BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 19 April 1961 vol 638 cc1176-300

3.46 p.m.

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

Few people of consequence today would deny that the Budget provides one of the principal ways in which the Government can and should influence the economy. As one distinguished American economist put it: You have to find a real crackpot to get an economist who doesn't accept the principle of Government intervention in the business cycle. Of course, that is right, and before I deal with some of the Budget proposals I want to say something about the state of the United Kingdom economy, because the level of activity and the various factors affecting it are the elements which principally determine the direction in which the Budget has to operate.

My right hon. and learned Friend the Chancellor of the Exchequer has already given the factual position in considerable detail, and I would only add that, however one interprets it, there can be no doubt that, taking the country generally, the economy is now operating at a high pressure. Over the last twelve months there has been a very large increase in total employment. During 1960, the increase in total employment amounted to no less than 395,000. That was a greater increase than in any of the preceding ten years, and several times as big as the average increase over those years.

All these people have been absorbed, and still the unemployment percentage in the middle of March was only 1.6 per cent. Over a great part of the country it was 1 per cent. or little more, and in those areas the number of unfilled vacancies was greater than the number of unemployed.

Measured by these various indicators, the pressure of demand for labour has increased distinctly over the last year, in spite of the difficulties of the motor industry and of the consumer durables industry. In many areas there are shortages of labour, especially of skilled labour, and it is clear that there has not recently been any effective redeployment of labour.

I can well understand that natural inclinations, and, indeed, the reasons, which prompt employers to keep men on even though demand for their services has gone down. But it cannot be denied that this is bound to lower the responsive power of the economy, so that if we have, for example, an upsurge of export demand, the firms which could meet it are liable to find it impossible to get the extra labour they need. It was against this background that my right hon. and learned Friend reached the conclusion that he should budget for an increase in the above-the-line surplus and a relatively small overall deficit in the Budget as a whole.

The right hon. Member for Huyton (Mr. H. Wilson) said yesterday that the Budget was irrelevant to the urgent problems of the nation. I am bound to say that as a description of his speech that criticism would have been particularly apt. In view of what he said I will tell the Committee the basic purpose, the essential strategy as it were, of this Budget.

My right hon. and learned Friend put the matter succinctly when he said that its broad effect must be counter-inflationary, that existing encouragements to investment must be maintained, that room must be found for increased exports, and that additional incentives to effort and initiative must be provided. This Budget shows the determination of the Govern- ment to ensure that booming domestic demand does not stand in the way of the increased exports which we all know we must have.

Under my right hon. and learned Friend's proposals the overall deficit this year will be reduced to under £70 million. That is a remarkable figure. It is lower than in any Budget in the last ten years, and it means that the Government are resolved to keep our financial house in order. Furthermore, there will be no question of the Government themselves contributing to inflationary pressure because of their borrowing needs. As the Committee knows, we do not expect to have to seek any new money at all from the gilt-edged market. If additional restraints are needed, we shall have available the power to use one or both of the new economic regulators.

Perhaps I could put the position best in question and answer form. What does the Budget do for exports? [HON. MEMBERS: "Nothing."] If hon. Gentlemen will listen they will get the answer. The clear answer is that we shall ensure that our ability to sell more abroad will not be vitiated by excessive home demands and unchecked rises in cost. What are we doing for saving? The answer is that the whole Budget is designed to help to secure price stability and to strengthen Government credit. What are we doing for investment? The answer is that despite the net increase in taxation the special assistance provided by investment allowances remains unchanged. What are we doing to provide incentives for effort and initiative? The answer is clearly given by the Surtax proposals, and I will come back to them in a few moments.

This is not a Budget of easy hopes. It is a Budget of resolute purpose, and that purpose, if right hon. and hon. Gentlemen opposite have not yet gathered it, is to contain inflation, to moderate the growth of home demand, to encourage exports, and to maintain confidence in sterling both at home and abroad. It would have been all too easy to have taken a gamble, to have provided for some net decrease in taxation this year, to have kept one's fingers crossed, and to have hoped that, despite the consequent overloading of the economy, the export position would somehow have righted itself and that the balance of payments would have improved.

