the growing competition of cheap imports from industrialising nations; the changing policy of the United States; and the new impulse from the new Kennedy Administration. All these factors combine to impel us as a nation to look again at where we stand, what progress we have made, and where we go from now.

Our progress during the last ten years has not been so bad as the party opposite has sometimes argued. There has been a steady improvement in living standards and we are keeping fully abreast of my right hon. Friend the Home Secretary's target of doubling our living standards in twenty-five years. Over the last ten years investment has increased by 135 per cent. Next year it will be up to over 19 per cent. of the gross national product. Our expenditure on education in these ten years increased by 140 per cent., and our expenditure on road-making by more than 600 per cent. We have maintained in general full employment. There is still a very serious problem in Northern Ireland, and there are still, I agree, difficulties in Scotland, but, by and large, we have retained a high level of employment and remarkable stability of prices.

All this is not a record of which this country should be ashamed, and we should be unwise to listen too much to some of the groanings that come from the other side of the Committee. It is equally true that we have still failed to solve two particular problems. We have not broken loose from the dilemma of the balance of payments, and we have not made our rate of growth fast enough or consistent enough. The right hon. Gentleman talked about our rate of growth this afternoon and produced his usual table. This reminded me of the definition of "growthmanship" in the book by Mr. Colin Clark: An excessive preoccupation with economic growth, advocacy of unduly simple proposals for obtaining it, and the careful choice of statistics to prove that countries with a political and economic system which you favour have made exceptionally good economic growth and that countries administered by your political opponents have made exceptionally poor economic growth. The right hon. Gentleman did not do that. What, in fact, he showed was that the countries which have grown most rapidly are those which pay the least attention to his advice.

Of course, in considering these international growth tables, we must not be led away by simple statistics nor try to write them off too easily. There are reasons why our growth has been less rapid than that of some other countries—the growth of our working population, the actual number of people who work in industry has grown far less than in Western Germany, and the burden of defence in this country, which we must undertake, and the burden of aid to undeveloped countries, which we are proud to undertake, has been and remains a heavy one. Indeed, I have the feeling that we are doing more than our own share. The position of sterling is one thing that we must always have uppermost in our minds and, as the right hon. Gentleman himself said in 1958: … the strength of sterling and all that depends on it must take priority over all other considerations."—[OFFICIAL REPORT, 16th April. 1958; Vol. 586, c. 187.] That, I take it, includes growth as well.

Mr. H. Wilson

Is the right hon. Gentleman aware that we have argued many times with right hon. Gentlemen opposite and yesterday we managed to get one glimmer of understanding from the new Chancellor that the best way to keep sterling strong is to have expanding growth, expanding investment, and, above all, the increasing productivity which results from that growth?

Mr. Maudling

I do not think that is quite right. I do not think that growth itself maintains stability. It is a question whether growth is combined with efficiency and proper cost of production. Sheer crude growth does not itself solve any problems anywhere. Although these are handicaps which we have to face, they are handicaps which we must clearly overcome.

First, we must have more room for manœuvre. Our short-term position has always been difficult since the war because of the inadequacy of our reserves in relation to our commitments. Here, we have two different considerations to bear in mind. First, possible speculative attacks on sterling, and here the co-operation of the central banks has obviously in recent weeks provided new opportunities and ways of meeting difficulties. Secondly, there is a necessity to provide finance at times when countries are passing through temporary economic difficulties. Here is the function of the International Monetary Fund, about which the right hon. Gentleman has often spoken, but not today, surprisingly, because it is one of the most important and urgent problems facing us today. I should have thought that he would have told us what his choice was between the Triffin Plan, the Bernstein Plan and the Maxwell Stamp Plan.

Mr. Wilson

I gave the right hon. Gentleman and the Government my views in the debate on the Radcliffe Committee's Report on 26th November, 1959, and we still have not had one single word in reply to what we put forward.

Mr. Maudling

The urgent problem is to improve international liquidity by restoring the present imbalance, which we are doing in concert with the Americans and the Germans, and improve rapidly the facilities of the International Monetary Fund by increasing their drawing rights in currencies other than dollars and sterling. This is the sort of thing which can be done readily and we shall consider whether any further and fundamental improvements can be made to the International Monetary Fund.

This is only dealing with temporary problems. The long-term problem, to which the right hon. Gentleman addressed not one single word this afternoon, is how to improve our export trade. It must surely be apparent, even to the right hon. Gentleman, that without this we cannot hope to have a greater prosperity in this country and stronger growth.

Mr. Wilson

Even?

Mr. Maudling

If the right hon. Gentleman feels so strongly about exports, why did he not refer to them? I was hoping that we should hear from the right hon. Gentleman something of his own proposals for dealing with these problems. I studied his recent article in the New Statesman on his four-year plan, and despite Mr. Alan Day's letter, I think there are some bits left of it, but he did not produce them this afternoon.

So far as I recall, his first main proposal was to nationalise the commanding heights of the economy. The party opposite has never defined these commanding heights, probably because it cannot define the commanding heights of its own party. Whatever the reason, the right hon. Gentleman did not define them He said nothing about controls. Has the party opposite abandoned controls? Has it given up import controls and building controls? Perhaps it at last realises what has been apparent to all of us on this side—that import controls have no possible relevance to our problems and are no solution to the balance of payments difficulties. Equally, I think the party opposite realises that building controls are irrelevant and offer no contribution to the solution of the problems of our economy at present. If the party opposite and the right hon. Gentleman still think that there is anything in the system of controls which may be of value to this country's economy, why did he not mention them this afternoon?

He did not refer to the need for restraining consumption. He did that in his article, and he has done it in previous speeches, but not today. Perhaps, at last, he has realised the unwisdom of constantly appealing for measures to restrain consumer demand while constantly voting for measures which increase it. The right hon. Gentleman voted yesterday against a measure imposing taxation on vehicles which I should have thought was a policy entirely in line with his own public statements.

We have received from the party opposite today no alternative policies whatever to deal with our problems.[An HON. MEMBER: "Why should you?"] Why should we? Because if the party opposite thinks we are wrong, if it thinks that what we are doing is wrong, I should have thought that it would have put forward some alternative. If it thinks that the issue was so simple and our errors were so clear, it might, for the sake of the country, if not the Government, have pointed out to us the errors of our ways, but there was little of that this afternoon.

Mr. H. Wilson

The right hon. Gentleman will sympathise with us in our difficulties. This is the second economic debate we have had in two months, and both my right hon. Friend and I went to great length on the last occasion in showing what should have been done about exports. That is what we have done many times in this House, but the right hon. Gentleman always comes along with a speech prepared to answer the one he thought I was going to make, so we never get a reply to the one I made. Will he now give a reply to the speech I did make this afternoon, or, as an alternative, reply to what we have said on previous occasions about exports and international liquidity; or, if he cannot reply to them, would he at least read them?

Mr. Maudling

The right hon. Gentleman should not weary of well doing. If he thinks that what he said is right, he might occasionally repeat it. If I made the error of misjudging what the right hon. Gentleman was going to say, it was because I paid him the compliment of thinking that his speech was going to have some relevance to the problems. However, I will not make the mistake again.

So far as the proposals of my right hon. and learned Friend are concerned we believe that one of the first responsibilities of the Government in order to increase exports is to restrain the demand of the home market. I will give the right hon. Gentleman the point that he did say something, one sentence, about avoiding excessive home demand, though he said nothing about how we should do it. My right hon. and learned Friend introduced this Budget, which is without question a very stiff Budget, which introduces and imposes new taxes entirely designed to deal with the balance of payments and the security of our reserves in the coming years. A stiff Budget is the first requirement to improve our balance of payments. The encouragement of savings is the next.

My right hon. Friend's other measures, the two new regulators, were treated by the right hon. Gentleman with less than his usual perception. Surely these are the sort of regulators for which hon. Members opposite have been asking and which they think are required. Every hon. Member, I think, agrees that, for example, hire-purchase regulations, although effective, are far too arbitrary in their incidence. Certainly, I, as President of the Board of Tirade, have been made only too well aware of that. I also think that we recognise that while the Bank Rate and monetary measures themselves have an important part to play, they are not enough. We want new regulators which bear upon consumption and which encourage investment. I thought that that was entirely in accordance with the right hon. Gentleman's view of our economy.

The right hon. Gentleman keeps asking for more investment. Surely he would agree that to regulate demand in the economy my right hon. and learned Friend was right to take two measures. The first, that concerning indirect taxation, will bear directly on consumption, and the second, the payroll tax, is designed to encourage investment in labour-saving machinery. I should have thought that that was entirely in accordance with the arguments which have been pressed on us by hon. Members opposite.

In modern conditions, consumer demand is far more volatile than investment demand. If we want a steady rate of expansion, we must, as far as we can, maintain a steady rate of expansion in consumer demand.

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

Before the right hon. Gentleman leaves that point concerning the payroll tax, perhaps he will allow me to say this. I have been interested in what the Chancellor of the Exchequer said about a 3 per cent. increase in productivity, thus filling the gap between the state of the economy now and what it might be later in terms of inflation. If a firm proved that it was carrying out the aim referred to by the Chancellor, namely, an increase of 3 per cent. in productivity each year, would he excuse that firm from paying the payroll tax?

Mr. Maudling

I do not think that that is the point. There has been a good deal of discussion in public about a payroll tax as an alternative, possibly, to a Profits Tax, or some other taxation on industry in the long term. The argument for the payroll tax, which I think is a very good one, is that we in this country must recognise that labour is our scarcest commodity. We must encourage industry to develop in such a way that the maximum output comes from every man, and that means that we must have the maximum capital equipment behind every man.

I was surprised that the Leader of the Opposition, with his economic knowledge, yesterday criticised this concept on the ground that it bears more heavily on the so-called labour-intensive industries than on the capital-intensive industries. The whole point is that the more rapid growth of our total output will come about only if we put an increasing share of our resources into those industries which by high capitalisation make a better use of the labour which is available. The same applies to the inevitably growing imports of cheap manufactures from developing countries. We can maintain our position in the export and home markets only if we apply ourselves more and more to the forms of output where capital is proportionately more important.

That is the argument for a payroll tax, and it seems to me to be a good one. That is the argument for substituting a payroll tax for other forms of taxation on industry. But that is not What is proposed at present. My right hon. Friend is now working on the idea that if in any given circumstances he feels that the economic situation is such that he ought to collect another £200 million worth of revenue, or some such sum, from industry, then he ought to do it by basing it on an incentive to people to use more machinery so that a smaller tax burden falls on the people who use their labour most efficiently. I should have thought that that was simple common sense. If we impose additional taxation for economic reasons, surely we should take the opportunity at the same time to instil into industry the fact that the whole country must recognise more and more as the years go by that our scarcest commodity is labour, and that we shall survive and increase our prosperity only by increasing more and more rapidly the proportion of capital equipment behind every worker.

Mr. Rhodes

I once served with a man who was a very good marcher. He used to put lead in his boots because he said that it gave him a bigger incentive to raise his feet higher. That is precisely what the Chancellor of the Exchequer is doing by this one-sided payroll tax.

Mr. Maudling

If he raised his feet higher, then that is the answer.

Mr. Rhodes

He became tired less quickly.

Mr. Maudling

If the hon. Gentleman studies the taxation system in some of the countries which are ahead of us in the industrial race, he will find that this is an effective principle. I am not saying that we have accepted changing the Profits Tax to a payroll tax, but my right hon. Friend, in applying, if he has to, taxation to raise another large sum from industry, will apply it in such a way as to encourage capital investment. I cannot see why anyone should object to this.

The fundamental problem is to increase our export trade. Because invisibles have been relatively disappointing, an even greater burden is falling on visible exports. The selling of exports and the responsibility for it must rest with industry. Our responsibility as a Government is to provide all the help we can and to remove some of the difficulties in the way of exporters. In recent months we have made steady and substantial progress in that direction. The improvements, which are large and far-reaching, in the services of the Export Credits Guarantee Department, the steady improvement and expansion of the export services of the Board of Trade and additional expenditure on overseas fairs are all ways of giving positive help to exports. We have done things to remove difficulties, irritations and frustrations in the way of exporters. The removal of Stamp Duty on bills of exchange in the Budget, the doing away with the silly system of home savings in connection with business travel and, above all, at this moment the reduction of Surtax to levels more comparable with the levels paid by our competitors who are fighting against us in overseas markets, are ways in which we are improving the opportunities for the exporter and providing him with new incentives.

I do not believe that it would be wise to introduce a special tax incentive to export, a form of subsidy based on the remission of tax on overseas sales turnover. Any such scheme would be bound to fall foul of our existing international commitments and would inspire our competitors to embark on similar schemes. By my right hon. Friend's action in respect of Surtax, I believe that he has disposed of the major part of the argument of the disincentive of taxation on exporters. Exporters and business men as a whole must recognise that the only possible basis for a sound and growing home market is a rapidly increasing export, trade. Anyone who fails to do the best he can in exporting is damaging, not only the national interest, but his own individual interest as well.

Our recent experience in the export market has, I think, shown some encouraging signs. Exports in the early part of 1960 reached a very high level. We had a sharp setback in the spring last year, mainly in North America, particularly with regard to motor cars. In considering the statistics since then, and taking account of the tally clerks' strike, which had such a big effect, it is fairly clear that since June and July our exports have been on a gradually rising trend. The figures published today confirm this. The fact that our export position has been slowly improving, despite the fact that North America is still weak, is a reason for encouragement. I believe that there are signs that North America is picking up again, and that should help us a good deal. But the backwash of the American recession will be felt by many countries who are exporters of primary products and some of our best customers. There are difficulties ahead there.

In general, in recent months experience has shown that we can increase exports if we have the will to do so. What is also shown, however, is that we are not increasing them fast enough, and we will not do so unless we put an even greater effort behind them.

Mr. J. T. Price (Westhoughton)

I wish that the right hon. Gentleman would address his mind to what my right hon. Friend the Member for Huyton (Mr. H. Wilson) said about the dual rôle of people in business. I agree with every thing that the right hon. Gentleman says about the need to encourage exports. I am all in favour of much more intensive encouragement in quite different ways. However, for every exporter, off potential exporter, in this country there are at least two importers who will work just as intensively to bring into this country, not only raw materials, but all kinds of consumer goods from Hong Kong and elsewhere. They do not come spontaneously. They are brought here because people are in business to bring them here.[HON. MEMBERS: "Speech."] The right hon. Gentleman has given way to me. I will finish presently. This is what the right hon. Gentleman will not face. The adverse balance of trade is being created just as positively by the people who are importing from Hong Kong and everywhere else masses of consumer goods which we do not need.

Mr. Maudling

I agree that imports are as important as exports to the balance of payments, but the suggestion that masses of consumer goods are the main reason for our balance of payments problem is completely wrong.

When the hon. Member interrupted me, I was about to say that a healthy balance of payments must be based on an efficient economy as a whole, efficient production for the home market to face the competition from imports, and efficient importing to get the cheapest raw materials and cheapest machinery that we can buy from abroad. That is why the fact that the Surtax cuts will give incentives and strengthen the economy shows that once again my right hon. and learned Friend has matched up to the problems of the economy that the right hon. Member for Huyton this afternoon ignored.

Mr. C. Osborne

May I ask a simple question? How is it possible for a Government, of any kind, to drive a greater proportion of our total production into the export market and to consume less of it at home, as the Germans have done, and which is the basis of German success?

Mr. Maudling

I do not think that Governments could do more than reduce the obstacles to exporters, as we are doing in the Budget, and increase the services to exporters, as we have done in recent months. It is now up to business, to employers and workpeople alike, to produce the exports that we need in competition with other countries who have no advantage now over us. Our people are adequately and equally placed to compete with the Germans, the French the Italians and the others. Now that the Government have taken these measures, they must depend upon industry to see that the exports are obtained.

The essential way in which we can achieve the efficiency of the economy that we want is by more efficient use of manpower, and more efficient use of capital. We need more scientific and technological education, as we are having, and more training of apprentices. I have no doubt that the main limiting factor on our economy is not shortage of capital equipment but shortage of skilled labour, and not only shortage of skilled labour, which my right hon. Friend the Minister of Labour, in collaboration with industry, on both sides, is doing so much to overcome, but also the need for greater mobility of labour between job and job and between task and task within a given company. The greater the degree of skill, the greater the mobility and flexibility of our labour force.

We need also the abolition of restrictions on the maximum use of labour-saving machinery, just as we need proper differentials for skill, risk-taking and responsibility. We need more mobility of capital and more willingness of industry as a whole to apply itself to new production and new exports. I often hear exporters complaining that countries overseas, often the developing countries, now make for themselves things that we used to export to them, and that is true. That means that the same exports will no longer go to those countries. Those countries will, however, go on spending abroad just as much as they did before, every penny that they can lay hands upon. Therefore, although we may lose an export opportunity in one line, there are many new lines to be exploited. I wish that industry would sometimes concentrate more on the new opportunities and less on bemoaning the loss of the old ones.

Mr. Leslie Hale (Oldham, West)

If the real problem is a shortage of skilled labour, does the right hon. Gentleman think that a payroll tax will induce employers to part with their highly-skilled men who are in short supply rather than their disabled or older workers?

Mr. Maudling

The payroll tax will induce employers to use their labour, skilled and unskilled, more efficiently and give them more horsepower to their elbow. That is the point of the operation. The hon. Member has missed it.

One of the ways in which we can get greater efficiency in industry is by more competition, including more competition from imports. I believe that in the coming months, during the G.A.T.T. negotiations that will start soon, we must aim at substantial reductions in our tariff rates over a wide range of industrial products. We should not do this on a unilateral basis. In exchange for these reductions, we should obtain new opportunities for our exports in other markets, in the form of reciprocal reductions in the tariffs of other countries. On that reciprocal basis, I hope that we shall be able to make a big move in the reduction of tariffs, as I am convinced that that would not only give us more export opportunities but, by providing more competition at home, increase the efficiency of our own industry.

These are the ways in which we must tackle the problems of the economy. I agree that there are the two fundamental problems that we have not yet solved: the problem of the need for more exports and the problem of the need for a more steady rate of growth. By his new economic regulators, my right hon. and learned Friend the Chancellor of the Exchequer has brought in devices for guiding the economy which should be less jerky in their operations than those which hitherto have been used and should concentrate on encouraging people to invest more and to make better use of the available labour force. By our Export Credits Guarantee Department innovations, we have provided considerable new assistance to British exporters. By the reduction in Surtax, my right hon. and learned Friend has given a substantial new incentive to business and to management to become more efficient and to export more.

These are practical ways of dealing with the practical problems, just as the Surtax proposals are, in my view, a belated way of dealing with a matter of social justice. That is why, on both of the tests suggested by the right hon. Member for Huyton, my right hon. and learned Friend's Budget meets his requirements and answers the problems which this afternoon the right hon. Gentleman so agreeably and engagingly ignored.

5.17 p.m.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I congratulate the President of the Board of Trade on his brilliant verbal answers to all the problems. The only difficulty is that his Government have been in office for eleven years but do not seem to have been able to answer the problems in practice. It is this difference between the verbal solutions of problems and their real solution that raises the difficulty. I agree absolutely with the right hon. Gentleman that the real problem is the question of increasing productivity and getting an increase in exports.

The right hon. Gentleman referred to the various points of his right hon. and learned Friend's Budget and made great claims for certain of the items. I was quite unable to follow the argument that the relief of Surtax is a contribution to exports. The relief of Surtax is simply an increase in real pay to the people who occupy certain positions and earn between, £2,000 and £5,000 a year. Had that increase of pay been necessary, it could have been given by the firms themselves without any action by the Government. If the firms considered it necessary to increase the incentive for these people, they could have increased their pay without this jugglery of the Government taking something from the profits and handing it back in the relief of taxation to the individuals concerned. That is simply a piece of financial jugglery that makes no difference to the contribution to exports one way or another. If these people are underpaid, their firms should pay them a proper salary to get the proper results from their labour.

The whole Surtax system is a system of graduated taxation. The President of the Board of Trade said that the value of money had fallen and that therefore something had to be done about the Surtax. Obviously, if the value of money has fallen the value of the Surtax has fallen also in sympathy with the fall in the value of money. All this argument has nothing to do with the adjustment of paying these people extra from the Government by relief of taxation and charging it up to a decrease of profits.

The other argument seems a curious one—that the money which comes into the Treasury from the profits is the same money as is handed out to the Surtax payer. That does not follow. The same amount of money will be coming in from the contributory pensions and from those paying for prescriptions and other National Health Service charges. The Treasury does not distinguish between the money that comes in, and it is a matter of political argument to say that the money going to the Surtax payer is coming from the tax on profits and not from the tax on the workers and others who are paying the contributions.

Apart from that argument—which is one of the things we could quibble about all day—there is nothing in the Budget to justify the stupid and inhuman tax on prescriptions, which prevents people from having their medicine in order to get a measly £12 million, while at the same time the Chancellor talks in terms of hundreds of millions of pounds in taxes in other directions. It is shameful that, in order to placate some people in the Conservative Party outside the House, the Government have indulged in such a stupid piece of tax legislation by imposing health and prescription charges. I hope they change their minds. Whatever the arguments about the polltax through contributions, nothing justifies depriving a person of his medicine, or of the opportunity of obtaining alleviation for disease or pain, by such a petty piece of legislation as the recent measure laying down new charges.