Judging by the noises coming from the other side of the Committee, it might be that there are right hon. and hon. Gentlemen who would have taken that course, but all I would say is that whatever might be the immediate superficial attraction of taking such a course it would have involved for this country a degree of risk which we simply cannot afford to take. When I say that, I am not thinking only in terms of statistics, but in terms of the effects of such a course on the livelihood of men and women and also on the level of employment.

Leaving aside for a moment the actual Budget proposals—I will come back to them later—I think that, as regards the aims of economic policy, there is a good deal of agreement between both sides of the Committee, and, indeed, among all sections of industry. Our objective is, and must be, an expanding economy, but no Government, Labour or Conservative, could risk putting an increased rate of growth before other vital objectives such as a healthy balance of payments position, full employment, stable prices, and so on.

It is a truism that an expanding economy, at any rate an economy such as we have in the United Kingdom, connotes substantially increased imports both in the form of raw materials for industry and also for direct consumption by an increasingly prosperous society. We cannot for long continue importing more and more unless there is a commensurate increase in exports. I do not think that any hon. Member of the Committee would disagree with that, but the 64,000 dollar question is: how are we to achieve it?

We have in this country few readily available national resources, apart from coal. We have no great pool of unused labour on which we can draw, and the result is that whether one believes in a predominantly free enterprise economy, as we on this side of the Committee do, or whether one believes in more nationalisation, as right hon. and hon. Gentlemen opposite do—

Sir Kenneth Pickthorn (Carlton)

Some of them.

Mr. Barber

—there is only one answer to the problem which confronts this country, and that is to make better use, more efficient use, of what is available.

In other words, at least so far as the 1960s are concerned, the key to prosperity lies in productivity. Increased productivity is a prerequisite of an improved international competitive position which we must have if we are to achieve the upsurge in exports which is necessary to sustain an expanding economy. But it is an illusion to think that productivity alone will do the trick. Of course, increased productivity will lead to a reduction in real costs, but it will not lead to increased prosperity if it is frustrated by an excessive rise in money incomes.

There are two relevant factors, the rate of increase in productivity, and the rate of growth of money incomes. The first, the reduction in real costs, that is, technical improvement in the broadest sense, is not a matter which any Government can control merely by issuing directions. The pace of improvement in this field depends in the main on the determination and the general outlook and spirit of industry, management and labour alike. It depends—and I am sure that the Committee will agree with me—on the strength of the desire of managements to improve productive techniques and on their willingness to invest capital on a big scale for future returns. It also depends on the willingness of individual employees as well as their leaders to co-operate fully in the introduction of new methods.

With full employment, with the number of unfilled vacancies exceeding over a wide area the number of those out of work, there can be no excuse for resisting the introduction of new labour-saving machinery or techniques or—and this is equally important—for insisting that the same number of men should operate a new and costly machine which could be operated by fewer men.

Of course, in this matter of technical improvement the Government can either help or hinder. They can create a general environment which is either more favourable or less favourable to the process of productivity improvement, but it is not just a matter of organising a great flood of demand. Indeed, it is very easy to have too much demand so that there is no reserve capacity available to take up and exploit new opportunities.

The objective of all Governments since the end of the war has been to avoid both recessions and an overloading of the productive system. I think that it is fair to say that, although there has been some variation in recent years, the usual tendency has been to have too much demand. Our objective is to reduce the scale of variations which are bound to occur from time to time. The Government can also help to improve productivity by giving positive encouragement to firms to invest. We have done this through the initial and investment allowances which have now become not only an important but a well-established feature of our fiscal system, and one of the most encouraging features of the present situation is the very considerable investment plans of productive industry.

But it is not enough to have conditions which favour an increase in real productivity and. consequently, a reduction in real costs, if this is not translated into the trend of money costs. We shall not make progress in this country unless, over a wide field of products and services, we have the edge on our overseas competitors. The most up-to-date plant and machinery and techniques will be of no avail to our international competitive position if the consequent increased productivity is out-matched by increased money incomes.

This brings me to the second factor, to which I referred a few minutes ago—the rate of growth of money incomes, in which the biggest and most important element is wages and salaries. If these rise too fast other incomes will follow suit. In 1958 and 1959, although the upward pressure on costs never quite stopped it was very much slowed down. But the same cannot be said of last year. In 1960, there was a definite acceleration in the upward movement. In many industries there were considerable wage increases; in others there were shorter hours—and in some there were both wage increases and shorter hours.

There has been another significant development. The interval between successive settlements has been shortening. It is certain that we have not yet seen the full effect of these changes upon prices. If this process of increased costs continues at its present tempo the rise in prices is bound to accelerate, and our international competitive position will inevitably suffer.

Mr. Harold Wilson (Huyton)

Yesterday, I drew the attention of the Committee to a report in a morning newspaper that on Budget day one person made £1 million in capital gains through the marketing of his property shares. The Chancellor has refused to do anything about a capital gains tax. Can the hon. Gentleman go on with this homily on behalf of a Government who do nothing about a situation in which an individual can make £1 million tax-free in a single day?

Mr. Barber

I do not know what the circumstances of the case were. For all I know it may have been the case of a man who had built up a company and was then floating it on the market. The right hon. Gentleman gave us no details.

Speaking personally, I would be very loath to see a tax imposed on capital profits which a roan made as a result of building up his own business. My right hon. and learned Friend dealt with this matter in his Budget speech and explained why there were no provisions for dealing with other forms of capital gains. I am sure that the right hon. Gentleman will agree that this is a matter of great importance, and that it would be the height of folly to ignore the effect on costs of salaries and wages taken together.

It may be said that it is all one-sided, but it is an element contributing to prices. Wages and salaries, taken together, are more than twice as important as the gross trading profit. I have figures here if they are wanted. These are elements which any Government—and, I would have thought, any Opposition—would wish to take into account.

Mr. Douglas Jay (Battersea, North)

If the hon. Gentleman has the figures, will he state the percentage rise in wages and salaries, on the one hand, and dividends and profits, on the other, last year?

Mr. Barber

I do not have the figures of rises over the year. What I have got is evidence of the significance of wages and salaries, as distinct from other items, in their effect on the price level. In the context of what I am saying, that is a relevant factor.

It is true that in 1958 and 1959, broadly speaking, the increase in money incomes brought with it an increase in real incomes on pretty well the same scale, but with the prevailing scale of wage and salary increases this cannot continue to be the case. Whatever may be the arguments for or against such increases there is no point in ignoring the consequences.

A short time ago I said that increased productivity depended largely on investment, and investment, in its turn, depends on confidence in the future. We cannot expect manufacturers to go in for major capital expenditure if they fear that there may be a sudden drop in demand for their products. It is sometimes suggested that the Government's own policies have had a discouraging effect on industry because, in trying to keep the economy in balance, they have, on occasion, had to do things to reduce demand.

I would ask those businessmen who make this charge to cast their minds back to the fluctuations of the inter-war years and to the damaging impact of the uncontrolled trade cycle of those times. I cannot believe that any businessman in his right senses could prefer the consequences of the inaction of the inter-war years to the consequences of the more active policy which we have been following in recent years. Having put the matter in over-simplified, black and white terms, I must point out that it is a fair criticism to say that the means of control available to successive Chancellors have been very far from complete or perfect. My right hon. and learned Friend described these imperfections in his Budget speech, and I need not go over them again.