The President of the Board of Trade sneered at controls. He is now boasting about the exports of motor cars. He probably forgets that had it not been for controls there would not have been these exports. When I was in the Government the motor car industry resisted any suggestion that it should find markets in America and elsewhere. It could have sold in the home market all the motor cars it could produce without bothering about exports.

Mr. R. Gresham Cooke (Twickenham)

That is a travesty of the truth. I was involved in this matter. In 1948 the motor manufacturers started out in America with a motor show and sold about 20,000 cars in the United States in that first year. They made very great efforts.

Mr. Woodburn

I was at the Ministry of Supply at the time and had responsibility for this. The motor car industry resisted until it was told that it would not be able to get raw materials, such as steel, unless it exported a proportion of its cars. In addition, the Government prevented it from selling cars at home by laying down ratios for exports and domestic sales. I am perfectly aware of the conditions which existed then. The manufacturers were forced to go abroad and to start their export markets, as a result of which they built up a very profitable trade. Now, even the present Government boast about the export of cars, which was forced upon the industry because of the Labour Government's power to control raw materials and steel.

While we hear sneers at controls, the Government are proposing to introduce them. Are the new ones to be effective? The only control which the Government have used up to now has been the Bank Rate, and I am delighted that they have given up the idea that the Bank Rate is the only instrument which can be used to control consumption. It was a crude instrument. It cost the country a large sum of money. It handicapped local authorities. It meant a roundabout of financial juggling which was economically stupid.

What happened? The Bank Rate went up, followed by interest rates. The local authorities had to pay more interest on their borrowings, so their costs went up. The Government then had to give the local authorities a bigger general grant in order to pay the interest which the Government had themselves imposed by the higher Bank Rate. Because of the increase in the general grant the Government's own Budget expanded, and the Government then complained about increases in public expenditure. A large part of the increase in public expenditure was this circumlocution in Government income because, presumably, a good part of the income went back to the Bank of England in interest.

I would like to have examined the question of why, if the Bank Rate had to be raised in order to put a handicap on certain industries, that handicap should automatically have meant a higher income to the banks for doing no extra work, except for a few additions to figures. Has anyone investigated what has been accumulated in interest in the Bank of England? I suppose that money goes back to the Government in some form, but it is farcical that in order to put a brake on certain industries local authorities and industries working for exports should be handicapped by having to pay more for their loans.

Such a blunt instrument as the Bank Rate is stupid, and demand has been made from these benches—and others—year after year for it to be dropped as the main weapon. I compliment the Government on at least giving it up as the sole instrument for containing expenditure.

Mr. C. Osborne

It is true that immediately after the war the Labour Government exercised controls in order to force a certain part of our production into the export market by denying supplies for the home market. But that was at a time when the world was starved of goods and we could sell almost anything anywhere. Does the right hon. Gentleman think that similar action today would result in greater exports, when there is a surplus of production the world over?

Mr. Woodburn

I do not think so, but I think that part of our economic trouble was caused originally by the Government setting the motor car industry free to sell as many cars at home as it could to clutter up our roads at a time when they could have restrained it a little and forced more cars into export. That could have been done. In 1951 the Government let the country rip in buying cars. Cars for the home market were obviously taken from what could otherwise have gone to export markets.

I do not say that the same measures which we employed would work today, but the Government themselves are now introducing controls to induce motor manufacturers to sell less at home and more abroad. I am in favour of that, and I welcome the proposal to try to introduce more flexible methods between Budgets to put pressure both on the public and the manufacturers to restrain consumption, so that a greater amount can go to capital expenditure or to exports.

Sir Douglas Glover (Ormskirk)

I appreciate the point put by the right hon. Gentleman, but we should bear in mind that, although we are complaining about the number of motor cars cluttering up our roads, the fact is that we are exporting nearly twice as many cars as in 1950 and the country is more prosperous.

Mr. Woodburn

When we started exporting in 1948, no one expected that within two years we would reach the limit in our export markets. It took nearly two years to establish servicing arrangements in the United States and elsewhere. It was a slow process. But, nevertheless, the thing was started against the will of motor car manufacturers, who now rejoice that it was done because they recognise that exports mean a very big part of their business.

I welcome this more flexible arrangement which has been proposed. While we can criticise it in theory, I think it a much more useful instrument than Bank Rate. Any instrument proposed for this purpose will have criticisms made against it. I shall look forward to the adjustment of taxation up or down between Budgets as a very interesting experiment. I certainly thought it quite wrong that hire purchase should be the instrument mainly used, although it was a very easy and useful instrument. It brought great dangers because after the "let it rip" policy was carried out to provide election advantage it obviously made for trouble when the boom had passed. We cannot spend ten or fifteen years income ahead and expect to remain prosperous.

If we are eating up our seed corn ahead we shall have had it. If a Labour Government had come in would it not have been lovely for the Tories ! All the consumption and income would have been pledged for the years ahead by the Conservative Government. They did not expect to come in at that time so they were landed with their own problem of a financial crisis. That is the result of putting on the accelerator violently then pulling it off and putting on the brake which has been the process ever since the Conservatives came into power.

Mr. R. J. Maxwell-Hyslop (Tiverton)

Would the right hon. Member agree that a cheap money policy is primarily one which encourages people to spend their future income today, as opposed to a dear money policy?

Mr. Woodburn

It depends on to whom the policy is applied. I suggest that we do not need to give the same cheap money to everyone. In other words, I think that interest can be used as a good deterrent. In the old days what we called gilt-edged securities always had a lower rate of interest than investments with a great deal of risk. Therefore, interest on risk capital was much higher than that on gilt-edged guaranteed securities. This could be applied in modern finance, and local authorities whose loans are guaranteed gilt-edged securities could have a lower rate of interest than the interest given to speculative investment, or even to Colvilles steel company which gets a big rake off from Government finance. The two things are quite different.

We ought not to handicap public activity—expenditure on hospitals and public expenditure of all kinds—merely because we want to put a brake on industry. There can be a discriminating interest between the Public Works Loan Board and other organisations. That discrimination would allow the Government to help the good things and to discourage the bad things, which would be of great assistance. I agree with the hon. Member for Tiverton (Mr. Maxwell-Hyslop) that cheap money in the wrong place will encourage wrong expenditure.

I said that increasing exports was the main problem and the President of the Board of Trade has challenged this side of the Committee to say something about that. Therefore, I gladly offer him some suggestions.

I think that he will agree that the proposals which have been made in the Budget are not very dynamic. Even the Minister's own suggestions do not seem to have very much positive effort. All they seem to suggest is that they would ease the way for other people to do the exporting, or they would take away obstacles. That was one of the right hon. Gentleman's words, "obstacles". That is very good in its way, but I had this problem in regard to research. The Medical Research Council takes the line that if someone has a spontaneous desire to do some medical research it will assist him, but the approach in industry was that if one wants to investigate a problem, one seeks a group of scientists and says to them, "That is the problem, solve it."

That is what we did during the war. I take the view that it is our business to find where research needs to be done and then to get it started. I make the suggestion to the President of the Board of Trade that he should take a step forward from acting as a balancing factor or "sugar daddy" to exports and come into the field actively to organise exports. I.C.I. and other big firms are quite capable of looking after exports for themselves, but when I was at the Ministry of Supply we found that about 48,000 firms came under our umbrella. One problem was that those firms were mostly small.

I have had experience of what is called the small firm. I was connected with a firm which had 600 workers, That would be looked upon by I.C.I. as a very small firm, but it actually exported to nearly every country in the world because it had a very special product of which it had practically a monopoly. Its wheels were running in Moscow, China, Spain, South America and nearly every country, yet it had only 600 workers. That firm could not do more than utilise agents in other parts of the world; but maintaining agents is a very risky business for small firms unless one has some sort of guarantee that a failure to pay accounts will be looked into. This is a very important problem for small firms taking part in our exports.

There are many firms of that kind, small firms which are highly specialised and which do valuable work. Take the woollen industry in Hawick. It has a greater export value per worker than any other industry in the country. There is the same kind of woollen industry in my constituency—small firms producing types of woollen goods which would be easily absorbed in the American market. One produces the sort of baby's shawl which every mother dreams of having for her baby. Others produce women's twin sets which sell at very high prices in every market in the world. Those small firms cannot afford to have agents looking after their business everywhere, though many small sales may add up to a high total.

There is a firm in Motherwell which produces coal-mining machinery which is quite unique in its way. A big firm, such as Messrs. Babcock & Willcox, also is a unique firm, but it has wide connections. I suggest to the Board of Trade that many small firms are not looking to exports because they cannot take the risk of going into a field which they do not understand. If someone had as his business the organising of the exports of those firms, they might be prepared to take it on.

That is where the Government must co-operate with private enterprise. We on this side of the Committee do not say that private enterprise should be scrapped. As a matter of fact, a great deal of the greatest activity taking place today is a combination of Government activity and private enterprise. We are to subsidise Cunarders and we are subsidising steel and car works which are coming to Scotland and factories which are going to other parts of the country. In the same way, we should spend some money on an organisation which will make it possible to bring new people into the field of exports.

Mr. Maudling

My right hon. Friend the Minister of State has written to 30,000 individual firms offering them loans on these lines. If the right hon. Member would put the firms he has been talking about in touch with the Board of Trade we would do what we could to help them.

Mr. Woodburn

Firms at that period were offered an export guarantee from the Board of Trade which I think at that time amounted to 15 per cent. for an order from Russia. Such a firm did not make 15 per cent. profit on the job and could not possibly pay 15 per cent. for a guarantee. It had to wash its hands of the proposal. The idea that firms are all making big profits and can pay for a guarantee to ensure their capital is quite fallacious. Curiously enough, at that time, the Board of Trade was asked to guarantee big orders which were coming here from Russia and we refused to do so. Yet we guaranteed money to Germany which used our money to guarantee the credit to their firms which got the orders direct from Russia. The orders for the main contract went from Russia to Germany though my firm, I am glad to say, got that part of the order from the German firm which it would have got from the firm in this country if the British Government had been prepared to guarantee that order. That firm was Walmsley's paper engineering firm.

It is not a question of money. These firms are afraid. They cannot take risks. I think that there should be a department of the Board of Trade to organise these firms, and collectively they would be able to do what they are not able to do individually. The right hon. Gentleman said that there were 30,000 firms. Collectively they could produce a lot for exports, and the Board of Trade must do something more positive to help them.

It is impossible for many of these firms to spend money setting up stalls in exhibitions in different parts of the world. It is a costly business to maintain people to sell their products abroad. It could be done collectively, and I suggest a method by which it might be done. Is there any reason why some of our ships which are laid up should not be made into exhibition ships? We should arrange exhibitions of British industries in ships for people who cannot afford to advertise abroad in the normal way. The goods produced by many of these firms would be of interest to people in many parts of the world, and these exhibition ships could be sent to the various ports.

The cost would be high, but it might be combined with other activities. Many people pay to tour the world. Is there any reason why, when they are touring and travelling on the top deck, there should not be an exhibition below decks? When the ship arrived in a port, be it Hong Kong, South America, or wherever else the ship called in, an exhibition would be available for the people in that part of the world. They could come on board and see British products. I would give Income Tax relief to people who use their holidays to act as socialites and entertain the people from the ports at which these ships called.

Mr. Richard Marsh (Greenwich)

I would volunteer.

Mr. Woodburn

There is a social aspect to getting business abroad. If we could use the odd duke or two to decorate life on the upper deck—I would not suggest that members of the Royal Family should undertake this job—they would attract people in the same way as they attract people to garden parties when they attend them. This project could be undertaken with the help of a Government subsidy, if it could not be done by private firms alone. Every port would become a market and we should be able to sell our goods abroad.

That is not a fantastic suggestion, because a young friend of mine has been advocating that we should have schools on ships. Instead of boys being taught geography at a school on land, he would like to see children taught on board ship. They could visit the various ports and see the different countries. The British India Shipping Company has taken up the idea, and the hon. Member for Dunbartonshire, East (Mr. Bence) has been invited to join one of the company's ships on which there are teachers, and the children on board are to visit different ports in the Mediterranean. If the British India Shipping Company can use one of its troopships for that purpose in peace time, some of the other ships at present laid up might equally well be used to provide exhibition ships to go round the world.

If the Government are not prepared to do that for England and Wales, we are prepared to take up the idea for Scotland because we have many products made by small firms and we are prepared to have exhibitions of Scottish products abroad if the Government will help in displaying our goods. Scotland depends largely on exports, and I think that the right hon. Gentleman will agree that that is a good idea.

Another way to increase exports is to provide full employment in Scotland. We could do with more industries, and we would be prepared to produce for export. So long as people are idle in Scotland there will be a reserve capacity available to help the export trade. If the Government want suggestions about how this could be done, I suggest that they consult the Secretary of State for the Colonies who evolved a fine scheme for stimulating industry in Malta. It is proposed to give a tax-free holiday to new industries in Malta, together with assistance to start the industry, and that would be a good inducement for getting industries to come to Scotland. Private industry cannot work in Scotland, not even in the North-East. They cannot work profitably, and some balance must be provided by the Government.

How can that be done? It has been suggested that we can have a labour tax to deter people from employing too much labour. I suggest that there should be a subsidy or some kind of lesser taxation to induce people to employ labour at present available in Scotland.

I hope that the Minister will consider the incentives which have been suggested. There might be some manipulation of profits, just as there is with taxation, to stimulate activity to help the export trade. If the Minister will consider appointing export promoters at the Board of Trade and setting up export agencies to take care of these many firms which are doing nothing for exports, he will do a lot to help these small firms.

Science must play a large part in our exports. This country, and especially Scotland, has no raw materials. Our coal is less readily available than it is in other parts of the country. We have nothing to export except fresh air from the Highlands, and good health, but we have plenty of skill and are capable of hard work.

Mr. Marsh

Scotland has a football team.

Mr. Woodburn

We export good footballers, but we have nothing really to export but hard work and skill.

Sir Harmar Nicholls (Peterborough)

And whisky.

Mr. Woodburn

Yes, but it is one of the things which does not need labour. It ferments itself. We are also patriotic. We allow it to be exported instead of consuming it at home. The point is that the production of whisky does not entail the use of much labour, and, as the hon. Gentleman knows, the same applies to the brewery trade. We want new industries because we have the skilled men available to do the job.

Unfortunately, we are losing many of our skilled workers because of the lack of employment. They are moving south. As long as we do not provide employment, the skilled workers will drift to the motor car industry where it is a case of money for dirt. That is dangerous for Scotland because it leaves us with a balance of semi-skilled and unskilled people who cannot be given employment with the key skilled people gone. This can be remedied only by the skilled men returning to Scotland, or we must provide training for more people to become skilled.

We need more research and education, but one of our problems is that many of our industrialists are reluctant to use science and the higher skills. Even when we train people in our universities, they still go south. The majority of our graduates in science and physics go south of the Border. One industry which has been in Edinburgh for some time has made the greatest progress in the world in machine tool automation and electronic control. Even the Americans admit that this firm is ahead of any firm in America. The complaint is that after these things have been invented, British industrialists will not make use of them.

I do not know what the Chancellor and the President of the Board of Trade can do to remedy that. Firms seem to sit back and wait for the firm which made the invention, partly through Government research, to come in and do the job itself. These, like other inventions, may be exploited in America and elsewhere, leaving us behind the band.

We are suffering from the fact that private enterprise is showing so little enterprise. If only the Government can give a kick in the pants to private enterprise, especially in Scotland, we may get more progress. Governments have cooperated with and financed private enterprise and many new industries have come to Scotland, for which we are fully grateful, but, according to the Scotsman's survey of 1960, the net result has been that in the last eleven years for every twenty-five new jobs provided in Britain only one has been provided in Scotland. The Scottish Council (Development and Industry) calculates that 12,500 new jobs every year are needed to match wastage of jobs and growth in population, and we are failing short of that figure. In the last eleven years the average has been only 2,500 new jobs.

The problem is serious and Scotland's unemployment problem is still being solved by some of its best workers going south. The 20 million people who have gone from Scotland to all parts of the world, have made great contributions to their new homes, but it is not enough that we should lose those people and not have industry in Scotland to provide reasonable opportunity for those who stay. I hope that in his activities to prevent the export trade the President of the Board of Trade will have some form of direction of industry to provide opportunities which will prevent the agglomeration of people around London and Birmingham and will spread the population throughout the country, so that at least people can get fresh air.

In that connection one of the Scottish industries which requires stimulation is the tourist industry. Last year, Scotland earned £17 million from tourism, and England also had a substantial income. If there could be a credit policy in respect of hoteliers, as there is with exports, hoteliers in the North of Scotland could modernise their equipment and premises to suit the American and other tourists, and any increase in tourism would be an extremely valuable invisible export. The sum of £17 million a year is not to be sneezed at in Scotland, and the figure is nearly £100 million over the United Kingdom as a whole.

Those are some positive and practical suggestions which I hope the Government will study. I hope that the Government will invest a little money to see whether they can produce new industries in Scotland and stimulate existing industries to bring about greater and greater exports, both visible and invisible.

5.53 p.m.

Sir Harmar Nicholls (Peterborough)

The right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) has produced a number of bright ideas to encourage people to accept their obligation to exports, and I have no doubt that industry will study what he has said. He will have some difficulty about getting the "odd duke" of whom he spoke, because all the dukes who are "odd" are already busy exploiting their oddities to their own personal profit, and it may be that he will have to accept the offer of his hon. Friend the Member for Greenwich (Mr. Marsh) instead.

The right hon. Gentleman began by congratulating my right hon. Friend the President of the Board of Trade on what he described as a brilliant reply. Those comments were justified. The right hon. Member for Huyton (Mr. H. Wilson) began by congratulating my right hon. and learned Friend the Chancellor of the Exchequer on the vital way in which he had presented his Budget Statement. That was well deserved, too, because my right hon. and learned Friend has shown an ingenuity and courage which will bring worth-while results to the country over the years which lie ahead.

Among all this welter of congratulations, deserved or undeserved, no one has yet congratulated the right hon. Member for Huyton, who deserves some congratulation. His reply was easy on the ear and full of all his normal witticisms, and he never seemed to stop for breath. On those grounds alone he is entitled to the congratulations which I eagerly extend to him.

Having said that, I support my right hon. Friend the President of the Board of Trade in saying that the right hon. Gentleman's speech was irrelevant. It did not face the issues which the Budget has put before us, nor the problems which the right hon. Gentleman himself has previously asked the country to face. Not only was it irrelevant, but it was full of party political camouflage. It is just possible that some of my constituents in Peterborough will read this speech and I want to answer four of the party political pieces of camouflage which the right hon. Gentleman included.

He began by saying that these were the worst balance of trade figures which we had had since the Korean War, I want my constituents to note that that is another way of saying that the time when the balance of trade figures were worse than now and when they were worrying us was after six years of Labour Government, in 1951. If we are to use camouflage words of this sort, it is as well to understand what is meant.

The right hon. Gentleman went on to say that over the last ten years, there had been election Budgets which had brought about a spurt after which we had gone back into stagnation.

Mr. Marsh

True.

Sir Harmar Nicholls

The hon. Member says "True". If it is true that we have had spurt and stagnation for ten years, and as a result of that spurt and stagnation we have obtained better wages, better pensions, better living standards and a better way of life throughout the country, then I am a supporter of spurt and stagnation.

The right hon. Gentleman went on to say that the Chancellor was slandering businessmen when my right hon. and learned Friend said that lifting the Surtax level was the only way to make them work harder for exports. The right hon. Gentleman said that it was slander to suggest that businessmen had not already worked to the utmost and were interested only in financial gain. The right hon. Gentleman added that we had won elections only because of introducing a spurt just prior to the elections. If that is not a slander on the British public, I do not know what is.

We have now won not only one but four elections, and with increasing majorities each time. I hope that the right hon. Gentleman is not suggesting that the British public is so gullible that it can be led astray in the voting booths by spurts just before an election. The results of the election show what the right hon. Gentleman in his heart of hearts himself knows—that, with all the spurts and stagnations which he mentioned in his witty way, we have produced a nation better fed and better looked after and with greater confidence in the future than has been the case for many years.

He also suggested that the improvement of the Surtax position would not encourage scientists. He said that he had looked at the Observer last Sunday and had not found one advertisement for a junior scientist with a starting rate within the Surtax range. That establishes that the right hon. Gentleman is purely a man of theory. Those of us who have anything to do with business all know that for junior scientists and junior executives the starting point of salary is not the important thing.

In the businesses with which I am connected, I am not interested in someone who is terribly concerned about his starting rate. The man I want to see in those businesses is the man who sees the possibility, having got in, having proved his worth, of getting to a worth-while salary. It is not sufficient to have paper qualifications and to come into industry with merely academic qualifications, showing certificates and other bits of paper, unless in addition the man has ingenuity and general "know-how". That will justify better pay, and the higher positions which will go to him.

The importance of the Surtax improvement is not the starting rate for scientists or business executives, but the fact that they will not have the incentive to leave the country when they reach the Surtax point. I support what the Chancellor has done in the advances he has made in the Surtax level.