I would, however, remind the Committee of the consideration given to this matter by the Radcliffe Committee, which dealt with the efficacy of various means of regulating the economy and came to the conclusion, first, that monetary measures require to be supplemented by fiscal measures, and, secondly, that the use of fiscal measures has been handicapped through the necessity of confining taxation changes, at any rate in normal times, to annual Budgets. It was no part of the Committee's business to consider in detail what changes might be made in our fiscal practice, but it concluded: the more flexible the fiscal weapons can be made, the less will it be necessary to rely on monetary measures. My right hon. and learned Friend has, therefore, proposed two changes to improve this situation. The Committee already knows the details of these proposals, and my right hon. Friend the President of the Board of Trade spent some time examining them yesterday. I want to make only four brief points about them.

First, whatever views hon. Members may have on the merits of these two proposals it is undeniable that they will go a long way to remedy the difficulties which I have mentioned and to make possible a more rapid and flexible adjustment of economic policy to deal with varying economic conditions.

The second point concerns the application of the employer surcharge to Northern Ireland. As hon. Members will have observed from the Financial Statement, the surcharge, if imposed, would apply to Northern Ireland employers. In Northern Ireland, the National Insurance scheme is operated on exactly the same basis as in Great Britain. This is essential if the free mobility of labour between the two parts of the United Kingdom is to be preserved, and my right hon. and learned Friend has been concerned to see that his new proposals do nothing to upset this. But hon. Members will also have seen from the Financial Statement that the proceeds of any surcharge deriving from employers in Northern Ireland will be paid not into the United Kingdom Exchequer, but directly to the Northern Ireland Exchequer.

Thirdly, the proposal for the employers' surcharges envisages that although there will be no distinction between employers by reason of industry, type of employment or geographical location, it will be possible to have different rates in respect of different categories of employed persons, that is to say, different "descriptions" of insured persons in the sense of the National Insurance Acts. Consequently, the surcharge, if and when it is imposed, could be at one rate in respect of all employed persons, or there could be different rates for men and women and boys and girls. The Ways and Means Resolution permits this, and the Finance Bill will also be drawn in such a way as to allow it.

Mr. Leslie Hale (Oldham, West)

Will the hon. Gentleman try to deal with two points which were put yesterday, but were not answered? First, if we put a surcharge on labour in an area which already has high unemployment—and Northern Ireland is one example—what is expected to result? Secondly, if we put a surcharge on firms which have skilled fitters, a large number of unskilled labourers, and also disabled persons, who are employed so that the firms may discharge their liability—and this is the situation with most industrial firms—whom does the hon. Member think will suffer first by the application of this surcharge?

Mr. Barber

One of the disadvantages, which, I think, was explained by my right hon. Friend the President of the Board of Trade yesterday, of the hire-purchase controls, is their selective effect on certain industries. It is perfectly true that when we get what I might call for convenience a regulator which has a widespread effect we get disadvantages the other way, but it is inherent in a regulator of this kind that it should operate over the whole of industry.

I have no doubt that aspects of the sort which the hon. Gentleman has put forward would be well in the mind of my right hon. and learned Friend when he was considering its possible use, but I thought it was right to tell the Committee that it will be possible to draw up the proposal in such a way that any group of employees for whom, as it were, a different stamp exists may either be excluded or may have a reduced rate applicable to them.

Mr. Jay

I am only anxious to elucidate the facts. Will the surcharge apply to Government Departments themselves—the Post Office, the Royal Ordnance factories, the Royal Mint and the Civil Service?

Mr. Barber

It will apply in every case where the employee comes within the National Insurance Acts and there is a contribution paid in respect of him by the employer, unless the person concerned happens, for the reasons I have mentioned, to come within one of the categories under the National Insurance Acts which is excluded, or which pays a reduced rate. It will certainly apply to the Government service in the same way as to industry.

Mr. Charles Loughlin (Gloucestershire, West)

Would the hon. Gentleman clarify one point for me? I understand that the payroll tax, as imposed on employees of Northern Ireland, will by some mechanism go back to the Government of Northern Ireland, and I assume that this is intended to be used by the Government of Northern Ireland for the purpose of relieving the unemployment position in some way. Is that the position? If so, what about those areas in England which will be in precisely the same position? Are they to have no relief?

Mr. Barber

It is not for me nor for my right hon. and learned Friend to decide what use is made of this money by the Northern Ireland Government. The point is that arrangements will be made—I imagine that they will be incorporated in the Finance Bill—for the sums in question which come from Northern Ireland to be paid direct to the Northern Ireland Exchequer, and it will be for the Northern Ireland Government to decide how they use the funds.

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

It is very nice to know that already, on the third day of the Budget debate, this is regarded as a surcharge—because that is precisely what it is. I would ask the Minister whether there will be a Schedule in the Finance Bill excepting those who do not pay.

Mr. Barber

My right hon. and learned Friend and my right hon. Friend the President of the Board of Trade have described this new device in considerable detail, and I was only trying to answer the two points mentioned, on which, apparently, I had not been quite clear.

Mr. Rhodes

Will this affect Remploy?

Mr. Barber

The hon. Gentleman must wait and see what the detailed proposals are. I have explained in some detail how they work. The hon. Gentleman said that this was the first time that this had been referred to as a surcharge. I would point out that my right hon. and learned Friend said in his Budget speech: My second proposal relates to a special surcharge on employers."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 808.] There is nothing new in this.

Mr. H. Wilson

Are we not entitled to have an answer? We get all this turgid repetition of economic sermons, but here is a new proposal in the Budget. We have not had the usual things that used to happen until the President of the Board of Trade intervened on the second day to explain what was going on. We want a clear answer. My hon. Friend has asked whether this will apply to Remploy. The question has been asked of the hon. Gentleman, and he should know. The Government should have thought of this before they introduced the proposal. Can we have an answer now?

Mr. Barber

I am sure that if the right hon. Gentleman looks in HANSARD tomorrow he will see that I have made it absolutely clear that this applies to all those in respect of whom there is a stamp under the National Insurance Acts, unless particular categories are excluded altogether, or unless there is a provision for a reduced rate. Consideration of this matter of whether any National Insurance categories should be excluded, or whether there should be any reduced rate, is for the consideration of my right hon. and learned Friend, if and when he introduces it, and the House will have an opportunity of considering it. These are all matters which we shall have to consider on the Finance Bill. I have made the position absolutely clear.

Mr. Wilson

The hon. Gentleman must not mislead the House. We were told that this would be introduced by Statutory Instrument. Statutory Instruments cannot be amended by the House. They are subject to affirmative Resolution. If, when it comes in, Remploy is included, the House will have no power to amend it. The hon. Gentleman had better tell us now, in this debate, what will happen about Remploy.

Mr. Barber

The power which my right hon. and learned Friend seeks will be a power granted to him in the Finance Act. When we come to consider the provisions of the Finance Bill, long before consideration is given to the laying of a Statutory Instrument, the right hon. Gentleman and his hon. Friends will have an opportunity of going into all these matters. I do not think that, without repeating myself, I can be more clear about the present position. I certainly would not want to become even more turgid.

My fourth point is a short one. It seems to have been forgotten by some hon. Members who have spoken in the debate that the variation of Customs and Excise duties can be operated not only in a restraining direction, but also in an expansionist direction, involving reduction in duties with immediate effect and at any time after the date on which the powers have been taken.

I should like to say something about some of the changes in taxation. I was very surprised indeed that of all the Ways and Means Resolutions which were moved on Budget day the only one selected by the Leader of the Opposition for a Division was that concerning the vehicle Excise licence duties. After all, it was the right hon. Gentleman, when he was Chancellor, who increased the duty on every gallon of petrol in a year when Government expenditure on new roads amounted to only £3.2 million. [HON. MEMBERS: "Oh."] Hon. Gentlemen opposite do not like it. I hope that they will bear in mind that the comparable estimate for this year is not £3.2 million, but £88 million. What my right hon. and learned Friend is proposing must, by any standards, be considered a moderate increase in the annual licence duty.

Quite apart from that, I ask the Committee to consider the proposed increase against the history and background of this part of our fiscal system. The plain fact is that in the past few years motor licences have been remarkably cheap. [Laughter.] I wish that the right hon. Member for Huyton would listen to the point I am making, although it is good to see him laughing occasionally.