For two and a half years I had to answer in this House on science when the Minister for Science was in another place. The one thing that worried me more than anything else when receiving briefings and advice which one gets in order to answer Questions was the number of young scientists who were leaving the country. I believe that lack of hope for the future was the one thing above all else which caused them to do so. We had an Answer only the other week which confirmed that 2,000 scientists leave Great Britain every year.

It is perfectly true, on the other side, that 1,000 scientists enter Great Britain from other countries, but in terms of scientific "know-how" we have a debit of 1,000 scientists every year. We have paid the cost—and it is a big cost when one looks at the education bill—of training 1,000 men, only to lose them to countries where their skill and know-how is used against us in the export markets, so that to work against us we have not only the cost of training on our bill, but the extra competition from those whom we have trained. The Chancellor's Surtax proposals will play some part in keeping those 1,000 scientists to work in this country instead of going to other countries to work in competition with us.

Similarly, throughout the whole executive range it is important to bear in mind the top rate of tax on income in the countries which are our competitors. It tells a significant story. Before the Budget, the top rate of tax on income in the United Kingdom amounted to 88.75 per cent. of the income. In France it was 73 per cent., in Japan only 70 per cent., in Belgium 65 per cent in Italy 68 per cent and in Germany 53 per cent. We were taking 88.75 per cent. top rate in this country and in Germany they were taking 53 per cent.

When we have the right hon. Member for Huyton telling us how to improve our productivity and exports it is not irrelevant to note that this competitiveness is in direct relationship to the standard of Income Tax in this country, because we find that in 1960 exports from this country went up by 17 per cent. in France by 54 per cent. in Belgium by 33 per cent., in Italy by 53 per cent. and in Germany by 30 per cent. I think that we should be doing less than our duty if in order to make party political points—and the election is three years away—we disregard the fact that the people in the executive level and the leading scientists have had to face in this country, as compared with other competitive countries, this extra disincentive in the terms of the tax that we are deducting.

Mr. Woodburn

When it was apparent that loss of scientists was preventing our exports going up, why did not the firms pay them more and get their exports increased?

Sir Harmar Nicholls

I do not say that it is as simple as that. I am not suggesting for one moment that all the scientists and young executives have been waiting for was this reduction in Surtax for them to do something different and more wonderful than they have done in the past. I am not saying that this will be the complete answer. Later I want to make some criticisms of my right hon. and learned Friend on the things which I think he ought to have done. I am saying that this will be a significant contribution to keeping 1,000 scientists a year in this country and working for us. I believe that the top executives and managerial classes who have often to lead in the exporting schemes will have "extra" encouragement to do things better than they have done in the past. I make no greater claim than that. I know that this Budget is not the full answer.

Mr. Douglas Houghton (Sowerby)

In the Budget of 1957, when earned income relief was carried into the Surtax field, exactly the same hopes were held out then in justification for that relief. What does the hon. Member think that the experience has been since then?

Sir Harmar Nicholls

The hon. Member has not followed my argument. He is usually very alert in following arguments put from this side of the Committee. I have pointed out that, whatever relief was given in 1956–57, it still left us taking 88.7 per cent. of the income whereas Germany was taking only 53 per cent. I have said that we have not got back to the point where there are special inducements for people to stay here as compared with those in other countries. I will give the hon. Member, who is an expert in this field, another example.

If we take a senior executive, earning up to £5,000 a year under the old rate, if his salary had gone up to £6,000 a year, out of that extra £1000 he would have kept in the United States, £720, in France £690, in Germany £600 and here only £400. I am merely saying that in the ratio of tax extraction this reflects itself in the amount of the contribution we are able to get out of the expanding world market. It will not be the full answer, but I am sure that my right hon. and learned Friend's judgment is absolutely right in looking on it as an important factor, which had to be dealt with. I am not arguing in support of it because a few will benefit financially. Of course they will—and a few who do not deserve it will benefit financially—but I believe that it is essential to improve the balance of trade by extra exports if the general way of life and standards of living in this country are to be improved.

I know that we shall have a great deal of criticism up and down the country from hon. and right hon. Members opposite stating that the Exchequer has given this extra inducement to the Surtax-payer, but I do not think that we should overlook the fact that this benefit will really be paid for by industry itself. The 2½ per cent. increased Profits Tax will bring in over £70 million a year, and this will be a very big contribution towards paying those people who are to have extra inducement as a consequent of it. Therefore, my aim is to focus still more attention on the need for extra exports, and the special plea which I want to make to my right hon. and learned Friend again today is that he should treat this only as a beginning. The improvement of exports is undoubtedly the outstanding thing.

The balance of trade problem is here not only for today and tomorrow. It is not a matter of trying to meet it by having a savings week or an Air Force week. This is a battle that is going on for the rest of this century and beyond it. We must induce our industries to do more and more exporting. The thing to do is to give some concession directly for this.

I have paid my compliment to my right hon. and learned Friend on his Budget, and I meant it, but I would draw his attention to a comment made in the Yorkshire Post today: There seems little in the Budget calculated to provide any direct incentive to the export drive, particularly since the profits tax and the oil duty moves will cut margins and increase costs. The overseas tax adjustments, however, will be of some help to companies with overseas subsidies. The City will probably feel that the Chancellor has not gripped the nettle of tax reform as firmly as he could have done. There is something in that. The export credit schemes announced by the President of the Board of Trade recently, coupled with what has been done in this Budget, will make a valuable contribution, but in my view we must proceed a little further and more directly than that in tying the concession to those who actually do the exporting.

I want to return to my theme in the economic debate, and to suggest a lower Profits Tax on export business earnings. I shall try to move an Amendment on the Finance Bill to exclude from liability to Profits Tax that part of a firm's business which goes in exports. I shall start lobbying almost from this minute. I shall lobby my right hon. and learned Friend in preparation for his Budget next year. I want to see a real concession—for example, a concession of 2s. in the pound—in respect of the export business done by our firms.

This could be done. We already pay tax on a certificate supplied by our accountant or auditors, and the same people could provide a certificate saying that a certain proportion of their business had been done in the export market, and that proportion could be charged at a lower rate of tax. I suggest that a concession of 2s. in the pound could be made on that proportion of business, on the production of a certificate by an accountant.

The first objection to this proposal is that it is difficult or impossible to carry out, because of the sub-contractors that contribute to the item exported. That question does not come into the picture. If I am exporting bicycles and somebody provides me with the tyres for those bicycles he is sending the tyres to my factory in the United Kingdom, and is not exporting. He is not engaging in any of the risks and troubles involved in exporting. It is my firm which exports the bicycles, which has to face all the difficulties and takes risks, and which has to set up the overseas agency and deal with all the problems involved. It is my firm which earns the foreign currency, no matter how many sub-contractors may supply the ingredients of the bicycle, and I am one who should have the benefit of the tax concession.

The second objection, which seems more formidable on the face of it, is that if we gave such a tax concession our competitors would follow suit, and that we have been working hard for many years trying to persuade our competitors not to give this sort of concession in order to help their exports. It is said that we should be going back on all our efforts of we instigated a new concession of our own, and that we should be no better off than we were before. That point of view overlooks the fundamental problem behind our exporting.

This was brought out best in the Sunday Times, in a series of articles in a series of articles in January. The opening paragraph of the series describes the position correctly, and answers the fear that if we gave a tax concession our competitors would do the same, to our disadvantage. It says: There is one very important difference between British industry and that of Germany, or Holland or most other European countries. For the great majority of British firms the home market is the natural market, and exports are something which comes after home sales. For the European businessman exports are an equal part of his business. Whereas very few British factories are built in order to supply exports as such, export factories are quite common in Europe. If we can find the reason for that contrast we shall be some way along the road to finding out what has gone wrong with the British export drive. Because of our good home market and the spending power of our large population our firms have not naturally been exporters for a century or more, whereas Germany and other European countries have. They would not benefit as much from such a tax concession, because their mood is already channelled along these lines. In the last ten years I have travelled across America, Canada and Europe, as far as Austria, looking at factories, and I have found nothing to frighten me as to our ability to compete in factory layout and ability to export. The only country which bothered me was France, which has a specialised engineering layout. They might make us look twice. But I do not think we need fear encouraging the thousands of our small and medium-sized firms with the knowledge and skill to get into the export market in the way that Germany and Holland do. I have no doubt that our firms could "lick the pants off" many of their foreign competitors, to the advantage of our export trade.

But our firms want an extra inducement in order to get our exports started. If they receive such an inducement the benefit they derive will not be distributed in extra profits. If they receive a tax inducement of £5,000, I believe that the fact that they have been given £5,000 to start with will cause them to spend another £5,000 of their own money in order to extend their agencies and make use of new ideas. Unless we do something like this very soon our already diminished share of world markets will become even smaller, and instead of our export position being a worry it will become a disaster.

I cannot get out of my mind—and I hope that my right hon. and learned Friend will keep it in his mind, unless it can be disproved—the report of a research team, to the effect that 30 per cent. of our total exports were being carried out by no more than forty firms. With my knowledge of Birmingham and my own City of Peterborough I am sure that if the thousands of small firms there could be persuaded to enter the export market they would be able to make a good contribution towards solving the problem. The Federation of British Industries has 8,000 members, and the National Union of Manufacturers has 5,000. Thousands of our firms are potential exporters, if we can once break down the natural reluctance to do no more than serve the home market.

I warn my right hon. and learned Friend that I shall be lobbying him as from today. I shall urge him to be prepared, so that, in his next Budget, he can take the next logical step, having made his excellent start. I suppose that I ought to lobby the F.B.I. and the National Union of Manufacturers. I know that they have been giving the Treasury advice which runs counter to what I am now suggesting. I believe that they are wrong. I believe that they represent the "big boys", who do not understand the mentality of many of our medium-sized firms and their problems. Only by taking a step such as this can we ensure, in the years ahead, that better wages, pensions and living standards will be the order of the day in England.

Finally, I should like to use the words of Lord Amory, last year's Chancellor of the Exchequer, who, when speculating on my right hon. and learned Friend's Budget as recently as three weeks ago, said: I would even be prepared to look again at the difficult question of possible variation in the Profits Tax related to the turnover of export business. I beg my right hon. and learned Friend, in whom I have such confidence—especially after his Budget—to consider my proposal. I hope that he will come to the conclusion that it will carry on to a satisfactory end the beginning that he made yesterday.

6.14 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

The hon. Member for Peterborough (Sir Harmar Nicholls) began his speech with an orgy of all-round congratulations to everybody who had previously spoken. I am sorry that I cannot entirely reciprocate those congratulations. Although he deployed the latter part of his argument extremely skilfully and forcefully, he began with a lot of tired old party points. He did so particularly in the guise of rebuking my right hon. Friend, where his party points led him to an apogee of misplaced complacency and self-satisfaction.

He looked back over the past ten years and said, "If what we have had over that period was stagnation, that is fine so far as I am concerned, and I hope we shall have more of it in the next ten years". I understand that the Chancellor does not share that point of view, because I believe that the high noon of satisfaction with our economic policy passed, so far as the Government Front Bench is concerned, about nine months ago. About that time doubts crept in about whether everything was as right as we had been told. This probably did not have a great effect on Government policy, but it had a small beneficial effect in that the President of the Board of Trade began to prepare his speeches more carefully and to deliver them a great deal more vigorously. He began to pull up his socks before the present Surtax concession came into operation. I suppose one can describe him as a middle Surtax-payer and it is as such that he must be regarded.

I do not believe the substance of his speeches has improved that much, because occasionally he slips back into misplaced complacency and, indeed, scepticism, as to whether anything is wrong and, if it is wrong, whether anything can be done about it. That fact showed itself as soon as he spoke about economic growth.

He sough to suggest that international comparisons were not as clear cut as had been suggested. Of course, all tables need a certain amount of interpretation, and there is no question that one cannot get round these difficulties by saying freely that our population has not been rising as much as the populations of other countries. But if one takes the productive as well as the population tables, the result is nearly always inevitable.

I was also distressed to hear him raise once again the old point that what really matters is not economic growth, but economic growth accompanied by efficiency—that unless we are efficient it does not matter whether or not we are growing—because that is a false antithesis. It might be possible for a single firm in a monopoly position to grow fast and inefficiently, but it is certainly not possible for the economy of a country as a whole to grow fast and at the same time to do it inefficiently.

The main point one should ask about this Budget is whether it is a Budget for stimulating economic growth and for getting Britain on the move once again. If it is suggested that it is a Budget for doing both these things effectively, one could and should forgive the large number of other proposals in the Budget. But, in my view, it is not that sort of Budget. The reason primarily is that the psychological revolution which is necessary if we are to jerk Britain into rapid economic growth has not yet really occurred, not even in the mind of the Chancellor or even in the mind of any Member on the Government Front Bench. The hon. Gentleman the Member for Peterborough quoted a passage from a speech made by Lord Amory, last year's Chancellor. I wish also to quote an interesting passage from a speech made by Lord Amory, and it is sometimes the case that ex-Chancellors are more frank than are Chancellors. This quotation is from a speech he made on November 8th, 1960: These I believe to be the aims we ought to keep in front of us First, to keep our currency, sterling, strong and respected … secondly, to keep the cost of living and our costs of production stable … thirdly, to encourage a high and, I hope, still higher level … of productive investment … Then, fourthly, but only fourthly, to encourage further growth in our living standards and an expansion of our economy generally at a pace consistent with our success in achieving the first three of those aims. These … are the priorities that I think right, and they are, I am confident, those by which the Government will continue to be motivated."—[OFFICIAL REPORT, House of Lords, 8 November, 1960; Vol. 226, c. 347.] Studying that quotation, the question to be asked is whether they are, in fact, the order of priorities proposed to be given by the Government. If they are, and if achieving a greater growth comes fourth in the list of priorities, this country will remain in a sluggish position as far as growth is concerned. There must be a different approach if we are to achieve a rapid rate of growth.

I thought that the Chancellor half indicated yesterday that he was a little in advance of Lord Amory in this respect. It appeared to me that he would like growth a little more—perhaps he would put it third in his list of priorities. I should like to know if he would. Yesterday's speech took us to the point in the analysis—the point at which we were hoping to discover whether we were to sacrifice a strong balance of payments position for a rapid rate of growth—but at that point the Chancellor abandoned the analysis and went on to tell us about how the Government are constantly being accused of being complacent and how the Government are constantly accusing the Opposition of being irresponsible.

What should one say about this dichotomy between a strong balance of payments position and a rate of growth? Firstly, while the Government have not sacrificed a strong balance of payments position to a rapid rate of growth, they have certainly sacrificed the position to something over the last year or so, because the balance of payments position in 1960 has slipped by without making a great deal of impact.

The 1960 result, of a deficit of £340 million, is an appalling result. Since 1954 the change in the terms of trade has been such that the same volume of imports can be bought for 11 per cent. less exports than six years ago. This deficit of £340 million, in the circumstances, becomes appalling, for if the terms of trade were at the 1954 level, the deficit would have been £800 million at the present time—a far worse deficit than the 1951 result, in spite of the Korean War difficulties.

Despite this extremely serious result, the Chancellor, I thought, in his Budget speech, turned an extraordinarily blind eye to the balance of payments problem. He hardly mentioned balance of payments. He merely said that the position was rather bad and that there was difficulty between it and the rate of growth, but he did not give a single indication of what he expected the position to be or how he intended to improve it in the forthcoming year.

It can be said that 1960 was hardly a year of growth at all. In my view, the position now arising gives us no choice whatever between balance of payments and growth. Perhaps in the past there was a short-term choice for going for growth or balance of payments stability, but the position now is that we have stagnated for so long that the competitive position of our exports has worsened to such an extent that we now have no choice. Our balance of payments position is weak without growth. The position has arisen where there is no possibility of solving the balance of payments problem, and at the same time maintaining a strong position, unless Britain makes a break-out and goes for a rapid rate of growth. At least, I am sure that there is no possibility of doing it without import controls.

On the whole, I take the view that import controls were removed too precipitously in the last eighteen months or so, but at the same time, speaking for myself, I do not want to see them put back, for two reasons—partly because of the reciprocal consequences abroad and partly because, on the whole, British industry needs more and not less competition. I should therefore not like to see us trying to fight our way out of our difficulties by replacing those import restrictions, however precipitously they were taken off.

We have reached a position in which there is no prospect of improving our balance of payments, except by achieving a new dynamic growth which will lift our competitive position from the level to which it has been allowed to fall in the past few years. I do not think that there is a possibility of Lord Amory achieving his personal objectives, or the majority of his objectives, unless the Government are prepared to take the last objective and to give it a very much higher priority than they are giving it at present.

Sir Alexander Spearman (Scarborough and Whitby)

Will the hon. Member say how he would proceed to obtain a much greater growth?

Mr. Jenkins

I do not think there would be much difficulty in getting a much greater growth. I think that all hon. Members will admit that. We had the great spurt of growth during 1959 and the first three months of 1960. The growth then died away, not because people in industry became tired or were paying more Surtax but because the Government changed their policy and cut back on production. The Government thought that the boom was boiling over and should be damped down because they were worried about the balance of payments. If hon. Members like me to put it in this way, the growth died away because the Government applied the higher priorities which the ex-Chancellor from whom I quoted said should be applied; and they did this as a deliberate act of policy. I want to change the order of those priorities, and it is possible to do so.

The French have followed a different order of priorities over the last five or ten years. They have not cared so much about the balance of payments, partly because they were not concerned about the franc as a world currency. They have operated a very weak balance of payments, which eventually they have turned into a strong balance of payments as a result of an extremely dynamic economy at home.

Equally, when President Kennedy came into office he was confronted with a weak balance of payments position and a greater challenge to the international standing of the dollar than has been seen over many decades. But he was also committed to a programme of growth. He did not say that his first priority was the stability of the dollar, that the next priority was the stability of prices at home, and that the third priority was American foreign balances, adding, "After all those three we will try to get some growth".

Sir A. Spearman

There was 7 per cent. unemployment in the United States, and that is a very different position from that in this country.

Mr. Jenkins

The position may be different from the point of view of the desirability of coping with unemployment, but is the hon. Member arguing that, because we have a relatively low rate of unemployment here, he is not in favour of growth and thinks that growth does not matter? If that is his argument, I suggest that United States unemployment is not relevant from this point of view.

Mr. Kennedy came into office with quite a different approach. He said, "We will try to solve the problem of the dollar difficulties on the basis of growth, on the back of growth." This indicates what other countries think can be done, and it means that the United States is in a mood in which it might take a more imaginative approach to the problem of world liquidity than it has taken many times in the past. We might be well advised to seize those opportunities vigorously and to try to create a much more liquid position throughout the free world. On that basis we should be prepared to go through a period of weak balance of payments, if necessary, a period of losing reserves, if necessary, in order to get over the hump of stepping up our rate of growth.

But all we have done is to go through a period of weak balance of payments without any prospect of getting over the hump of stepping up the rate of growth. It would be much more encouraging if we had that change of emphasis, but there is no indication from the Chancellor that he is inclined to take that view. Almost the last words which he used were: Our firm intention to keep our financial house in order will be clearly demonstrated."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 822] That is a reasonable statement but it is certainly not a clarion cry for a new policy or a move towards growth. During the more immediately post-prandial stage of his speech my attention wandered for a short time, and it was drawn back by my hearing the words "a five-year plan". I thought, "Here we have a new Chancellor of the Exchequer who is introducing an entirely new approach to our problem. We are to have a five-year plan for rapid economic growth." Not a bit of it. It was a five-year plan for cutting Government expenditure.

We cannot take the view that the Chancellor's new regulators are in any way a recipe for growth. His regulator of Purchase Tax is certainly not a regulator for growth. In a sense, I support this proposal; I think that it will operate more fairly and more smoothly than the hire-purchase restrictions and other measures which we have had in the past. It gives the Chancellor enormous powers. I am sure that the Home Secretary wishes that he had had those powers when he was Chancellor of the Exchequer. Had he had them, he might easily be Prime Minister today, because we should not have had the autumn Budget of 1955. The right hon. Gentleman would then have had a much easier time than that which he had last week when he was dealing with the question of flogging. He would have been better placed with the power which the Chancellor has very smoothly and quietly taken. On the whole, I welcome this change, because I think that it gives the Treasury important powers which can be used more effectively than the rather ragged powers which they have had in the past.

But this regulator in itself will not be used to stimulate growth. Why has it been brought in now and held ready? It has been brought in as a new method of clamping down in the autumn, if, unfortunately, as seems likely, we have sterling difficulties on top of balance of payments difficulties. It is a new method of clamping down, not a system for achieving growth.

To some extent the same comment applies to the payroll tax. I confess that I was surprised that it was introduced, because it has been canvassed in the country for only a very short time—for far too short a time for its implications to sink in with the general public. I doubt whether its implications have fully sunk in with the Treasury and the Chancellor, because it was never proposed that it should be used as an economic regulator, that it should be used as an instrument to be changed from year to year or even from month to month. It was intended to be an instrument which would change the relative cost of capital and labour in a fairly long-term sense and possibly have some effect in that way. As a regulator, I think that it is undesirable, and it is certainly not likely to have any substantial effect on the balance of costs between capital and labour. Its main effect, as it will be used, will be a slight upward effect on prices generally—a slight inflationary effect throughout the economy.

I turn, lastly and briefly, to the question of Surtax. I think that it is extremely doubtful whether the Surtax concession will have an enormous effect. To suggest that this in itself makes the Budget into a growth Budget is a completely unacceptable proposition, because nobody believes that lack of effort by those people earning between £2,000 and £5,000 a year has been the main factor holding the country back during the past few years and that a change in their degree of effort, however desirable in itself, would have a substantial effect on our general level of economic performance. I do not think that it is likely to have an enormously incentive effect.

Had it been done in a different way, then I believe that there would have been a certain equity in doing something about the lower ranges of Surtax on earned income. There would have been a good deal to be said for an effective redeployment of the taxation burden between those who earn a lot of money and those who own a lot, because there is no doubt that the big owner is in an enormously more favourable position compared with the big earner than he was 20, 30 or 40 years ago. But that is not what the Chancellor has done, and I do not think that the increase in Profits Tax is any substitute for either a capital gains tax or a significant drive against tax avoidance in the upper reaches of Surtax.

Let us consider it from this point of view. This concession will improve substantially the standard of living of those people who get it. A very substantial sum of money is involved; some people will have £300 to £500 a year more. Their standard of living will rise significantly. That is the intention. If this were to be justified, it might be justified as a redeployment of the burden among what might be called the upper 5 per cent. in the matter of standard of living, and somebody's standard of living would have to come down.

Whose standard of living in this group is to come down as a result of the Chancellor's proposals? Nobody's. Purchase Tax will not have the effect that a capital gains tax would have or an effective drive against Surtax avoidance. I do not think that any of us are terribly clear about where the burden of the Profits Tax falls ultimately. Does it fall somewhat on the consumer and tend somewhat to restrict capital investment? Nobody knows, but I should be very surprised if there were any effective restriction of dividends as a result of this increased Profits Tax.

The Chancellor therefore has not done what might have been justified, which would have been a planning operation which within the upper spending groups as a whole would largely take the burden off earned incomes and put it on to unearned incomes and capital gains. Because the Chancellor has not done this and because of his preface to the Budget, his proposal is quite unreasonable.

The inadequacy of the Budget becomes extremely clear. The proposals offer no way at all by which we can break out of this vicious circle of the difficulty of achieving a balance of payments position combined with growth, which the Chancellor obviously began to recognise but did not answer. We go on with a sluggish economy and with a weak balance of payments position, waiting for the further blow of exchange difficulties and with a few new regulators up the Chancellor's sleeve to clamp on when those come along.

6.42 p.m.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I am extremely glad that in his earlier remarks the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) accused us of what he called our misplaced complacency. I do not think that his charge is justified, but I am glad that he made it, because he is someone to whom we on this side of the Committee listen with great interest and to whose speeches we pay great attention.

It is the fact, as my right hon. Friend the President of the Board of Trade indicated in his speech today, that we have had ten years of full employment, ten years of a rising standard of living and ten years of Conservative Government, and perhaps it would not be altogether surprising if signs of complacency began to develop. Speeches such as that of the hon. Member tend to remind us that in other countries in Europe the standard of living has increased at a faster rate in the last ten years than it has done in this country. Speeches like that of the hon. Member, which do not come exclusively from that side of the Committee, tend to keep a party that has been in office ten years on its toes all the time.

But I should like to take up that challenge and see how the Budget matches up to it. Is it a complacent Budget? I should have thought that there were a good many things to be said in its favour and a good many against it, but that whatever else one could say about it one could not call it a complacent Budget. It combines three of the most far-reaching proposals that any Budget has included for a number of years past. One is the very substantial reduction in Surtax on earned incomes and the other two are the economic regulators to which the hon. Member for Stechford devoted a good deal of time.

These are bold and courageous steps to take. There is nothing complacent about them, and, incidentally, they are the reasons why I am not only able but keen to support my right hon. and learned Friend's proposals as a whole.

There are, however, some things on the debit side. I am extremely sorry that my right hon. and learned Friend found it necessary to pay off the Surtax concession by an increased Profits Tax. There is one major omission. I regret that there is no provision for overseas corporation status for overseas trading companies. There is an absence also of minor tax concessions for which a number of us have been pressing for some years. Some of these no doubt will feature as new Clauses in Committee on the Finance Bill.

I support the reduction in Surtax. It may seem a little finicky, but I should have preferred a reduction in the standard rate of Income Tax, even though that was only 3d., which would have cost the same amount. It is perfectly true that it would have applied to earned and unearned incomes, to businesses and industry as well as to individuals. However, if both could not be done, my right hon. and learned Friend has done this in a big way. I am glad that he has not tinkered with the problem by raising the starting point by £500 or something like that. He has made a bold and equitable sweep.

I am well aware of the great difference of opinion about the extent of the disincentive effect of high rates of direct taxation. On this side of the Committee we are inclined to exaggerate that effect from time to time; hon. Members opposite are apt to ignore it, but I read an article the other day which I thought put the matter very objectively and fairly. It was one of the many articles written in an attempt to guide the Chancellor in his Budget proposals.

I quote the following extract: The Chancellor should also increase the allowances for industrial investment and exports and he would be encouraging able young men in industry as well as performing a belated act of justice if he ended the collection of Surtax on earnings as low as £2,000 a year. Surtax was meant to be a tax on the rich but £2,000 a year now is equal to only £700 before the war. Even if the starting level were raised to £5,000 the tax would still be discouraging people whom it was never meant to reach. People to whom £2,000 still sounds a lot of money should not be jealous, for the present state of affairs is harming the interests of the whole country. For instance, the Minister of Education is begging married women teachers to come back and help us over a desperate shortage, but if all they achieve by coming back is to make their husbands liable to pay Surtax on their joint incomes, they will not come. That is very fair, and the fact that it is an extract from a leading article in the Daily Herald of 16th January perhaps lends a point of emphasis to what I have said.

It is perfectly true that there was a tailpiece to the article which went on to say how the cost of the Surtax concession should be met. Incidentally, how remarkable it is that a starting level of £5,000 was suggested so long ago, though I am sure that it cannot have been a Budget leak to Odhams or the Daily Herald. The tailpiece was to the effect that the Surtax concession should be met by a capital gains tax, and we have heard something about that today from the right hon. Member for Huyton (Mr. H. Wilson) and also very briefly from the hon. Member for Stechford.

There has been a good deal of misapprehension and misunderstanding about the probable yield of a capital gains tax. I noticed a most significant omission from the speech of the right hon. Member for Huyton today. He gave no indication of the probable yield, but during the General Election campaign of October, 1959, both he and the right hon. Gentleman the Leader of the Opposition gave some estimates of what they thought a capital gains tax introduced by a Socialist Chancellor—presumably the Socialist Chancellor who would come in as a result of that General Election—might produce. The figures they gave at that time varied between £200 million and £300 million in a year. Some of us thought that that was a rather excessive figure to consider, and it was certainly far beyond what the Inland Revenue suggested when it gave evidence before the Royal Commission on the Taxation of Profits and Income.

I am not surprised that the right hon. Gentleman did not give any figures this afternoon. He may have done what I have done, which is to look at a booklet which probably all members of the Committee have received. It is entitled "Interest and Dividends upon Securities Quoted on the Stock Exchange, London, 1960". Table VIII on page 14 is most interesting and instructive. It shows the aggregate market value of all securities quoted on the London Stock Exchange at six-monthly intervals. The total market value at 31st December, 1959, is shown at £37,670 million. Going to the end of 1960—I ask hon. Members to remember that this is the year which is to produce £200 million to £300 million by way of a capital gains tax—we find that the value, instead of being £37,670 million was £37,075 million, which is a reduction of £600 million. What kind of capital gains tax could possibly have collected any revenue out of that overall drop? Although it is not a direct arithmetical relationship, had there been a capital gains tax in 1960 there obviously would have been no net yield, but there would have been substantial administrative costs.

Mr. Bruce Millan (Glasgow, Craigton)

Surely the hon. Gentleman does not seriously base his argument on one year's figures, especially as he is starting at a particularly high point? After the last General Election share values rose very considerably. One has to take a long-term basis.

While I am on my feet, may I say that it is quite wrong for the hon. Gentleman simply to mention the estimates given by the Inland Revenue to the Royal Commission without taking account of the very stringent criticisms, which have since been absolutely justified, which were made in the minority Report.

Mr. Stevens

The hon. Member and I belong to the same very cautious profession. I am rather older than he is and more experienced in the profession. I think that his first question was rather a daring one. If he knew me better, he would know perfectly well that I would never dream of basing my whole case on a single year. He obviously has not done his homework. If he turns to Table VIII on page 14 of this interesting booklet, he will find that between 1st July and 31st December, 1957, overall the values fell from £28,437 million to £25,371 million. In other words, as the Inland Revenue witnesses said very clearly on that occasion and as many other people have said since, not only is the overall yield, taking one year with another, likely to be far less than the wildly optimistic guesses made at General Election time, but in point of fact over a considerable period there would probably be no net yield at all. In any case, it would certainly be nothing like enough to justify so radical a departure.

Mr. Millan The hon. Gentleman is again taking very selective dates, this time over a period as short as six months. Does he not realise that the figure he quoted for 1957, namely, £28,437 million, as compared with £37,075 million for December, 1960, completely explodes his case? In the four years between 1957 and the end of 1960 there was an increase of about 33⅓ per cent.

Mr. Stevens

It is always difficult for a Chancellor of the Exchequer and his advisers to estimate the likely revenue for the forthcoming year. It is not an unimportant thing for a Chancellor of the Exchequer to try to do. If it is as chancy as it quite obviously is, when men so expert in these matters as the Leader of the Opposition and the right hon. Member for Huyton can be so wildly out in an estimate made in October, 1959, as the figures for 1960 clearly show, it would be a very dangerous kind of tax to touch.

Mr. G. R. Mitchison (Kettering)

I wonder why the hon. Gentleman omits to mention the rise in the value of land. That was the instance taken in the minority Report. It is difficult to argue that land has remained steady in value in recent years or is likely to remain so.

Mr. Stevens

I certainly should not dream of alleging that prices of land have remained steady. I should say something very different. The minority Report did not limit itself to land. It dealt with a capital gains tax covering securities, property and land.

Despite what has been said today about men in the export and import industries working already as hard as they can go, it will be a considerable encouragement to men of the type of Sir William Lyons if they can keep more of their own money. Sir William Lyons springs immediately to my mind, because his company has just obtained £13 million worth of orders in New York. Such men will find considerable encouragement in the fact that they can keep a little more of their own money.

I make one small reservation, and I hope that my right hon. and learned Friend in his thinking about alterations to the tax structure as a whole will bear this in mind. This means that there is a further differentiation between the tax treatment of earned and unearned income. A good many of us on this side of the Committee feel that that difference is already too great and that a very large number of so-called unearned incomes have, on the contrary, been earned by the sweat of the brow. I hope that when the Chancellor of the Exchequer makes permanent changes the gap will not be widened. Indeed, I hope that he will find it possible to narrow it.

I want to say a few words about the two new economic regulators. A number of my friends outside the House have already voiced strong objections to both types. The first is the ability to increase or decrease by up to 10 per cent. a wide range of duties. The second is the possibility of the payroll tax. They are exactly the same people who in the last two or three years have complained bitterly about the putting on and off of credit restrictions, the increase and decrease in hire-purchase deposits, and one thing and another, because those have either been too long-term in taking effect or have affected too narrow a range of goods.

The first of my right hon. and learned Friend's proposals has not that disadvantage. Further, it should have immediate effect. I ask my friends whether they want to go back to the pre-war conditions of alternate booms and slumps. The Government of the day must, particularly in these days, have instruments ready at hand the moment signs of inflation or deflation become apparent to take immediate action in an effective manner. When the Chancellor of the Exchequer has these powers he will have more flexibility, and that should assist control both over the balance of payments position and over prices.

I turn now to my objections. As I indicated a short while ago, I am sorry that my right hon. and learned Friend has found it a good thing to finance the Surtax reductions by an increase in Profits Tax. By a Surtax reduction he helps the industrialist. By increased Profits Tax he harms industry itself. This afternoon my right hon. Friend the President of the Board of Trade said that it was only fair that the owner should be taxed to pay the earner. I do not think that he can have read this morning's leading article in The Times, which draws attention to the fact that in industry as a whole it is not only the earners who are wanted but also capital for industry.

The increase of 2½ per cent. in the Profits Tax follows a similar increase of 2½ per cent. last year, making a 5 per cent. increase. That is a 50 per cent. increase from 10 per cent. to 15 per cent., which is a considerable increase. We have already moved into conditions in which profit margins are bound to be narrower than they have been in the past. I am not at all certain that industry as a whole will find it possible to carry this additional 2½ per cent. without increasing prices.

Mr. C. Osborne

Is it not true that control of capital today is less and less in the hands of the men who manage the business? It is the men who manage the business that make the profits. They are entitled to get a slightly greater proportion of the profit they make, as against the shareholder who does not play an active part. To that extent, the proposals of my right hon. Friend the Chancellor of the Exchequer are justified.

Mr. Stevens

I do not dissent from that, but, as the whole burden of Profits Tax falls on the holders of the equities, and, therefore, an increased Profits Tax must mean a lesser reward on that capital and a lesser reward for savings, there is a disincentive effect on savings. There can be no question of opinion about that; it is a question of fact. My hon. Friend the Member for Taunton (Mr. du Cann) yesterday lamented the fact that there was no extra incentive to saving in this Budget. Here we have an active and substantial disincentive, and I am sorry that my right hon. and learned Friend found it necessary to do this.

The overriding consideration. I should have thought, of all of us must be the fact that my right hon. Friend has budgeted for this very large surplus of £500 million. I am one of those who intensely dislike compulsory savings through the Budget. I much prefer to increase the ability of individuals to save, but if, in the circumstances, it seems unlikely that private saving will match up to the needs of the moment, I certainly think this is necessary, and I challenge the hon. Member for Stechford, who talked about complacency. I think the size of the proposed Budget surplus—£500 million-most certainly is not complacent. I hope it will be appreciated by the world at large. It can only be a good thing for the stability of the £, and that is something vital to us as the financial centre and the bankers of the whole sterling area.

7.1 p.m.

Mr. David Ginsburg (Dewsbury)

I listened with very great interest to the observations of the hon. Member for Portsmouth, Langstone (Mr. Stevens), who speaks with very great conviction and expertise, but I am afraid that I cannot agree with everything he said, because the economic philosophy for which he stands is something diametrically opposed to my own beliefs. I hope he will not take it in a personal sense if I say that his economic beliefs are the beliefs of the pre-Keynesian era.

My right hon. Friend the Leader of the Opposition yesterday mentioned two tests for any Budget. He asked how far it measured up to the economic needs of the nation at the present time, and then he asked whether it imposed the necessary burden in a fair and equitable way. As I shall endeavour to show in a few minutes, the Budget fails on both those counts. As far as the actual diagnosis of the Budget is concerned, the Chancellor failed to show any sense of economic purpose at present. It is true that he painted some of the economic difficulties which face this country, but he omitted to paint some other very great difficulties which we are encountering, and he most certainly failed to give the lead which we vitally need at the moment.

To turn to his tax changes, the Chancellor has produced a Budget—and I say this very deliberately and very advisedly; let there be no mistake about this—which is directly relevant to the domestic needs of the Conservative Party at the present time, but is not relevant to the needs of the British people. Quite basically, the tax part of this Budget does only two things. It imposes imposts, some of which I agree are justified while others are unjustified, on millions of people in this country, and it gives relief only to a very minute section indeed. This sort of treatment is resented in my own constituency, but I would go very much further and add that when the plaudits which we heard yesterday coming from behind the Chancellor have died away, it will be found that there is great dissatisfaction with this Budget, not only on this side of the Committee, but also among millions of Conservative electors at the same time. Indeed, I would add that I do not think that Conservative white-collared workers voted for the Conservative Party in 1955 or in 1959 in order to have a Budget of this kind inflicted upon them.

Mr. C. Osborne

Surely, the hon. Gentleman cannot claim that there is dissatisfaction with the Budget when there are only ten hon. Members on the benches opposite taking part in the debate?

Mr. Ginsburg

I am not only referring to what we have said from this side, but to what is happening in the country, and I venture to say that when the next lot of local government elections takes place or the next lot of by-elections, we shall see a very different picture.

Mr. Diamond

I am sure that my hon. Friend is capable of appreciating the fact that there are fewer Conservative Members here than there are Labour Members, and that it is pointless for the hon. Gentleman opposite to make such an inane remark.

Mr. Ginsburg

I am very grateful for that intervention from my hon. Friend. I am only a humble statistician, and my hon. Friend is an accountant, and accountants are far more accurate.

In one respect, I agree that this Budget is significant, because it marks a recognition on the Government's part of the fact that the monetary weapon has failed. It also marks—does it not?—a recognition on the Government's part that the attempt to use the Budget as the annual regulator of the economy has also failed. It has always seemed foolish to many of us to try to steer the economy for 12 months ahead, anticipating in this way. To that extent, the various devices, which the Chancellor has outlined and for which he proposes to take powers, whatever we may think of them in certain details, have something to be said for them, although I shall later say something about the payroll tax.

The Chancellor, moreover, in the course of his address yesterday, expressed certain extremely ambitious views about the simplification of the tax system. Indeed, when we read the papers the weekend before, we were given to understand that, whatever else happened, this year of all years provided the Chancellor with a great opportunity of tidying up and streamlining the tax system. He has started off—and this is my criticism of the Chancellor's whole approach—with some extremely ambitious statements criticising the present complexity of the tax system, indicating that he was moving towards simplification. He indicated an idea of simplification so far as Profits Tax is concerned, and then threw it out of the window. He indicated some simplification of Surtax, and then he threw that out of the window, and then told the Committee what he in fact proposes to do.

I hope he will re-read what was said in The Times today, when it was indicated that there was something to be said for trying to have one systematic progressive system of the taxation of income right through the income ranges. If that were done and it was linked to a capital gains tax, very many desirable changes could be made, and we could move towards what I think is really needed in the economy, which is not Surtax relief, but relief so far as the basic earned income allowance is concerned. It is worth mentioning that it was relief of that kind which Lord Dalton gave many years ago, which provided the sort of lift in production which the British economy so badly needs.

There is one other aspect on the problem of simplification which I should like to mention. In my opinion, what the public resent is not paying taxes, but coping with the ever-growing complexity and intricacy of the tax system. As hon. Members know, we have had a Royal Commission on taxation which produced a valuable Report. However, it did not deal sufficiently with the administrative and public relations aspects of the workings of the Board of Inland Revenue. I think that I carry most hon. Members with me when I say that the Board of Inland Revenue is bureaucratic in the extreme.

I should like to pose two questions to the Government. First, have they considered having a serious organisation and methods study of the workings of the tax administration? If they did have one, I am sure that great improvements would follow. Secondly—and here I speak with some practical knowledge of consumer research—has there been systematic research and study of the Income Tax form which members of the public have to complete? I should be grateful if inquiries could be made on this point.

If a research were made—I think that it would be found that this form is beyond the comprehension of most hon. Members—if such research were undertaken, I think that the task which the public have to face would be eased. As I understand it, members of the public who have not accountants to advise them are entitled to go to the Inland Revenue and ask the Revenue to complete their tax forms. If the public availed themselves of their rights and privileges in this matter, I think that we would find that the work of the Inland Revenue would come to a stop. I sincerely feel that the Chancellor has missed a valuable opportunity of simplifying the tax system and introducing the administrative changes which would have been invaluable at this moment.

Another disappointing aspect of the Chancellor's Budget Statement was that it failed to make any contribution to some of the important economic objectives which the Chancellor himself mentioned in his speech. For example, he referred to the need for exports. The more we look at the problem, the more we realise that nothing has been done by the Chancellor specifically to assist exports. The right hon. and learned Gentleman mentioned the need for improving productivity from the point of view of investment. Nothing has been done to assist investment.

There was a lyrical passage in the right hon. and learned Gentleman's speech about the need to step up scientific research, but nothing has been done in the Budget to assist scientific research. If the Chancellor had been bold and really intent on doing something new, as we thought he might try to do, surely he would have said something about the discriminatory methods of taxation which are practised in this country and in other countries and which, if they had been applied, in these cases would have helped us very much.

Perhaps the most serious criticism of all that we level against the Chancellor is the lack of clarity about the diagnosis that he applied. After listening to him, and having heard the President of the Board of Trade, we do not know the approach of the Government to the economic situation that faces this country. A great deal was said yesterday about the visible trade balance. In the light of today's news, the position of the visible trade balance is, in all conscience, getting, if anything, rather worse.

But I wish to draw attention to something that I have mentioned before, namely, the absolutely catastrophic deterioration in the invisible trade balance of this country. The invisible trade balance was, in a sense, this country's pride if we consider the pre-war position. In 1960, we had an invisible trade balance, a surplus, of only £22 million. In 1958, it was £229 million. I believe that before the war it was £280 million. This is a staggering decline. The deterioration in the invisible trade balance is something which needs explanation. What has happened? We should like to know rather more, in particular, about the Chancellor's plans for setting this country free from the incubus of dear money. For as long as the Government practise dear money in the economy, hot money will flow into this country and there will be vast and expensive out-goings on the invisible account which this country's economy cannot afford.