If we consider, first, the licence on a typical private car—say, a family saloon—in the early days of motoring this was as often as not a 12 h.p. car, or sometimes a little more than 12 h.p. From 1921 to 1935, a period of fourteen years, the licence duty was £1 per h.p., so that the typical family motorist paid £12 a year for his licence. Then, there were five years until 1940, during which the rate was reduced to 15s. per h.p. Then followed the five wartime years, during which is was raised to 25s. per h.p. In 1947, the flat rate of £10 was first introduced. This was increased in 1953 to £12 10s. Therefore, over the past eight years, the family motorist has been paying little more—in some cases, actually less—for his licence than he paid thirty or forty years ago.

Mr. Loughlin

What about the petrol tax?

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

Is the hon. Gentleman aware that the reason for introducing the flat-rate tax was that it was done at the behest of the motor manufacturers so as not to hold back engine construction and design, and that, instead of a tax upon horse power, the tax was transferred to petrol and to Purchase Tax? It did not mean that the motorist was getting away with his taxation.

Mr. H. Wilson

It is much higher now.

Mr. Woodburn

The tax of £10 was introduced as a nominal tax and the main taxation was transferred to the other items which I have mentioned.

Mr. Barber

It is obvious from what I said earlier that the right hon. Gentleman is quite right. I am thinking back to 1951 in referring to the increase in the tax on petrol. All I am saying is that by any standards, an increase of £2 10s. per year for the normal private motorist for an annual licence is a fairly moderate increase. I am surprised that anybody should deny this.

Mr. Wilson

The hon. Gentleman keeps talking about the increase in the petrol tax in 1951, on which the present Chancellor of the Exchequer waxed eloquently. To get the matter in perspective, will the hon. Gentleman say how much higher the petrol tax is today than it was in 1951, not only in terms of yield, but in terms of the tax per gallon? Will the hon. Gentleman now tell us the rate in 1951, when the Chancellor attacked it, and the present rate, with all the increases introduced by Tory Chancellors?

Mr. Barber

The right hon. Gentleman says "all the increases introduced by Tory Chancellors". In effect, there has been only one increase. The tax went up at the time of Suez and came down again afterwards. In 1951, the Leader of the Opposition increased the petrol duty by 4½d., from 1s. 6d. to 1s. 10½d. per gallon. In March, 1952, the duty was increased to 2s. 6d. and it is still 2s. 6d. per gallon. The point I am making—[Interruption.]—which right hon. and hon. Members opposite do not appreciate, is that it is extraordinary that out of all the Budget proposals the one selected by the Leader of the Opposition on which to divide the Committee was one concerning an increase of £2 10s. for the private motorist and something additional for commercial motorists. The increase is less than half the cost of a new tyre. And that is what the Committee divided about on Monday evening.

As for commercial vehicles, the rates of duty have remained virtually unchanged for nearly thirty years. In present-day conditions, if one sets the cost of the licence alongside all the other costs—the cost of the vehicle, maintenance, insurance, fuel, wages of the driver, and so on—it is clearly a very small element in the total cost of operation. Even so, it has been said that the increased licence duty on commercial vehicles will add marginally to the general costs of the wide range of goods and services. That is not necessarily to condemn it as a way of raising revenue.

There has been considerable discussion in recent months about the merits of indirect as compared with direct taxation. A good many of us, not only on one side of the Committee, feel that in principle there is a good deal to be said for raising at least part of the national revenue by indirect taxes levied at a low percentage rate on a wide range of goods. That, in effect, is what the licence duty on commercial vehicles does. No increase in taxation can ever be painless, but I believe that this part of my right hon. and learned Friend's proposals comes about as near to the painless raising of an additional £25 million as one is ever likely to get.

Before I leave the matter of motor cars, I should like to make one further point. Yesterday, the right hon. Member for Huyton made a specific proposal to abolish altogether initial allowances for motor cars. The consequences of this would be to deny to many deserving people—commercial travellers, doctors, district nurses, farmers, and so on—a tax allowance in respect of equipment which is necessary to them and an allowance which is already less favourable than that given for other forms of business plant and machinery. I cannot agree that to do as the right hon. Gentleman suggests would be either right or equitable.

Mr. H. Wilson

In the special case of doctors and others, their running and other costs could be allowed for on proved use. What we complain about is the open-ended subsidy from the Chancellor of the Exchequer to business firms when there is virtually no check on the use of the cars for business purposes. The allowance could be abolished for at least the public companies. For the professionals, it could be abolished and they could be given a generous running allowance on any case that they could prove, or it could be dealt with in the way I suggested yesterday.

Mr. Barber

Others outside this Committee will be relieved to know that the right hon. Gentleman has modified the proposal which he put forward specifically and without qualification.

Mr. Wilson indicated dissent.

Mr. Barber

If the right hon. Gentleman has not modified it, the consequences which I stated still stand.

In this Committee, the most controversial proposals which my right hon. and Learned Friend has made are those concerning Surtax. Several hon. Members opposite, including the right hon. Member for Huyton, have done their utmost to tie up the health charges and the National Health Service contributions with the Surtax reductions. To do that is merely to close one's eyes to two highly relevant factors. [An HON. MEMBER: "Tell them in Doncaster."] The first is that the reduced Surtax rates will not be payable until January, 1963. The second is that in a full year the total cost of the Surtax reductions will be almost covered by the increase in Profits Tax. No hon. Member would dispute the contention that one of the relevant criteria for judging any change in taxation is its effect on the economy. The primary purpose of the reduction in Surtax on earned incomes is to provide greater incentive for those men and women in the higher income brackets without whose enterprise and initiative the country would not survive as a great trading nation.

A few moments ago, an hon. Member opposite said, "Tell them in Doncaster". I represent that thriving industrial town. Nobody knows better than I how much we in this country depend upon the millions of people who are impersonally lumped together by the statisticians under the heading, "Manual wage earners". But to deny that their prosperity is inextricably linked with that of the manager, the research scientist and the technologist, is simply to fly in the face of reality.

Hon. Members opposite consider it outrageous that an executive earning £5,000 a year should keep £3,600, or that a man earning £10,000 a year should not pay more than £4,000 in tax. That view ignores the basic fact that there are many men and women who have a great deal to contribute, but who are deterred by high taxation from making their full contribution. [An HON. MEMBER: "Nonsense."] It is not only in their own interests, but in the general interest, that they should be encouraged to give of their utmost.

Another effect of the cut in Surtax will be to secure greater mobility among these people. Offers of higher rates of pay will now be much more effective in persuading people to uproot themselves and their families to go to new and challenging jobs and to accept the risks that such changes involve.

Some hon. Members yesterday referred to last month's National Institute Economic Review, in which an international comparison was made of the burden of taxation. One set of figures was particularly significant. It was pointed out that, taking the case of a family man with two small children with a gross income of £5,000, the American still retains about 68 per cent. of the next slice of additional remuneration, the West German keeps about 60 per cent.—and the Swede and Briton retain only about 40 per cent. The effect of my right hon. and learned Friend's proposal will be that the United Kingdom earner at the £5,000 level will in future keep not 40 per cent., but 66 per cent. of the next slice of additional remuneration. I do not consider that as being unreasonable.

A lot has been said about the position of those who do not pay Surtax. Tan years ago, after the right hon. Gentleman the Leader of the Opposition had increased Income Tax in his one and only Budget, a married man with two children, earning £11 a week paid £28 16s. 9d. a year in Income Tax—or 10s. a week. Today, he pays nothing. A man in the same circumstances, with a wife and two children to support and earning £15 a week paid £83 8s. in tax after the right hon. Gentleman's Budget—or more than 30s. a week. Today, he pays only £17 5s. 10d.—less than 7s. weekly. Therefore, do not let hon. Gentlemen opposite say that under a Conservative Government nothing is done for those who do not pay Surtax.