I should like to go beyond the issue of dear money and ask the Government this question: are they satisfied with the economic performance of the service industries? Much has been said about the performance of the conventional export industries, but what about the less conventional ones? What is the Government's view about the contribution of the insurance industry? Is it pulling its weight? What is the Government's view about the shipping industry? Such statistics as are available from the new balance of payments statistics suggest that all is not well and that things are deteriorating.

What is happening with regard to the oil industry? I think that the Committee generally welcomed the Chancellor's action in imposing an additional taxation on fuel oil. I believe that this will assist, not only the coal industry, but also our balance of payments. One of the things which has contributed to the serious deterioration in our balance of payments has been the growing importation of oil. We should like to have something more than generalisations on this subject. We should like to know where we are and what is the contribution of the oil industry to the economic life of the country. We should like to know how big or how small are some of its earnings. There are all sorts of disturbing reports that profits are being retained abroad and that the income is not coming home.

Mr. Maudling indicated dissent.

Mr. Ginsburg

The President of the Board of Trade shakes his head. He may be privy to the sort of information to which we are not privy.

Some time ago I asked the Prime Minister a Question on this subject and he indicated that there were difficulties in the way of publishing the figures. I have looked at the recent White Paper, and all the signs are thoroughly unsatisfactory.

Mr. Maudling

I also looked at those figures, particularly those concerning interest coming into this country. One of the big reasons for the fall in interest on profits is the fall in profitability of the oil industry. The hon. Gentleman is right in saying that that has had a big effect on the invisible balance.

Mr. Ginsburg

I thank the right hon. Gentleman for that intervention. I hope that he will use his influence among his colleagues to ensure that we have some more facts. We are not deliberately "going" at the oil industry for emotional reasons. If it "came clean" and set out the position in a balance sheet, we would be able to take a much more intelligent view of the subject.

We had no hint from the Chancellor yesterday of the type of trade policy that he wants the British economy to follow. Is it the policy of the Chancellor and of the Government to strengthen the sterling area? If so, the Government had better move very fast because, according to a recent interesting article in the Economic Review of the National Institute of Economic and Social Research we are losing ground extremely quickly in our traditional sterling area markets.

Many figures can be given to illustrate what is happening to British trade in the sterling area. If I mention only one series of figures, it is because of the local interest of my constituency in the woollen industry. I wish to draw attention to what is happening in the export of what are called "miscellaneous fabrics" to the sterling area. "Miscellaneous fabrics" is the only suitable classification that I have been able to find available. It covers the whole range of textiles. I am advised that wool makes up about 50 per cent. of these miscellaneous fabrics.

The export of miscellaneous fabrics from the United Kingdom to Australia in 1954 amounted to 68 per cent. and in 1959 to 46 per cent. The export of miscellaneous fabrics to New Zealand in 1954 amounted to 87 per cent. and in 1959 to 74 per cent. For South Africa, an important country for United Kingdom exports, the figures were 33 per cent. in 1954 and 23 per cent. in 1959. Northern Rhodesia, 93 per cent. in 1954, 51 per cent. in 1959. India, 29 per cent. in 1954 and 18 per cent. in 1959. This is a catastrophic decline in traditional British exports to traditional British markets.

Many explanations can be adduced. If, however, we accept the President's suggestion earlier this afternoon that he is entering negotiations to lower preferences even further, this will mean lowering Imperial Preference, which we enjoy in those markets. I venture to say that the position will be even worse concerning many key British exports. What I have said about miscellaneous fabrics can be paralleled for many other industries in the constituencies which hon. Members represent. If the Government do not want us to strengthen our economic ties with the Commonwealth, do they want us to move more into Europe? If so, why are the Government procrastinating concerning the Common Market?

We simply do not know what is in the Government's mind concerning external trade policy. As my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) made clear, we do not even know whether the Government want to expand our economy or are seeking to squeeze it. I am inclined to think that the public will not regard the Budget as an expansionist Budget. They will consider it restrictionist, because it does impose considerable restrictions.

The Chancellor of the Exchequer and the President of the Board of Trade have argued that many of the various burdens, particularly some of the new devices, are being imposed to produce efficiency and to make industry use labour and machinery more efficiently. Speaking for my constituency, I do not think that what the President of the Board of Trade has said will be so interpreted. My experience is probably paralleled by that of many other hon. Members who represent low wage areas.

My constituency has two key industries, wool textiles and coal. They are both extremely labour intensive. It is an area where, as the President of the Board of Trade admitted some months ago, there are no jobs in prospect. No industrial development certificates have been granted. Most of my constituents get no tax relief from the Budget. Most of them will have to bear heavier imposts in terms of social security payments and also in terms of higher prices which the Budget will engender.

If the payroll tax is brought in, it will make for heavier burdens among small employers in my constituency. If the President of the Board of Trade argues that the object of the payroll tax is to squeeze labour and to get employers to release labour, I must take him up on that and ask what he is doing to provide alternative industries in my constituency or other constituencies. The right hon. Gentleman knows—I have just given him the figure—that nothing has been done and I am not aware of any intention to help. If the right hon. Gentleman replies that we have made far too sinister an interpretation and that something else is envisaged, if the result of the payroll tax will be simply to put a financial burden upon an employer so that he does not pay higher wages, which may be an aspect of the operation, speaking as the representative of a low wage area I am bound to ask not only what is the economic point, but what is the social justice of an action of this kind.

By whatever test one uses, by whatever criterion one judges the Budget—whether international, national or local economics—this is a misdirected Budget. We have missed a valuable opportunity of doing two things which matter to our economy: simplifying the tax system and getting the economy on the right road to expansion and economic progress. It is an opportunity which we can ill afford to miss at this moment in our history.

7.26 p.m.

Lady Tweedsmuir (Aberdeen, South)

The hon. Member for Dewsbury (Mr. Ginsburg) seemed to see nothing good in the Budget. Yet he told us that he has the coal industry in his constituency and he knows that one of the arrangements in the Budget is to put a tax on fuel oil, which is something that the hon. Member's party has demanded for a long time. Apart from that, the hon. Member said that he did not think that the average person in his constituency would see any justice in the Budget. Memories are short and people always forget the earned income and other reliefs which have been given in no less than eight Tory Budgets before this one. The proof is that the total of taxation on the gross national income has fallen from 31 per cent. to 25 per cent. during the ten years of Tory administration.

The hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) quoted Lord Amory rather approvingly as having put forward three criteria to judge whether the Budget was a just one. The first criterion was whether it did anything to strengthen the currency. The size of the Budget surplus is an indication to the world at large that the Government are determined to keep their house in order and to keep confidence in the pound.

The second criterion was whether we would hold costs steady. That is a much more difficult question. It depends largely upon the efficiency of industry, which is why we do not wish to have growth at any cost, as the hon. Member for Stechford seemed to suggest. We want growth and efficiency. The third criterion was whether enough had been done about investment. Concerning investment, and particularly about exports, I should like to say a word or two. In passing, however, I welcome the reference made yesterday by my right hon. and learned Friend the Chancellor of the Exchequer to the fact that the 40 per cent. investment allowances for shipbuilding will continue.

This is a courageous and imaginative Budget, but we must look at it in relation to what will appear next year and the year after. In his Budget speech yesterday, my right hon. and learned Friend the Chancellor made plain that he had set in train a large number of inquiries into our whole tax structure and system. I hope that one of the questions which he will examine closely is the taxation of married women with their husbands. Although I have to declare an interest, nevertheless, we are making an appeal to, for example, married women to return as teachers; and you, Mr. MacPherson, will be particularly interested in that profession. The disincentive of double taxation is a very real one and I hope that my right hon. and learned Friend the Chancellor will consider it.

I myself feel that the relief which is being given in the Surtax range is very long overdue. I believe that it will stop a great many our our trained, skilled men, particularly in responsible executive positions, from going overseas. The Financial Times today showed us that in the £2,000 a year bracket, a man in the United States can keep 80 per cent. of his earned income, in West Germany 72 per cent., and in this country only 60 per cent. Therefore, this is a long overdue change. As my right hon. Friend the President of the Board of Trade said, it has not been altered since 1920.

This may also have a very beneficial effect upon our exports. It is one of the most responsible and difficult jobs to go out to export markets. The reduction in Surtax should be an incentive to people to take greater responsibility, and I hope that it will encourage firms to give the very best salaries to those who are to look for export markets.

I see a certain amount of what goes on in Canada, as I am fortunate in being able to go there from time to time. So often, British firms hopefully send someone who is not in a senior position to the Canadian market, a man who is unable to take a responsible decision. It is no good thinking that exports to this particularly difficult market, so close to the United States, can be undertaken by sending overseas exactly the same product one would send to the home market here.

There is a tremendous influence from the United States throughout Canada. I believe that the Canadian housewife is subjected to about 700 advertisements of all kinds every day, mostly from over the border. That means that she is largely accustomed to American styling, and we have a great responsibility to send people to study overseas markets intelligently and then manufacture our products for the particular needs of those markets.

I was very disappointed that there was no active stimulus to exports in the Budget. I think that it was my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) who said that in his view the natural market for manufacturers in this country was the home market. That I believe to be true. We are always told that we cannot have any particular stimulus to exports, because that would encourage other countries to do the same. But, surely, what would result would be competition in exports between various countries using export stimuli, while, at the same time, we would be trying to lift home producers into export markets.

We might take some notice of what is to be done in Australia on 1st July. When Mr. Menzies was here for the Common-wealth Prime Ministers' Conference, it was announced in Canberra that there would be two definite stimulations to exports. First of all, there is to be an allowance for exporting. At present there is an 8s. in the pound deduction on the total amount spent by firms in export promotion. This is now to be doubled. From 1st July, it is to be 16s. in the pound.

The second stimulation to exports concerns the payroll tax, which Australia has had since 1946. I understand that in the Australian Parliament Members from both sides have constantly pressed for its removal. I do not see, at first sight, how it will help our position here to have a payroll tax. It is thought generally in Australia that while such a tax may help some firms which are highly mechanised, or might mechanise further, in order to economise on labour, it is hard on those which cannot mechanise for various reasons and have to employ large labour forces.

I can see the same sort of thing happening here, and I understand that it is liable to inflate costs. It is proposed in Australia that, from 1st July, if, between 1958 and 1960, a firm has increased its exports by an average of more than 8 per cent. of its total sales, it will be given a total remission of the payroll tax. Smaller increases will earn smaller percentages of remission. The aim is to encourage firms which are normally accustomed to working in what is sometimes called the soft home market, to take large risks in trying to reach highly competitive overseas markets.

I ask my right hon. and learned Friend, therefore, seriously to consider, between now and the next Budget, whether we should not have some stimulus for those engaged in the export trade. At least one measure which he could consider even now is that of exempting such firms from the payroll tax, if it comes about, and also not imposing on them the increase in the Profits Tax which is proposed. We have to urge our people on in order to get them into these more difficult markets.

The payroll tax is liable to work very unfairly as between areas of relatively high employment and those which have over-full employment. Representing a Scottish constituency, I cannot see that a payroll tax will do anything but encourage even greater unemployment than that with which we are battling today. It is also unfair as between firms which cannot mechanise more than a certain amount and other firms which can.

The job which my right hon. and learned Friend wants done by this payroll tax—greater efficiency—would surely be done by the increase in the Profits Tax. No firm would do other than try to get greatest efficiency in order to compete with that increase in the Profits Tax. I hope that the payroll tax as an economic regulator will never be brought into being.

The other economic regulator is the Purchase Tax. We have heard so much about the difficulties in changes in Purchase Tax, but to hold the sword of Damocles now proposed over industry as a whole throughout the year will be unsettling, will cause great lack of confidence, and will give very great power to the Government. I cannot see that we on these benches should support a measure quite like that.

The general conditions for the export trade are, without stimulation, very difficult. I know that it is said that we must not have too soft a home market In that way, one could say that the Budget has been rather tough and has tried to hold certain conditions and, indeed, create certain taxes, because the Surtax relief will not benefit anybody until 1963. It is true that the best export market stems from a firm and competitive home market, but at the same time we need to remove obstacles to trade, and also to give incentives to exporters.

I hope that my right hon. and learned Friend, in considering the removal of obstacles to exporters, will pay attention to a speech made about a month ago by Lord Polwarth, who is Chairman of the Scottish Council for Development and Industry, in which he said that many firms were discouraged in going to Scotland by a delay of anything up to four months in telling them exactly what they were entitled to under the Local Employment Act. If some easement of these delays could come about we should have more success in attracting foreign firms to establish business in the North.

Finally, will my right hon. Friend please take the message to his right hon. and learned Friend that, apart from removing obstacles to trade, we should seriously consider how to give a serious stimulus to exports?

7.40 p.m.

Mr. Leslie Hale (Oldham, West)

I almost feel that I ought to ask the indulgence of the Committee for a maiden speaker, because I have had a very long absence from the House through illness and returned to find that no one had observed my absence except one or two intimate friends who asked if I had been away for a long weekend. Further, some of my first observations in Committee on the Criminal Justice Bill evoked a letter today to The Times which thought that when I was referring to Lord Eldon I was making subtle insinuations against Lord Parker.

I therefore speak with hesitancy. I speak with more hesitancy for a much more important reason. Not having spoken in the House for many months, and, indeed, not having spoken in a by-election for a couple of years, I for once took great pains in preparing a speech in the hope possibly of catching the eye of the Chair in his important debate. I have thrown all those notes away for more than one reason. One is that I am not feeling particularly well and hardly in the mood for polemics, but, more importantly, it is because I have been moved by one or two things which have happened in the House in the last two or three days.

When the hon. Member for Kidderminster (Mr. Nabarro) spoke last week in a debate entirely irrelevant to this, and to which, therefore, I shall make no further reference, the House began to recover a little of its old spirit. I am not saying that because his remarks were highly controversial or because I happened to agree with him, but because I felt that when one hears an hon. Member speaking with obvious sincerity against his party view one begins to recall with pride the description by the right hon. Member for Woodford (Sir W. Churchill) of this Chamber as "The grand inquest of the nation."

The grand inquest of the nation can never be conducted on lines of two monolithic structures imposing their will not only on the main issues of debate but on every individual expression of opinion. I think the party opposite has gained greatly in strength by accepting criticism with a great deal more generosity than has been accepted in the House in years gone by or in other parts at this moment.

So, when today I heard an observation by the hon. Member for Louth (Mr. C. Osborne), who was speaking with obvious sincerity—and he is a man of great experience in the export trade—I heard him put a question which seemed to me to be of extraordinary relevance. In the traditional language used by Mr. Speaker, lest there should be any doubt, I have obtained from the hon. Member an authentic version in his own hand. He said that we are selling at home too large a proportion of what we produce, but that the question arises (1) how can we restrict home consumption in a free society and, (2), if we succeed, how can we compel foreigners to buy the extra supplies against increasing products from their countries?

I interrupt myself in parenthesis to say, in relation to the hon. Lady the Member for Aberdeen, South (Lady Tweedsmuir), that the only Parliamentary cliché I have never used in sixteen years is, "I hope the hon. Member will forgive me if I do not follow the points he or she has made". I think, however, speaking off the cuff, without notes and from memory, that I shall be following some of the points to which she referred. Not many years ago I, too, went to Canada. I went in somewhat unusual circumstances at the end of 1945. The issue she raised in her speech is also an issue which arises from the interjection of the hon. Member for Louth. I was astonished and moved by the warmth of affection felt for us in Canada. Admittedly it was just after the war, but I am assured by everyone that it is traditional. The further West one gets the deeper it is until one gets to British Columbia, which is essentially Scottish rather than British.

As the hon. Lady said, they have the problem that something like 80 per cent. or 90 per cent. of the Canadian population is within 60 or 70 miles of the American border and almost every American magazine circulating in Canada carries American syndicated material, advertisements and pictures. All the names of the goods are known. I came back and said this. I said it a good deal and spoke about an Empire Consultative Parliament, not to take decisions but to exchange views while meeting in reasonably compact numbers in the capitals of what we now call the Commonwealth.

That did not attract very much attention. Indeed, I find it difficult when I look back on life to find any serious suggestion of mine which has. A year or two later I made another suggestion which was dismissed equally as the product of the crank. The hon. Member asked the President of the Board of Trade a passionate question of first importance. I have great regard for the President of the Board of Trade, who is always very courteous to me and has considerable authority, but he brushed the question off in a way which is getting a little sickening and rather in the manner of the popular view of politicians as people who can answer slickly and brush off an inquiry.

This, after all, is a question which is vital to the grand inquest of the nation, which does not at the moment contain many people—if I mentioned how many it might produce undesirable results. The right hon. Gentleman did not give an effective answer to the hon. Member's question.

The hon. Member for Louth has a commercial interest allied to the cotton industry. I do not know to what extent it is, but I know that he speaks with considerable knowledge of the subject.

There are two problems in this connection, but, let us be fair about it, neither has much to do with the efficiency or inefficiency of British exporters. They carry the can of political blame when Government financial policy falters or a market sags. We can sell British cars in the United States of America only as long as the Government of the United States is willing to allow us to do so. Do not let us have any nonsense about that. A point I have constantly made is that we could never compete in the case of British cotton with Hong Kong or Japan. No sacrifice of workers' wages and no subsidies of any sort of practical kind could enable us to do that.

We have two problems, and one is a world problem of uneven competition. I use the word "uneven" rather advisedly—as advisedly as one can when speaking off the cuff—because I do not want to call it unfair competition. Nations developing from poverty towards prosperity naturally have an interim period during which their competition may appear to us to be unfair and when, virtually speaking, there is no practical alternative to it. Those of us who came up against the problem, particularly in India in relation to cotton, know that Her Majesty's advisers were then correctly saying—an unpopular thing to say and for which they should have credit—that to rescind or break that agreement would do harm both to us and to India, certainly great harm to India. India would say, "We quite understand your complaints. We can sympathise with the point of view, but what can we do?"

The point I want to suggest is that we cannot solve this problem by unilateral action. That is why I said years ago that countries should pay for their exports, not for their imports. I know that someone will always titter; perhaps not quite so many this time as there were that time because that is what the United States of America have been forced to do since then.

Even if one's economic circumstances seem to force one into a great export surplus, one cannot continue to use it as an economic weapon without landing the world into economic war. I am not for a minute trying to belittle the generosity of the economic help given by the United States to other countries. The only qualification I make is that they have been extremely generous, they have done many moving things, they have ignored the fact that many countries have swindled them in the course of receiving that aid, they have poured in help to the children of Southern Italy and seen it swallowed by the businessmen of Northern Italy, but they have gone on putting it in, they have behaved magnificently, but this process became almost imperatively imposed on them by the magnitude of their trade surplus. They had to adopt either a liberal plan abroad or a Socialist or democratic progressive policy of social reform at home which was not then politically acceptable. They could have tried to use their surplus productivity on the home market, which perhaps was economically practicable for them, but such a remedy is not practicable for us because we have to feed to live. We still have to import to feed, and we still have to export to pay for the imports. That is elementary, and perhaps I am wasting time even mentioning it.

It can be done only by world agreement, or at least by agreement between nations. This was precisely the problem in the cotton industry. I remember that during the time of the Labour Government we were asked to make speeches in our constituencies appealing for women to join the mills, appealing to workers to work harder, and appealing for extra production, all of which sounds like a Samuel Smiles' guide to economic life. What happens when all the countries of the world start doing that? When all the British politicians have said, "Work harder and produce more", and when all the Belgian politicians have said "Work harder and produce more", and when all the cotton producing countries competitive production organisations have been geared to over-production, what happens? The only thing is that one goes bust quicker.

This is the problem today, and I suggest that this is important from another point of view. I listened to the speech of my right hon. Friend the Member for Huyton (Mr. H. Wilson), who always speaks with great knowledge and brilliance. The House always listens to the brilliant, informed, and witty right hon. Member for Huyton. I used to work with him down below when I was the devoted servant of world interest. On one committee we laboured rather miserably—happily in one way but not with any éclat or publicity—on a cause not then terribly popular.

The point we were making was that the Colonial Territories need economic development. They must have new industries. If one considers the problem of any one of the nascent countries, it has to industrialise to have even the wherewithal to produce a taxable revenue on which it can embark on social development, but in modern conditions the industrialisation and urban expansion which inevitably follows reduces its agricultural productivity and produces the evils it is trying to avoid, and produces a raging inflation in the towns and poverty in agriculture.

I do not want to be polemical or controversial. I think that the years when we used to natter about planning, and when planning was supposed to be a private Socialist word which indicated something vaguely and acutely Left-wing and was a subject for criticism by hon. Gentlemen opposite, have gone. The party opposite are doing a lot of planning, and dashed bad planning it normally is. They find themselves supporting private enterprise and subsidising it enormously.

The present state of Government Departments was expressed in one or two thoughtful economic articles recently. It was said that each Department tried to be a law to itself, subject to the Treasury. We have the Minister of Transport appealing that there should be no drunken drivers on the roads, and the Home Secretary appealing for pubs on the roads to open for more hours than they want to. We have the Ministry of Health studying the problem of the common cold, and the Minister of Transport jamming millions of people into tube trains under conditions which are appalling, and indeed almost indecent, and assiduously spreading disease. We today heard the President of the Board of Trade appealing for the manufacture of more cars, yet the Minister of Transport tries to keep them off the roads as much as he can by placing increasing restrictions on them.

There is something to be said for intelligent planning. If we could get the feeling which would mean that we were not so frightened of the Whip, that we were prepared to express an independent view, some of the most controversial subjects might come up for serious discussion and thoughtful consideration.

The hon. Lady the Member for Aberdeen, South made a passing reference to Australia and to immigration. When we talk about the immigration problem in this country, which is quite serious, we tend to be either pro-black or anti-black in the public estimation. The contentions are based primarily on the question of the rights of individuals. When the Chancellor of the Exchequer says, "I want to put on a payroll tax because we have a shortage of skilled labour", we must consider the question of the continued importation of unskilled labour from other points of view as well.

We cannot dismiss these questions lightly as emotional matters. We have to plan. If we are ever to solve the problem of immigration from the West Indies we must consider the future of the West Indies. They are more fertile, they have more resources than this country, and perhaps more hope for the future in centuries to come. The West Indies could well afford to maintain their population with proper economic aid and sufficient economic guidance. That is why I suggest that we must approach the problem of exports from the realisation that competition may be an excellent stimulant, but, if it goes a little too far, it becomes a war, and between nations it becomes a trade war, and a trade war can imperil world peace.

When we are told that the Prime Minister received in Washington advice, forthright strong advice, that Britain ought to seek a more or less safe harbourage in the Six, we have reached the stage when we can discuss with the United States the use of the economic surplus as an instrument of trade war; we can discuss the vital necessity of markets being opened to us and not closed; and we can also raise the question of the right of other nations to make their contributions to a world pool of trade, even though their wage conditions are themselves uncompetitive from our point of view. We have to do it, or we will go back to the difficulties we had to face before.

Mr. C. Osborne

I agree with what the hon. Gentleman said, that if we are to get economic stability at home our export problem must be solved in some way by international agreement. Will the hon. Gentleman face the problem of how to get economic agreement on a world basis when we have vastly different standards of living—nine-tenths of the world live at one-tenth of our standards—and when there are political enmities which make economic agreement almost impossible? How are these problems to be solved to enable us to reach the agreement necessary to solve the world problem of exports?

Mr. Hale

I do not know. Frankly, I have never posed as knowing much about economics. My knowledge of economies is rather like my knowledge of geography—when I visualise a map I have to say that Skegness is on the right and Manchester on the left. I have to do much the same with "inflation" and "deflation" and all the new terms being coined, including the Wagnerian theory.

My own sincere impression—and the hon. Member for Louth has himself recently visited China—and I do not say that my impression is of any value, is that the Chinese were passionately anxious to trade with us and have been for a very long time. In the early days of the development of China, the Chinese were frightened of Russian economic domination. The economic embargo was an act of absolute folly for which both parties were partly responsible. It was not only an act of folly, but it was applied with folly. How far the emphasis has shifted I do not know. I suspect that what has happened is that Mr. Khrushchev has spread the net of Russian economic domination, or economic help—whatever it may be called—much wider and is reducing his assistance to China in the fear that China is making a little too rapid progress.

China has had serious setbacks. I am not one of those who think that Communist countries are necessarily economically progressive, but I am perfectly certain that the success of Communist countries—space research and so on—cannot be dismissed. It is no good saying that Russia has the best army or the biggest army in the world and has the best H-bombs in the world and has won a couple of Olympic Games running and has won the world chess championship and is developing a standard of living for her people and so on, as every independent visitor has said, and then saying, "This silly economic system will not work". It might not be acceptable to us, and I might be inclined to agree with that.

This is precisely what an economic conference could do and what nothing else could do. A new trade Bretton Woods coming after all the experience which we have learned since the original Bretton Woods, is what is required. Korea is living on invisible imports, which probably amount to 95 per cent. of her imports—some of them are still more invisible within a week or two of being in Korea, but Korea is entitled to participate.

These problems have to be faced. The situation of Britain is very grave, but so is the situation of a country like Nigeria which has what I believe to be the ablest politicians in what, if the word will be forgiven, is called black Africa. The problem is well understood by Balewa and Azikiwe. They know that their position, based on the infiltration of foreign capital, is one in which any course they take is almost certain to be wrong and in which they cannot dominate their own future and yet cannot begin without submitting to the domination of other people which may preclude them from obtaining the future for themselves which they desire.

My right hon. Friend the Member for Huyton said much of what I intended to say about Surtax. Of course there is a case for reducing Surtax. The worst part about the proposal seemed to be the Chancellor's own argument in support of it. It has nothing to do with the export trade and that is all nonsense. Nobody suggests that if Surtax is reduced it is desirable for authors to write more books, or lawyers to take three instead of two cases at one time, or doctors to treat more patients than they can treat and so on. There may be short-term implications and difficulty.

I remember as a professional man—not very successful in those days before the war—that when I married I was making about £300 a year, and a year or two later I was losing money. I finished at about £3,000 and I oscillated between those figures, much nearer £300 than £3,000, over those twelve or fourteen years.

If a professional man has a small and fairly precarious and uneven income in which the takings are taxed, he has a considerable responsibility when he sets on a new employee, because the new employee's salary comes straight out of his money. After the war, in 1946 and 1947, when I was floating nearer to £10,000 and doing half the work, setting on a new secretary came out of my Surtax anyhow. It is important to remember that. It might have been a good thing. The new secretary benefited from that high taxation for one did not have to consider the salary because only 20 per cent. of it came out of one's own pocket, and anyway every member of the professional staff brings a little business of his own, so that one probably finishes up making a slight profit.

This sudden take-off may produce a revulsion of feeling. What is serious, however, is that the professional man on £2,000 a year has been overtaxed, and let us face it. Some of my hon. Friends from working-class districts would not have submitted to that a few years ago, but since they have been here they have realised the importance of prestige, and its cost. The smaller the village, the more prestige the professional man has to have to keep up his position. It does not matter whether he needs a motor car; he has to have one. Whether or not he needs a house, he has to have a place where clients who call will be impressed with his position. The professional man on £2,000 a year and the skilled worker on £1,200 or £1,300 are the men who are hardest hit, and this Budget has not given them a bob.

I want to refer to the payroll tax. I do not intend to indulge in any polemics, but every time a right hon. Gentleman loses his budgerigar or Tottenham Hotspur lose 2–1, for some extraordinary reason there is a run on some stock or other on the Stock Exchange, and the slightest event can keep it going. Every time we get a hint of a crisis, the first thing that happens is that there are disabled workers in Oldham who cannot find work.

Let us be fair about it. There is the chap who in prosperous times can be allowed to muck about doing odd jobs, but in difficult times he is the first to go. I do not know whether the payroll tax is a good thing or a bad thing. I listened to the hon. Lady the Member for Aberdeen, South with attention. I can understand that it might be necessary to have this sort of device, which I dislike on sight but which I am prepared to consider. It might be necessary to have some sort of device to apply to skilled workers between the ages of 20 and 30 who are certain of getting work elsewhere anyway.

But to put this tax on disabled workers, on people who are employed—I will not use the expression "out of charity"—out of respect, perhaps for the services which they have given in the past or for the suffering which they have been trying to surmount, is against the grain. I hope that when the right hon. and learned Gentleman considers the introduction of that measure, he will take those factors into account.

Finally, I popped into this matter rather by accident. When I came out of hospital, having been served by devoted nurses, I put down a Question asking about the payment of nurses. They are the forgotten people. Of course, the needs of old-age pensioners are much greater, but it is not necessary to say that. There is no hesitation about it on this side of the Committee and most hon. Members opposite feel ashamed of their treatment of old-age pensioners and this miserable, niggling device which has robbed the totally blind on National Assistance even of the full benefit of the last increase.

But there are other forgotten people. They used to include the police, but they have recently been remembered. There are still the nurses and the teachers. So I put down a Question to the hon. Lady the Parliamentary Secretary to the Ministry of Health. I asked if on the whole they were among the worst paid members of the community. They get twelve quid a week after six years' service.

The hon. Lady raised her eyebrows, rather after the manner of George Robey, and in a manner distinctly histrionic which I recalled from once before when she said something like, "What ! Grandpa not happy on fifteen bob a week?". She said, "Do I hear the hon. Member aright? Did he say the worst paid members of the community?" These highly skilled women?

I have had more letters about that Question than any other which I have put. Some have been about people even more forgotten, the district nurse in the villages, who, like the village policeman, works twenty-four hours a day, and who is always on tap, always on call, who does not even get locomotion provided, who has to pedal along on a push bike and pump up her tyres. "Do I hear the hon. Member aright?" asked the hon. Lady !

A week later a Tory Member was proposing to increase the hon. Lady's salary by £1,000 a year for an unskilled job requiring no qualifications at all. I will admit that I do not know much about the Ministry of Health, but I know a good deal about the Ministry of Pensions and I undertake to train a budgerigar to be the Parliamentary Secretary to the Ministry of Pensions and National Insurance in three months. It needs to know only a couple of dozen words, mostly negatives, and to drink a dose or two of vinegar.

I am really very humble about this and there are one or two themes which I wanted to develop but which I will not develop at any length. First, I have become very much converted to the theory that doing right is economically sound and that doing wrong does not pay. When we discuss the Finance Bill, I may get the chance to speak about local government finance.

Oldham has a population of 117,000 and a rateable value of £5,000. Oxford has a population of 80,000 or 90,000 and Bournemouth has virtually double the rateable income per head of Oldham. We have a hang-over, perhaps a hang-back, to the old times of an immense burden of debt. Interest charges have now reached the stage of an imposed criminal lunacy in local government organisation, where more is spent in interest than almost anything else and when about 60 per cent. of rateable revenue now goes in exorbitant interest charges on old loans.

The whole of local government is coming into stagnation. If we want serious, intelligent economics, let us consider the amortisation of the old debts and paying them out of income—I know that it is a big job and that it may have to be spread over a year or two—instead of paying for everything three or four times over on some curious piety about a decision made about 1890.

Finally, ultimately and conclusively, the wicked swindle that this Government and other Governments over the years have performed on the savings of the small investor and people who invest in trustee securities is a scandal for which, I believe, successive Chancellors should be indicted for conspiracy to defraud and sentenced. I do not say that they planned to do it. Everyone knows that to increase the rates of interest is to depreciate the price of trustee securities.

We had appeals from the right hon. Member for Woodford, in one of his wonderful speeches repeated all over the country, warning, "Save for your country". But when the people save, the money is pinched. Not only is it pinched, but some get to the point when they are embarrassed. The Chancellor imposes a credit squeeze, the bank manager sails in for the overdraft, they have to sell £100 Consuls for £41 and get less than £50 for £100 3½ per cent. War Loan, and have not enough to pay the overdraft. At the same time, the chap in the City who is a "wise guy" gets it. That is why I appeal to the grand inquest of the nation to consider these problems and to do something about them.

8.15 p.m.

Mr. R. J. Maxwell-Hyslop (Tiverton)

I think that the Budget will be judged in retrospect by its effect on our balance of payments position as a nation. I should like to address myself to a few points which have not been covered in the Budget, but by which other right hon. Friends of mine have it within their power to assist British exports or to improve our position from the point of view of imports.

I will start at the end by mentioning a point in the speech of the hon. Member for Oldham, West (Mr. Hale)—that we in this country are unable to feed ourselves. That is most certainly true, but the proportion of our population which we can feed from home-produced food is not fixed but variable and unfortunately in recent years it has been a downwards variable rather than an upwards variable.

Although agriculture has had a formal support in the Annual Price Review, there is one thing which we can ask for in equity and that is that the machinery by which the anti-dumping procedures are implemented should become very much more quick acting. It should not be necessary for Parliamentary Questions to be asked seven weeks after eggs had been poured on the market at dramatically low prices and quite obviously well below the cost of production, and to be told that no action can yet be taken because there is insufficient evidence to justify it. I am convinced that the Board of Trade has not exercised itself as much as it could to expedite the procedure for applying anti-dumping duties.

I should also like to refer to the services offered to British firms endeavouring to get into the export market. It has been pointed out, and it is I think an interesting point, what a very small proportion of the number of firms engaged in British industry it is who contribute in terms of value to our exports. It is certainly difficult to persuade an agent or commercial correspondent, call him what you will, abroad, to take on an agency for a market which may not yet have entered into the selling of a product, which possibly may not yet have been made, so the services offered by the Board of Trade and representatives of the Foreign Office abroad can be of immense assistance, particularly in the initial stage when the firm concerned is less able to provide these facilities for itself.

It is here that I would contend that it is unsatisfactory to regard the job of the commercial attaché as being one stage in the development of an organism from what one might call the butterfly, via the chrysalis, to the ambassador. I believe very strongly that representing this country as a commercial attaché abroad should be a profession in its own right, with a substantial period of training before it is achieved, and with substantial experience of different sections of British industry and agriculture leading up to that post as the culmination of a career, and not as a post which is held until promotion can be secured. This is an aspect of reorganisation which we should not postpone, because it is a sphere in which the service we offer can be improved.

I understand that, on request, the Board of Trade will submit a list of people whom it considers suitable to represent British firms in a foreign country, but it has been represented to me that it will not give what one might call evidence of character. It will give a list of people who have commercial connections of a certain kind but, for reasons which may or may not be good, it is very hesitant about advising upon the commercial integrity of the individuals concerned.

I can appreciate that there may be reasons for that, obviously connected with the law of defamation, apart from anything else, although qualified privilege would probably apply to such communications. However, cases have been drawn to my attention of clothing manufacturers in the Midlands who have asked the Board of Trade representative in America to recommend a commercial correspondent or agent but who have ended up by doing the job themselves, by sending a man out there, because the time lag involved was too great and the information from the Board of Trade—which arrived too late anyway—was insufficient.

I welcome the extremely inexpensive provision to abolish the irritating imposition of Income Tax upon the living expenses of British business men abroad who go out to sell our products. Many of them have come home to face a pile-up of work which has gathered in their absence, and have been very irritated at being asked to account for the breakfasts, lunches, dinners and teas which they have eaten abroad, and at the assessment which is made of what those meals would have cost them if they had been eaten here, and even more irritated at the tax which has been levied in respect of them. The abolition of that nonsense, which was grossly overdue, is extremely good value for money.

The hon. Member for Dewsbury (Mr. Ginsburg) commented upon the falling-off in our invisible earnings. I hope that he will find his way into the Division Lobby with the Government when the question of providing a subsidy for the construction of a liner for the North Atlantic trade is raised, because shipping has been one of our greatest sources of invisible income, and whereas the provision of new tankers, in a grossly overcrowded tanker supply, would not necessarily bring us any more invisible exports, it is reasonable to suppose that if we do not replace the "Queens" our dollar revenues, invisible though they be, will continue to decline, and also that if we do replace them we can expect a fair return for our investment in terms of foreign currency in general and dollar currency in particular, which we very much need.

We would all hope that some Chancellor, at some time, will be able to tackle in some manner the question not only of people who voluntarily purchased War Loan at 3½ per cent., but also those who had 3 per cent. compensation stock forced upon them involuntarily by the Labour Government, and who exercised no element of choice whatsoever in the investment. For that reason I welcome those features in the Budget that suggest that in future the Chancellor will have to rely less on alterations in the Bank Rate to secure our external reserves, because this should mean that we can expect a slightly lower Bank Rate than would otherwise have been the case in adverse balance of payments conditions, and one would also expect that to be reflected in a higher capital value than would otherwise have been the case. I would also presume, merely from the process of reasoning—I have not looked at the prices today—that an increase in Profits Tax would make fixed interest-bearing Consuls more valuable than variable interest-bearing equities.

Mr. Hale

I would point to the hon. Member that the 3½ par cent. stock was also forced upon unwilling investors in exchange for 5 per cent. stock during the Tory economic crisis of 1932.

Mr. Maxwell-Hyslop

That is so, but not all those who today hold 3½ per cent. stock are the same people upon whom it was forced. That is one of the problems which face anybody who tries to unscramble these eggs. If we proceed to redeem it at par those people who bought the stock two weeks ago will do very well. If any Government were able to give compensation for this capital loss—and I doubt whether any Government will be able to do so—it should be given to the people who sold that stock rather than to those who bought it. It is because of the complexity of the transactions involved and the number of times that individual units have changed hands, rather than because of the equity of the situation, that it is unlikely that any Government, of whatever political view, will be able to remedy it.

Mr. Hale

But they can fix a redemption date, however far ahead it may be.

Mr. Maxwell-Hyslop

They can fix a redemption date, but if that is done the people who have had undated stock forced upon them will still be treated more unjustly than they were being treated before.

The hon. Member for Dewsbury said that people did not resent paying taxes so much as they resented the growing complexity of them. If ever there was a half-truth I suggest that it is that, because it has never been drawn to my attention by any of my constituents that they do not object to paying taxes—but their resentment and objection is to some extent mollified if they feel that the money being raised by taxes is being efficiently spent on objectives which it is socially desirable and just that they should be spent upon.

Having sat through this debate, it appears to me that there is a fundamental dividing line between the two sides of the Committee. Speaking for myself—and I suspect that I can speak for many of my hon. Friends in this—I do not regard any Government as giving away money if they merely take less of other people's money. I do not regard the Government as giving anything to a man who has earned 20s. if they take 6s. instead of 7s. 9d. out of his earnings. All that they have done is to leave him with more of what he earned. They are certainly not giving anything away. Hon. Members opposite sincerely believe that the Government are giving something away when they enable people to retain a little more of their own money.

I congratulate the Chancellor for increasing the lower limit of Surtax liability, although I am not a beneficiary from this action. If a nettle of this kind is to be grasped—if we grant that there is any justification for it—it is much better that it should be done in one fell swoop than in a series of bites year after year. I have little doubt that if the Chancellor had raised the lower limit by £1,000 a year over the next three Budgets it would have been said that he was endeavouring to obtain the most protracted possible political advantage, whereas by taking the whole increase in one year he has exposed himself to the same criticism as he would otherwise have done while getting less political kudos for it.

The Budget is the first one, in my recollection, under which we can expect to have a flexible rate of indirect taxation. I realise the advantages of this, but there is one question which I should be grateful if the Financial Secretary would answer. There are many industries, such as the aircraft industry, which sign contracts today for goods they will deliver in two or three years' time. In addition, they have wage escalation clauses in their contracts, so that if the basic wage rates increase by a certain amount, then the total price of the contract is escalated to some formula.

Unfortunately, the imposition of the 4s. payroll tax will not be brought within the provision of the wage escalation clauses, and the tendency, therefore, will be for the manufacturer concerned to assume that the 4s. charge will be put on, in his basic pricing. If the 4s. tax is not put on, he may have endeavoured to sell at too high a cost, but if he ignores it, he will probably get bitten. It would probably be more helpful if we could find some formula by which this surcharge could be included in the wage costs and an allowance made for it in taxation, or perhaps in another way, to enable contracts which are subject to wage escalation clauses to be able to account for the 4s. tax.

8.32 p.m.

Mr. E. Fernyhough (Jarrow)

The hon. Member for Tiverton (Mr. Maxwell-Hyslop) said that there was a great gulf between the two sides of the Committee—and this debate has made that both obvious and apparent. He said that he would not be a beneficiary under this Budget from the Surtax concession. In that respect he will be one of the few exceptions on that side of the Committee. The vast majority of hon. Members opposite will, of course, benefit personally from this Budget. On the other hand, the vast majority of my hon. Friends will not benefit from this Budget, which is one of the great gulfs between us. Those of my hon. Friends who will benefit will, nevertheless, be voting against this proposal largely because they see the unfairness of it in present day circumstances.

The hon. Member made an appeal for more protection for the agricultural industry. Of all the interests which have had a generous supply of public "lolly", the hon. Gentleman had to select the agricultural industry. That industry is like Oliver Twist; it is always asking for more. In the main the agricultural industry has a Government which is very friendly disposed to its interests, and all that some of us ask is that the Government should display from time to time the same measure of interest and sympathy towards some of our other industries which are passing through difficult times.

One thing is very obvious from this Budget; there is not going to be an election this year. It is perfectly obvious that the Chancellor thinks he is likely to remain in that post a lot longer than have most of his predecessors and on that assumption has staked his claim. He is thinking ahead. He is looking towards Downing Street. He is assuming that because the Prime Minister is no longer the grand "pin-up boy" he used to be to hon. Gentleman opposite—perhaps because he allowed South Africa to go out of the Commonwealth—and because the Colonial Secretary is no longer in the running for Premiership because of the decency with which he has acted in Central Africa, he has the greatest chance of being the Prime Minister's successor.

He has been demonstrating to the backwoodsmen, the real Tories, on his side of the Committee that he is a real Tory and, given the opportunity, will put a real Tory policy into operation. That is precisely what he is doing in the Budget. This is supposed to be an incentive Budget, but we had an incentive Budget in 1957; I remember the right hon. Member for Monmouth (Mr. Thorneycroft) introducing an incentive Budget, as Chancellor, in 1957, and I remember taking part in the debate. The consequences of that incentive Budget were that twelve months later we had an economic and financial crisis.

Mr. W. A. Wilkins (Bristol, South)

And three resignations.

Mr. Fernyhough

We are rather suspicious of this Budget. We are not at all certain that these incentives will work any more than they worked on the last occasion. On the last occasion the language which was used was addressed not so much to those in the export trade in particular as to the whole breed of managerial people who had to be encouraged. Those were the people who had to have incentives to bring about increased production and increased exports. The incentives had a very brief and fleeting success, and within twelve months the man who had introduced that Budget had to come to the House to ask us to agree to impositions which would tighten the reins, put on the brake and slow down the economy, because we were again in a bit of a jam.

The present Chancellor expects that raising the Surtax level from £2,000 to £5,000 will lead to a great increase in our export trade and will give encouragement to those men who alone can do this job of exporting, but, as has been pointed out, many lawyers will benefit from this concession and, while I have no disrespect for lawyers, I do not know that they make a great contribution to the export trade. The hon. Member for Portsmouth, Langstone (Mr. Stevens) said that he was a very experienced accountant, and no doubt he is a very wise accountant. No doubt he pays Surtax, but I do not know what he does to boost British exports. If there is a strike of accountants, I do not know that the British export trade will suffer either directly or indirectly as a consequence. But he is one of those who are to be given an incentive.

Mr. Diamond

Does not my hon. Friend realise that if there were a strike of accountants the whole economy of the country would immediately be brought to a standstill?

Mr. Fernyhough

I am aware of the important strategic position which accountants hold throughout British economic life and how it would automatically come to a standstill if for some reason or another they lost the use of their right hands.

There is another category—the film stars. Judging from the contracts they make for £100,000 and £200,000, I assume that they come within the category of Surtax payers. Will they make a great contribution towards increasing our exports? Then there are the rock 'n' roll singers, some of whom receive £1,000 a week. I am not a great lover of them, though my children are, and I cannot feel that they will make a great contribution to our export trade. There are also the gentlemen known as Mr. Clore and Mr. Fraser. I understand that they are in this category of Surtax payers. I do not expect that they are making any great contribution now or are likely to make one to our export trade. But every one of these people will benefit from the Budget. They will all have substantial increases in their personal incomes as a result of the Budget proposals.

I say to the Economic Secretary to the Treasury and to hon. and right hon. Members opposite that it is something disgraceful, mean and utterly indefensible that in a week when the Government propose to relieve Surtax payers we should be discussing the imposition of additional charges on orange juice and other welfare foods. It is contemptible, mean and indefensible.

Mr. Diamond

Offensive.

Mr. Fernyhough

Yes, it is offensive to decency and good taste that in a week when we have had a Budget which will give substantial relief to Surtax payers the Government are bringing forward an Order which will enable them to increase the price of orange juice, cod liver oil and welfare milk for babies.

Mr. Wilkins

That is Toryism.

Mr. Fernyhough

Many of us argued very strongly a month or six weeks ago against the poll tax in the increased National Insurance contributions, but we were told that it had nothing to do with this Budget. Now we know that within a few pounds the amount that the Chancellor is collecting in increased Insurance contributions he is disbursing to the Surtax payers. The amounts are almost identical, but the Chancellor says that that is not so and that what the Government are giving to the Surtax payers they will collect by means of an increase of 2½ per cent. on Profits Tax.

When we on this side of the Committee argue, as we have done many times, that the profits of big business go to relatively few people, hon. Members opposite tell us that we completely misunderstand the general ownership of British industry and that in the main industry is owned by very small shareholders, by little people. We are given figures to show how many shareholders there are in these large companies. If that assertion is true, what the Chancellor and the Government are doing is again to collect money from the little people in order to give it to the big people, to take from the people who are not so well-off in order to give to the people who are too well-off. But that is the argument that hon. and right hon. Members opposite have always used when we have raised this question about profits.

The Budget shows the Government's complete lack of faith in the ordinary people of this country. It shows a tremendous faith by the Government in what I will term the extraordinary people of this country. I do not know from memory how many Surtax payers there are. Perhaps my hon. Friend the Member for Gloucester (Mr. Diamond) will tell me.

Mr. Diamond

Three hundred thousand.

Mr. Fernyhough

There are probably 20 million taxpayers. What the Budget in essence is saying is this. The future of Britain depends upon 300,000 Surtax payers. Whatever contribution the other 20 million are making, they are not half as important as the 300,000. Only the efforts of the 300,000 can help the nation out of its economic and financial difficulties. Only the 300,000 can, as it were, save us. No matter what the efforts of the rest may be and no matter how enthusiastic and willing they are, they cannot possibly equal the importance of the 300,000.

That is utter nonsense. I believe it is the men on the farms, in the shipyards, in the factories and in productive concerns in general who have to be enthused and made to believe that they are important, otherwise there will not be the positive results which are very necessary if we are to overcome our difficulties. They are the people who create the wealth. I have always said that there is no wealth except that which comes from labour. We should soon see how important the 300,000 are if the other 20 million threatened to do what my hon. Friend the Member for Gloucester mentioned in relation to accountants, namely, down tools. The wealth produced then would not be enough to provide any surplus to be disbursed to Surtax payers.

I now turn to the payroll tax. If one reads the Chancellor of the Exchequer's speech carefully, it is obvious that he is very anxious to restrain public expenditure. The poll tax will be imposed upon all employers in respect of all employees covered by the National Insurance. I take it that that is right.

The Financial Secretary to the Treasury (Sir Edward Boyle)

Will the hon. Gentleman say that again?

Mr. Fernyhough

I take it that the poll tax will be levied upon employers of all who pay National Insurance.

Sir E. Boyle

That is correct.

Mr. Fernyhough

If the Chancellor of the Exchequer decides that the time has come to use this regulation, what would it mean? The Government will have to increase their own expenditure automatically. They will have to charge 4s. for every man in the Army, 4s. for every man in the Navy, 4s. for every man in the Air Force, and 4s. for every civil servant.

Mr. Hale

Four shillings for every admiral.

Mr. Fernyhough

It is amazing. There must be several million Government and local authority employees. If it means £1 million a week for the Government and local authorities, it will amount to £50 million a year increased Government expenditure. This will be incurred at a time when the Government are trying to damp down. The only way the Government can damp down is by themselves demanding more from the employers. This will obviously increase costs. The imposition of this 4s. will have just the same effect on exports as a wage increase.

There is no need for the Government to do this. This is not a completely new idea. I remember that when the National Insurance Bill was introduced in 1947–48, the suggestion in the Beveridge Report was that we should increase or decrease the charge in accordance with the economic needs of the nation at the time. There was no need at all for the Government to bring in this new regulation. They could have accepted the principle that Beveridge laid down—an idea to which I think we as the Government at that time readily agreed. It was the idea that purchasing power should be withdrawn or released according to the economic needs of the nation at any given time. I think that would be a much more sensible proposition than what the right hon. and learned Gentleman has done.

What he is saying, in essence, is in contradiction of the practice of the decent firms, which, when times have become a little difficult, appreciate the services which they had from their employees and do not want immediately to chuck them on the scrap heap. He is saying that there should be no sentiment of that kind at all in British industry, that no firm should have regard to the services which men and women have given it, should have no regard for their loyalty, but should immediately, if placed in that position, get rid of any individual without any regard for what that individual has done or the services he has given, and put him on the street.

What is the purpose of this? The idea, it is said, is in order to make labour fluid. Suppose the Chancellor got 100 men from my own constituency tonight and drives them to Birmingham. Where do they go? If there were houses there, the problem would not be quite so acute. If Birmingham had the school places for their children, the problem would be not so acute. Everybody knows that it is monstrous to expect men to tear themselves up by their roots and transfer themselves almost to a foreign country, as it were, without having the facilities of a home available to them and school facilities being available to their children. Why should not the Government, instead of treating men like chattels to be moved here and there as if they were railway wagons, think in terms of planning our economy so as to take industry to the places where the men are, where services and schools are available, the areas where the men have been born and reared, the areas where they belong and where they have their roots? Would it not be much more sensible and more human than treating men as if they were railway wagons to be shunted from one end of the country to the other?

I want also to refer to the other regulator which the Chancellor proposes to introduce, that concerning a 10 per cent. increase or decrease in Customs and Excise Duties and Purchase Tax to operate at the whim of the Government. This is something new. All that we can do is to put down a Prayer against the imposition of £200 million of taxation. It has been a longstanding historical Parliamentary privilege not to grant Supply until grievances have been remedied, but this is a new innovation. The Government are going to take £200 million of Supply after 1½ hours of debate. That is all we shall have on any Order laid by the Government in respect of this new regulator.

Mr. Diamond

And no Amendments.

Sir E. Boyle

I am glad to clear up this point, because we are now in the realm of Parliamentary procedure. The hon. Gentleman should certainly not assume that if the Government sought to use this regulator the debate on it would be confined to the same length of time as the debate on a Prayer, between ten o'clock and half-past eleven. I have not the slightest doubt—this would be a matter of discussion through the usual channels—that ample time will be given to hon. Members to discuss the necessary Order. I am sure that that would be the desire of the overwhelming majority of hon. Members on both sides.

Mr. Fernyhough

The point is that we shall not be able to amend the proposals. Whether we have more than 1½ hours in which to debate the matter will depend on the generosity or otherwise of the Government. If they say that they are not prepared to suspend the Rule, then we shall be tied to 1½ hours.

Mr. Dan Jones (Burnley)

It will be a mere formality.

Mr. Fernyhough

This is creating a new and grave precedent. It has never been accepted that the Government should have Supply without hon. Members having the right of redress of grievances.

Mr. Hale

Cannot we move an Amendment to leave out cotton?

Mr. Fernyhough

As has been said, I am certain that there will be no possibility of amendment, and, unless the Government make it perfectly clear in the next two days that it is not their intention to confine discussion on the affirmative Resolution to 1½ hours, then we shall have no guarantees. Whoever may lay the order may not be as generously disposed in the allocation of Government time as the Financial Secretary.

Hon. Members opposite have spoken about the confidence with which the Chancellor of the Exchequer introduced his Budget, saying how far-seeing a man he is. He has, however, left himself the possibility of error to the tune of about £600 million a year. There can be a plus or minus of £200 million with regard to Customs and Excise Duties and Purchase Tax. That can make a difference of £400 million in any period. In addition, there is the £200 million which can result from this new payroll tax of 4s. a week. This makes a total of £600 million with which the Government will be able to play, as it were, in any one year. The fact that they have planned matters so that they can have margins of error of up to £600 million a year with which to play shows how certain their forecasts are and how uncertain they are of the road which they propose to tread in future.

I do not believe for a moment that the Government are half as confident about the future as many hon. Members opposite have suggested.

Sir E. Boyle

I am grateful to the hon. Gentleman for allowing me to interrupt him again, because I think that this is a quite important point. The economic situation in terms of the pressure of demand can change very rapidly between the spring and autumn. It happened when hon. Members opposite were in power. I invite the hon. Gentleman to compare the speech which introduced the Budget of April, 1947, with the speech which introduced what I will call the noble Lord, Lord Dalton's, posthumous Budget at the end of 1947. There is nothing wrong about a Government being forced to take a fresh look at the economic situation in the autumn, when economic forces may have developed in a way which it was impossible to foresee some months earlier. This has happened to all Governments in turn.

Mr. Hale

It has been subject to amendment in the past.

Mr. Fernyhough

The point is that it was a separate Budget on which we had prolonged discussion, but here, by laying two orders, the Government are able to determine what the level of taxation shall be in any given year to the tune of £600 million, because they can increase it from minus ten to plus ten at one fell swoop. On top of that, they can impose the payroll tax.

The Chancellor of the Exchequer yesterday expressed the hope that in the forthcoming year the public sector would not increase its demands by more than 3 per cent. What will happen to the local authorities in the next 12 months? The Financial Secretary to the Treasury has been at the Ministry of Education. He must know that within the next three or six months, the teachers are bound to get a substantial increase in pay. Not one out of 10,000 teachers is a Surtax payer, and yet we all know how important the teachers are and the part that they must play in shaping the future. Therefore, given this Budget, with its relief for Surtax payers, and given the need for additional teachers and the need to retain existing teachers, it is obvious that it will be difficult for the Burnham Committee to grant much less than £100 a year on top of the existing basic rates.

If we consider the part which education plays and the demands that it makes on local rates, we are bound to acknowledge that an increase of that character would substantially increase the expenditure of the local authorities. That one fact in itself will go a long way towards the limit of 3 per cent. which the Chancellor is anxious to impose upon the increase of expenditure by the public sector.

After the Budget is over, hon. Members on the Government side, as well as on this side—I do not blame them—will all be advancing their pet theories why more should be spent on various services—roads, the Health Service, and so on. If we have a large increase in educational expenditure which cannot be staved off, plus even minor increases for roads and various other services, how will it be possible for the Chancellor to restrict to 3 per cent. the increase in the public services if they are not to be stultified and allowed to stagnate?

The only thing in the Budget that pleased me was the little bit of assurance that was given to the shipping industry. I am not pleading my own case. I have no personal interest in shipping. I am pleading the case of men whose lives are bound up with it. That is the purpose for which I am here. I have no share in the industry.[Interruption.] It affects not only my constituency. I do not represent the Clyde, Belfast or Merseyside. The problem is a national and not a local one. Therefore, we are entitled to ask what is being done.

I am not satisfied with what the Chancellor of the Exchequer is doing in general, but we welcome the small, specific assurance which he gave. It will not solve our problems, however. Much more has to be done for the shipping industry, and more serious thought must be given to its future than the Government has given up to now.

Members opposite talk about costs. They are always able to quote the case of some small continental shipyard which has beaten us for a little contract. They never quote the case of the Americans, however. American labour costs for shipbuilding are twice as high as the British. Yet it is the United States which is the greatest menace to the future well-being of the British shipping industry, because it is their flag discrimination and subsidies which make it impossible for our industry to flourish.

The Chancellor has just left the foreign Office, and before that he was at the Ministry of Defence. During all those years he attended N.A.T.O. meetings, and the allies were united for military purposes. But it seems to me that economically they are trying to cut one another's throats because, of course, the two nations which have done most damage to British shipping, Greece and the United States, are both members of N.A.T.O. I hope that, in addition to military talks in N.A.T.O., in future we might discuss economic matters as well, and try to shout a little louder than we have done for the interests of this great industry of ours.

We need exports. That being so, I hope that, in the days of the Russian man in space, we no longer think that there is any kind of strategic goods which we can keep from them that would further their military purposes. I apply that same test to China. What utter stupidity and nonsense it is for us, in these days, to believe that there is anything that we can keep back from the Communist countries which would enable them to strengthen their military position and without which we weaken them. We are cutting our own throats again by doing this, because we force them in these circumstances to produce goods they are unable to obtain from us, turning them into our competitors instead of our customers.

The Budget shows a complete lack of faith in the British people. It believes that the future of our country is dependent upon what I would call a few supermen. We are no longer a nation of one people. We have gone back to Disraeli's time, when we were two nations. I hope that the right hon. and learned Gentleman will not remain in his office for three Budgets if the two which are to follow are to be as unfair and as unjust to the vast majority of our people as this one is.

9.9 p.m.

Mr. R. E. Prentice (East Ham, North)

My hon. Friend the Member for Jarrow (Mr. Fernyhough) has made a wide attack on several aspects of the Budget, some of which I want to follow, but I begin by saying something about an aspect of the problem which featured in earlier speeches—the question of economic growth and the despondent attitude of the Chancellor of the Exchequer, the President of the Board of Trade, and back benchers opposite generally towards it.

Listening to the Chancellor yesterday, I thought "that he was simply saying that a faster degree of economic growth was one of many desirable objectives, and that he was not giving it any higher priority than did his predecessors. I felt that he was not recognising that our record, compared with that of practically every other industrial country, is bad and urgently needs improving. I thought that the President of the Board of Trade was speaking in a way even more damaging to the cause of economic growth in that he was deliberately trying to deride the priority which we on these benches give to the subject.

He was making rather cheap cracks about what he called "growthmanship". I could not help remembering Mr. Richard Nixon making the same cracks in the United States. We know what happened to him and it seems that our Conservatives deserve a similar fate. The central fact is that in recent years every country in Western Europe, with the exception of Belgium, has had a better record than we have in expansion of the national product. The Soviet Union has a better record than any. The United States, whose record to some extent has been disappointing, has now obviously turned over a new leaf. It is significant that in Mr. Kennedy's first message to Congress, despite the fact that America is facing many problems including a balance of payments problem, he put expansion of the American economy as the first priority in his first paragraph.

It seems that if the British Government do not change their attitude we shall be left further and further behind and become more and more a sort of economic backwater in an expanding world. We shall pay an increasing price for that, a price in terms of low pensions, in terms of slums, in terms of school buildings which are out of date, our position in the world and our inability to help the under-developed parts of the world in the way we wish to help, and also a price in the terms of the standard of life of the people of this country.

This is a matter of the greatest possible importance. Yesterday the Chancellor ought to have issued a clarion call on these points. The President of the Board of Trade also tried to make a debating point. He said that on this side of the Committee we are inclined to compare our record with Germany and that Germany was a free enterprise country which did not adopt the sort of policies in which we on this side of the Committee believe. This sort of debating trick has been used before by Government spokesmen. The fact is that we have a bad record in this respect compared with practically every industrial country. A country like Germany, which is a free enterprise country, a country like France, which also is a free enterprise country but with a very advanced degree of economic planning, the Scandinavian countries with Social Democratic Governments and the Soviet Union with a Communist Government—countries of all political complexions are doing better than Britain with a Conservative Government.

The President of the Board of Trade also asked us what we would do about the problem of growth. It is fair to say that it is obvious that the Government of this country, no matter who they are, should take the shackles off the enterprise of British people and enable the economy to expand in the way in which it naturally will expand if they do not rely on high Bank Rate, credit squeeze and matters of that sort. The lesson of recent years is that a modern industrial country in a scientific age will expand its output year by year. One of the main reasons why Britain has not done so in the way in which other countries have is that from time to time the Government have put the brakes on deliberately. The first thing which should be done is to rely on methods of policy which do not include putting the brakes on the productive enterprise of the British people.

The second very simple step which should be taken is to declare an objective in terms of economic growth—it may be 5 per cent. or even something better—and say that this is a priority which we shall seek to achieve, and make our other problems come into line with that. The fact that that has been done in countries like France, Italy, Japan and elsewhere has meant that expansion has taken place. Thousands of people are making decisions large and small, industrial decisions, decisions on the value of investment on the level of training, which are geared to the Government's overall concept of economic expansion. The lesson is that free enterprise economy can expand in that way if the Government say that it is their priority that the expansion should take place.

The third thing which is necessary is that the Government should show their determination to intervene in the economy at strategic points so that the expansion should go forward, so that we should have enough investment, and so that we should expand our training of skilled people and do the other things necessary to produce this growth.

I agree with what my right hon. Friend the Member for Huyton (Mr. H. Wilson) said this afternoon, that the proposals of the Chancellor were almost completely irrelevant to this central problem of achieving a higher rate of growth and an improvement in the standards of living in this country. I should, however, like to examine some of the proposals made by the Chancellor, in particular this concept of a payroll tax.

I see from The Times this morning that the proceedings of a meeting of Conservative back benchers last night leaked to the papers rather in the way in which proceedings of the Parliamentary Labour Party have leaked to the Press. It seems that the Chancellor had a rough passage on this proposal.

The Times said: Nobody seems to have come out with any support for the proposed contingent payroll tax, and nobody seemed able last night to conceive of it as much more than a vague threat that may be enforced in hypothetical circumstances to make labour more mobile. Further in the story there is something which is even more unkind. It says: In fact, some back benchers got the impression that he had not yet had time to think this device out to its logical conclusion. There is even a doubt about what this particular regulator is mainly intended to do. Certainly in his speech yesterday and in the speech of the President of the Board of Trade today the House was not enlightened on what this proposal was meant to achieve.

I want to put certain questions which I hope will be answered during the debates this week. First, can this kind of proposal work as a flexible regulator on the economy? The point has been made in some newspapers this morning that, if the Chancellor is relying on the National Insurance machinery to collect this payroll tax, it takes so long to operate that if he is trying to apply it to a given situation his remedy will not work in time. It is pointed out that, if past experience is any guide, a change in National Insurance contributions involves a delay of three months or more before it can come into effect.

I am not sure if that is a valid objection. It may not be, because when one speaks of previous experience of changing National Insurance contributions, the previous changes have usually involved the employee's contribution and also changes in benefit and they cause obviously a more complicated operation than a flat-rate contribution by the employer of 4s. per employee. Perhaps, therefore, this objection has no validity. I merely say that the objection has been made, and that the Committee ought to be told more about the methods to be employed, because if the criticisms are correct, if it will take three months to operate, this method will have very little value as a means of regulating the economy in the way which was suggested yesterday.

My second point is that, supposing the imposition of a 4s. per week tax is made on every employee, and supposing it does have a large effect in the way that is intended, that is, that employers should devote more of their resources to capital investment rather than to their labour force, surely this will defeat its own object? The Chancellor said that this was a measure to be taken at a time of inflation to be a counter-inflationary measure.

If it is a measure which has the effect of pushing up capital investment, that in itself has an inflationary trend. The usual purpose of the Government is to damp down investment in inflationary periods and stimulate it during periods when the economy is going through a sluggish phase. If this is to be an effective measure, it might to some extent defeat its own object, but I am inclined to agree with my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) that it will not be very effective one way or the other on inflationary trend.

Even assuming that the Chancellor was able to achieve his general objective through this payroll tax, it is still open to some very serious objections. It is open to the same objections as the Bank Rate and other monetary methods which the right hon. and learned Gentleman is seeking to replace. It is essentially a blunt and not a selective instrument. As my right hon. Friend the Leader of the Opposition said yesterday, it will apply to the whole country. It will apply to areas of heavy local unemployment as well as areas of full employment. Secondly, as my right hon. Friend pointed out, it applies to all industries, to those which are bound to have a big ratio of labour to capital as well as to those with a smaller ratio of labour to capital. It will, therefore, push up the costs of industries like mining, where labour is a big element.

Mr. George Craddock (Bradford, South)

As this is most likely to cause a rise in the cost of production, does it not automatically follow that the cost will be passed on to the consumer?

Mr. Prentice

I agree. What is more, because it applies particularly heavily to those industries where the labour force is large, it may push up the prices of those industries where a rise in price is most damaging to the economy. For example, a rise in the price of coal affects prices throughout the economy. This is not the sort of measure in which the Government can discriminate between one industry and another. Those points were made by my right hon. Friend yesterday, and I add two others.

If the Chancellor is trying to introduce a measure which will encourage employers to go in for more capital investment, more automation and so on, he seems to have lost sight of the fact that there are many industries and services to which that cannot apply. The driving of a bus cannot be automated, and yet a tax of this kind will apply to transport undertakings and will have the effect of pushing up fares. The same thing will apply to many other services, with no benefit to the economy.

I also want the Committee to consider this proposed tax in relation to the employment position of young people. Just before the Chancellor began his Budget statement yesterday, my hon. Friends from Scotland were giving the Minister of Labour a hammering about the youth employment problem of Scotland, particularly about the employment prospects of the bulge in school leavers later this year and in the ensuing two years.

This is a social problem of the greatest possible dimensions. This year, five young people are leaving school for every four who left school last year, and there will be an even greater increase next year. Hundreds of thousands of extra young people will be looking for work in the next few years.

I ask the Committee to consider the effect of a payroll tax of this kind on such a situation. Employers will be reluctant to take on new labour, and, before making anyone redundant, an employer will decide not to take on new labour. If this sort of measure is applied during the period when the bulge is spilling out on to the labour market, the first victims are likely to be the school leavers. There is already difficulty about finding jobs in Scotland and the North-East Coast and some other areas for school leavers before the bulge comes on the labour market, and measures of this kind could have the most unhappy social consequences for a whole generation of school leavers this year and next year and, to some extent, in the two years after that.

In this matter the Chancellor has made entirely the wrong diagnosis. He has suggested that there is a chronic shortage of labour. I do not believe that generalisation to be true. There is a shortage of labour in some areas and a surplus of labour in others. In the next year or two, the surplus may be increased both because of the bulge in school leavers and the ending of National Service, and we may have an increasing unemployment problem in some parts of the country. In any event, the total number of unemployed is a figure about which the Government should not be complacent. For many years since the war it was below 300,000, but over the last year or so it has been between 350,000 and 400,000, a figure about which there is no cause for complacency.

There is a chronic shortage of skilled labour. In many areas the shortage of skilled labour is a bottleneck. We have a shortage of skilled labour combined with the unemployment of many people without skill. This is a problem which may grow. With increasing automation and new skills developing, we may see this as an increasing problem. In the next twenty years or so it is likely that there will be great difficulty in finding jobs for the unskilled and that there will be an increasing shortage of skilled labour.

Instead of proposing this tax, the Government should have proposed a levy on firms which employ skilled labour in order to create a fund out of which they would pay a rebate to firms with good apprenticeship training schemes and good schemes for training generally. This system has been working in France for some years and has had the effect of stimulating industrial training in France.

The bulge in the school leavers is a problem which concerns employment, but it is also a tremendous opportunity for this country to train in a short period an extra number of people to become skilled workers. It is a once for all never to be repeated opportunity of increasing the skilled working population of this country. These measure should have been put forward in the Finance Bill this year. The Minister of Labour had some glimmering of the truth of this matter. Speaking at a luncheon recently, he suggested that industry might like to consider the possibility of a voluntary training levy to be administered by industry itself.

The bulge starts with those leaving school at the end of this summer, and if anything is to be done, it should be done now by the Government and be part of the Finance Bill. I am sure that a move of this kind would be beneficial to the economy.

I have two further comments on the Budget. First, it seems to me to be a very unimaginative Budget in that the opportunity was not taken to alter many of the rates of indirect taxation. One would have thought that a number of social problems could have been eased and assisted at this moment by changes. I will not develop that now, but these are matters to which many of us will return when discussing the Finance Bill. When one thinks of the plight of the passenger transport industry, there is a very strong case for relieving that industry of the tax on diesel oil, vehicle licences and so on. There is the growing problem of bus routes being curtailed, and a growing crisis in regard to the rates of pay of those in the passenger transport industry.

One would also have thought that something would have been done to reduce or remove Purchase Tax on gramophone records and musical instruments. I should have thought that something could have been done to remove the tax on safety footwear and clothing in the industry generally. In his last report the Chief Inspector of Factories has drawn attention to the growing number of industrial accidents, and the need for people to use specially designed safety footwear and clothing, and it seems anomalous that the Government should continue to tax these items.

I conclude with a general comment upon the central proposal to relieve Surtax payers. I agree with what was said by my hon. Friend the Member for Stechford, that there may be a case for tax relief at least for the lower ranges of Surtax payers, looking at the merits of that proposal in isolation. But one of my criticisms of Government measures is that very little has been done for those in the lowest taxation ranges. Help has been concentrated upon those who are very much higher up, in the Surtax scale. Many of us would have found no objection to a relief of Surtax if it had been accompanied by a capital gains tax, or had been paid for by a general increase in the national product, which would have yielded an extra amount to the Exchequer. What hon. Members on this side of the Committee find repugnant is the fact that these Surtax concessions are related to the whole range of extra social taxes imposed by the Government in recent months.

We must consider this question in the context of the Health Service charges and the new graduated pension scheme, which is a form of tax upon the middle range of wage earners, and in the context of the shabby treatment of pensioners, especially those on National Assistance. When we do that we are forced to the conclusion that the Budget is merely part of the Government's programme for redistributing our wealth; that it is a Conservative Budget in the worst sense of the word, in that it is deliberately designed, along with the other measures to which I have referred, to redistribute our wealth in favour of those upon whom the Conservative Party rely for their financial and electoral support.

This is a bad Budget. Hon. Members on this side of the Committee believe in the concept of social equality. We do not say that everybody should be paid the same wages. When we talk about equality we do not mean uniformity. We believe in different rewards, but we believe that the differences should be justified by real differences in skill or responsibility, and should not be so great that the essential dignity and status of men and women, as men and women, are destroyed by the class differences and differences of wealth which disfigure our society at present. It is because those differences are increased by this Budget and the measures related to it that most of us feel that it is a bad Budget and that we must fight it by all the methods open to us.

9.33 p.m.

Mr. David Price (Eastleigh)

Today's debate opened with the sparkle of die right hon. Member for Huyton (Mr. H. Wilson), who fascinated the Committee with his usual versatility as the Chan Canasta of the Commons. It is my purpose that the debate shall not end with a turgid whimper. Having taken part in Budget debates for the last six years, I have come to the conclusion that one of the persistent difficulties that we experience as a nation in facing our economic problems is our continued failure to agree upon economic priorities. We have too many economic aims, all worthy in themselves, without having a sufficient sense of priorities.

Let us consider a number of the aims put forward in this Committee, and generally agree with. They are so numerous that they make nonsense of the conception of priorities. We aim at economic growth. We have the aim of a higher standard of living. We draw back and ask how we are to achieve that. We then consider our balance of payments position, and we have the aim to improve that. We have the aim to foster our reserves and the aim to increase our exports. All the time we require full employment, and we want an increased percentage of the national product to go to capital investment. Meanwhile, we ask for stable prices.

We all want increased public expenditure, but it is equally true that we shall not agree on what precise sector of public expenditure since each one of us has his pet scheme. We all ask for reduced taxation, but we should disagree about the particular fields in which we individually would like to see that reduction. Nevertheless, we all agree on the general aim of a reduction in taxation. Some right hon. and hon. Gentlemen talk about redistribution of income, yet we may even argue in which direction that should take place. Those are just some of the economic aims—but the question is: which of them shall have priority?

I am an unrepentant expansionist, but where I differ from the views of the hon. Member for East Ham, North (Mr. Prentice) is that I realise that our growth is dependent on our ability to earn our way in the world. The hon. Gentleman made reference to France as an example of where, allowing the balance of payments consideration to go to the wind and not bothering anything about stable prices, there had been sound economic growth. True, there has been an impressive growth in France, but let us remember that France feeds herself. Even paying due attention to what my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) said, we must remember that this country cannot feed herself. Moreover, anyone who knows the facts about France will recognise the very high price in social injustice paid through the degree of inflation from which the French have suffered. The hon. Gentleman the Member for Old-ham, West (Mr. Hale) talks about what the rentier in Britain has suffered from 3½ per cent. stock, but that is nothing compared with the rentier in France. Let us remember the price paid by French society for that rate of growth.

I believe the key lies not in anything that was said yesterday, but in a paragraph on page 10 of the Economic Survey, which states: 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. This. I believe, should be the key to all our economic priorities. Growth and competitiveness can indeed never be separated, and if we can agree on that we might be getting somewhere.

Mr. Prentice

The point I wanted to make was this; the hon. Member made a special comparison between the French problem and our own and the President of the Board of Trade this afternoon compared Germany with ourselves. The point is that the British record is exceptional compared with the success of almost every other industrial country.

Mr. Price

I mentioned France because the hon. Member for East Ham, North quoted it in aid of his argument. If I had the time I would be prepared to argue on any occasion with the hon. Gentleman through the particular conditions of any country he wishes to name. That does not mean that I am smug or content. The hon. Gentleman knows that I play no rôle of Taper or Tadpole to the Patronage Secretary or the Chancellor.

We must consider the nature of our highly exposed island economy with the rising nations of Asia and Africa, who are beginning to manufacture the raw materials which feed our industries. We must concentrate on the capital intensive industries whose products have a high added value on the cost of the raw material we have to import to feed those industries.

There are two features of the fiscal system to which I was should like to see my right hon. Friend the Chancellor put his mind during the forthcoming year. One is the method of industrial rating which puts the bias entirely against the capital intense industry and in favour of the labour intense industry. The second is that I would like him to give further consideration to allowing companies to determine their own rate of depreciation, a point which was touched upon by the hon. Gentleman the Member for Huyton.

Secondly, I am a little disturbed at the over-free use by both Front Benches of the word "productivity" as if the only consideration in productivity is the use of labour. Productivity is the use of all resources. I want to see in the Economic Survey and in the speeches of the right hon. Member for Huyton some consideration of the use of capital, because it is my view that one thing from which we have suffered in certain industries is an unproductive use of capital. Over the years I want to see an increase in our capital investment, but I also want to see our capital used efficiently and effectively, and too frequently, within the knowledge of all hon. Members, that is not being done.

The hon. Member for East Ham, North mentioned the need for more skilled men. How right he was. I believe that the shortage of highly skilled men is one of the biggest brakes upon the expansion and growth which many of us would like to see. I believe that he is right to point out—I wish that he had developed it further—the need for trade unions and managements alike to take a modern view of apprenticeship. I speak with a little authority and a little personal experience in these matters. The rules about apprenticeship, the age at which one starts and the length of the apprenticeship may be appropriate to a few of the old bicycle shops in the back streets of Birmingham, but they are quite unsuited to progressive modern industry, and they ignore entirely all the development which has taken place in recent years in the technique of education and instruction.

As the right hon. Member for Huyton said, we need more scientifically trained men, but we need them not only in their scientific role. We need the scientific spirit to infuse the whole of management and, above all, to infuse the Civil Service and Government, where I am afraid that I find it a little lacking.

We need better selling techniques. It is curious the way in which the Briton, and particularly the Scotsman, have an ability to go to Africa and Asia and, during a career in the Colonial Service, to learn up to ten almost impossible dialects, but show a singular stubbornness about learning a beautiful language such as French or Italian. I believe that we must take our languages far more seriously and that this is very germane to increasing our exports.

I want to see an improvement in transport, particularly in the docks, and I hope that the Minister of Labour will bring both sides of the docks industry together to discuss how they can ensure that the conditions of employment and of the introduction of machinery are in terms of the 'sixties and of the space age and not of the dockers' strike for the dockers' tanner in the 'nineties.

To sum up my view, I believe that we need more incentives and more deterrents, and I believe that there is looming internationally the best incentive and the best deterrent for our economy—the jolt for which the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) was calling: that is when we face the decision of joining the European Economic Community. I believe that this will inject just that degree of competition in our economy which we need. I believe that it will provide the new dynamism which we need. I hope that my right hon. Friends are in no way lacking in courage and that if President Kennedy, in conjunction with the Prime Minister, is able to persuade President de Gaulle to take a slightly more constructive view, my right hon. Friends will produce a new form of entente cordiale, and that we shall go into the Common Market. I tremble for this country's position twenty years hence if we are excluded from this new and exciting economic and political association of nations.

We are all concerned about exports. That has been the theme of the debate. Particularly are we concerned about the rôle of the small and medium-sized business. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) asked for fiscal incentives to export. I believe that this is not "on", because we have made a great deal of effort to try to persuade other countries to give up these forms of export incentives, and above all because we have put our name as a nation to many international agreements which preclude them. Whatever may be done by other countries, I hope that we have enough honour left to try to stand by the treaties to which we have put our signature.

The real incentives to exporters are two-fold. The first is when one cannot break even on the home market. There is nothing like it as an incentive to export. The second is where there is an incentive to make more profits but I believe, and I have smelled it a little in this debate, that there is a national attitude towards selling which is rather unhealthy. It is what I would refer to as an unholy alliance of the aristrocratic Right and the intellectual Left in the general conception that selling is a little dirty and that it is not done by "us", it is done by "them". I am one of "them" who sell and I believe that we must have public support for our exports. I look to the day when this nation will be as enthusiastic about the export effort in a particular year, or as depressed if it has not gone up, as our Victorian forebears were about the condition of the Royal Navy.

I believe that in the Budget my right hon. and learned Friend has made an important contribution to the means whereby we regulate the economy in what is called a mixed economy. We know the regulators in a full Socialist economy, and I refer to the Soviet Union. We also know the ones which are available in conditions of laissez-faire, which the nation has rejected as socially and politically undesirable.

Mr. George Lawson (Motherwell) rose—

Mr. Price

No, with respect, I am going on.

We need more incentives and deterrents. We also need more instruments available to the Chancellor of the Exchequer of the day and to the authorities to regulate the control of the economy. I do not mind saying to my hon. Friends that I am not frightened of the word "planning", provided that we do not mean planning in the detailed sense that we experienced in 1945–51. I mean planning in the sense of putting signposts ahead indicating the general direction in which we think the economy should go, and which should be adjusted year by year. Those are the sound steps which should be taken by a Government in what is called a "mixed" economy.

In the Budget the Chancellor of the Exchequer has proposed experimentally two new methods of regulating the economy. Firstly, there is a special surcharge or rebate on the main Revenue duties and Purchase Tax, with the object of stimulating or restraining demand. If this works marginally—and we hope that it will work marginally to avoid the great fluctuations which we are all agreed we do not want—it must work quickly. I therefore welcome the suggestion that the Chancellor should take powers to use the regulator outside the context of an April Budget.

Secondly, there is the payroll tax. One's support for that is a little more qualified. I think that we will need to know more about it in detail. I was attracted by the view expressed some months ago by the Economist that we should have a payroll tax which would be variable in different parts of the country, the simple distinction being made that it should not apply to development areas, because it is ridiculous to spend public money to try to attract industry into areas of high unemployment and then to tax it when one's object is to try to remove the pressure of demand for labour resources in areas of over-employment. The problem of getting a more even distribution of our labour round the country is still very pertinent to the whole problem of securing expansion without inflation.

There are further fields in which we need experimentation. We need better statistics, particularly on estimates of stock and work in progress. I personally would favour more public statements about the forward commitments in the spending departments. We must try to get similar regulators in the international field, particularly in the field of international liquidity. The Economic Survey said: … the expansion of world trade could be threatened by the imbalance in world payments: concerted action by both surplus and deficit countries is necessary to deal with this. As a result of the Prime Minister's talks with President Kennedy I hope that Ministers and officials will try to deal with this and find regulators which can be turned on and off quickly, because the whole essence of operating on the economy is to operate marginally, which means operating in time.

I hope that when my right hon. Friend is considering our accounts he will consider publishing the full reserves of the country and not merely the gold and dollar reserves, because that gives a very false picture. It is as if a bank in giving its annual financial statement to its shareholders published only the cash in hand and did not publish the total assets. I have never seen in any statement by the Treasury under a Government formed by either party the sum which Her Majesty's Government have invested in American industrial equity, but it is very substantial.

I profoundly agree with my right hon. and learned Friend's statement that the Budget should remain the first instrument as the regulator of the economy. Therefore, we must look at the total effect of the Budget, which very few hon. Members who have preceded me in the debate have done. I congratulate my right hon. and learned Friend on his courage in asking for an above-the-line surplus of £500 million, leaving an overall deficit of less than £100 million. I have at time been critical of the amount of money the Government have hoped they could borrow each year. The cumulative overall deficit over the last ten years has amounted to £2,524 million. Has it been safely borrowed? I believe not.

In the circumstances given us in the Economic Survey, I believe that any responsible Chancellor of the Exchequer must have taken an anti-inflationary view of his budgetary position. I congratulate my right hon. and learned Friend on his courage, when all the pressures upon him have been in the opposite direction.

As for below-the-line expenditure, I welcome his proposal for a new method of accounting. A number of us have asked for the system to be examined. I hope that he will consider a far wider use of work study on capital projects in the public sector. I do not mean this in any spirit of aggressiveness towards the public sector. I merely offer it from my own experience of having used it in one small corner of the private sector, where we found it most efficacious.

In the circumstances, my right hon. and learned Friend was not only brave but right in deciding that he needed to increase taxation by £80 million. I believe, too, that he fulfilled what I regard as the two necessary conditions of considering how to increase taxation. The first is whether the particular economic activity to be taxed can prudently bear it. Hon. Members will remember the advice of that great French Finance Minister, Colbert: The art of taxation consists in so plucking the goose as to obtain the largest quantity of feathers with the least amount of hissing. Secondly the Chancellor of the Exchequer should put increases on economic activities where the secondary effects will be least harmful.

The Television Advertising Duty is easily defensible. In view of the superiority of many television advertisements over many of the programmes, it might be better named a "Television Entertainments Duty".

As for the increase in the Motor Vehicle Duty, the number of private cars has increased from 2½ million in 1951 to 5½ million in 1961. One can hardly say that that is a field where there is not room for a certain buoyancy of revenue.

Heavy oils have been free from tax since 1947. In any case, anyone familiar with the oil refining industry knows that the problem in expanding the activities of refineries is how to sell the petrol and the middle distillates. The increase in demand comes more for the heavy than for the middle fractions. Therefore, this will help the industry, although doubtless it will squeal, to maintain balance in the operation of the refineries.

Now a brief mention of the Surtax change. I believe that this is a transfer payment from the individual on to things; that is to say, from individual managers, executives and professional men on to corporate bodies, and I believe it is a right move. I ask hon. Members who suggest that Surtax payers are a very select and prosperous body to examine the gross income of the manager of a chemical factory in Great Britain compared with that of the manager of a chemical factory in Soviet Russia. Time does not allow me to develop these points too far, but I will just mention that there has been little comment on the fact that Surax has been unchanged since 1920, when it was a rich man's tax. I am sufficiently old-fashioned to think that in industry the first job one has is to choose one's boss, and I want to work for a contented boss and not an embittered boss. If my boss is embittered because he thinks he is over-taxed, I would rather work for a boss who is paying rather less tax.

In conclusion, my right hon. and learned Friend the Chancellor of the Exchequer has in my estimation presented a sober review of our economic affairs. In my judgment, he has drawn the correct conclusions from the available facts. He has been wise to be cautious in restricting the overall Budget deficit to £69 million. He has been imaginative in his proposal for new economic regulators, but we are still feeling our way towards the discovery of the best means of regulating a mixed economy. His tax changes are bold—bold in providing an incentive where it is most required, and bold in providing social justice where it has been most lacking. What is sauce for the trade union goose is sauce for the management gander.

Of course, there are those who will be disappointed. There always are, and there always will be after any responsible Budget, for, as Edmund Burke warned us: To tax and to please, no more than to love and be wise, is not given to men. My right hon. and learned Friend, unlike the right hon. Member for Huyton, is, I know, content to be a man and does not aspire to be a god. That is the basic difference in political philosophy in economic matters between the two sides of the Committee.

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

Committee report Progress; to sit again Tomorrow.