Mr. H. Wilson

The hon. Gentleman is misleading the House. Who is the "he" about whom he is talking? Before making the comments that he has, the hon. Gentleman should have looked at an Answer given last week by the Financial Secretary, in which the Treasury calculated that, for the same income taken by the hon. Gentleman in the examples which he has just given, a man who earned £10 a week then would today earn about £12 or £13 a week—and the tax on £12 or £13 a week is heavier now for this same man than the tax on his earnings of £10 a week in 1951.

The hon. Gentleman was, therefore, misleading the House by comparing £10 in 1951 and £10 today, especially since my figures are exclusive of the big increase in National Health and National Insurance contributions. The hon. Gentleman's figures are bogus.

Mr. Barber

Perhaps it would be useful to take into account not only the changes in direct taxation, but also the changes in the cost of living. In 1945, the average industrial wage was £4 16s. 1d. per week. In 1951, it has risen to £7 1s. 1d. If we take into account, the rise in the cost of living during those six years, and the effect of direct taxation, the actual purchasing power of the average industrial worker's salary rose during that period of Socialism by only about one-seventh.

By contrast, during the last ten years, the average industrial wage has increased from £6 8s. a week in October, 1950, to £14 10s. 8d. in October, 1960. In taking into account these two factors—the change in the cost of living and changes in taxation—the purchasing power of the average industrial workers wages has risen not by one-seventh, but by over one-half. That, I suppose, is what the right hon. Gentleman the Member for Huyton meant by what he yesterday called "the debilitating effects of Tory freedom".

Mr. G. R. Mitchison (Kettering)

It would appear that the hon. Gentleman is suggesting that today more people are exempt from taxation as a result of Conservative rule. I recommend him to study Table 28 of the last Report of the Inland Revenue Commissioners, where he will find that since the Conservatives have been in power, more, instead of fewer, people are paying tax.

Mr. Barber

That might have something to do with the fact that under the Conservative Government incomes have gone up. [Interruption.] With these facts in mind, I simply do not believe that the country will subscribe to the view of the Opposition that my right hon. and learned Friend's Surtax proposals are unreasonable.

So much for those who pay only Income Tax. What of those who pay no direct taxation at all, neither Income Tax nor Surtax? Yesterday, the right hon. Gentleman the Member for Huyton sought to analyse the difference between a Conservative Chancellor and a Socialist one. He said: 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 the greatest need. He makes them—the old, the disabled, the war pensioner and the sick—the first charge on the national wealth."—[OFFICIAL REPORT, 18th April, 1961; Vol. 638. c. 994.] Those are fine words, but is the right hon. Gentleman really proud of what his Government did for the old-age pensioners, who, of course, pay no tax? [Interruption.] The miserable record of the Labour Government is well known. [Interruption.] I do not propose to depress the Committee by going over it again.

Mr. James Callaghan (Cardiff, South-East)

Was the Economic Secretary in the House this afternoon when the Assistant Postmaster-General said, in reply to Question No. 42, that the Government could not give cheap television licences to old people and the bedidden? Does the hon. Gentleman realise that the country will not like the fact that the Government can give relief to Surtax payers, but can give no relief whatever, even by way of cheap television licences, to these unfortunate folk? That is debauched, degenerate and degraded.

Mr. Barber

The country will draw its own conclusions from two facts: first, under the Labour Government the purchasing power of the pension actually fell by 10 per cent.; secondly, during the last ten years the retirement pension has been increased on four occasions and, while the cost of living has gone up by one-third, retirement pensions have been increased by over 90 per cent. I was taking the period, a fair one to take, from the time when there was a pension of 26s. a week for a single person.

Mr. Jay

Although the hon. Gentleman is uttering a lot of platitudes, he must not mislead the Committee. He must realise that when the Labour Government came into power the pension was 10s. By the time we went out of office it was, in money terms, 30s. a week—a large rise.

Mr. Barber

Nevertheless, for the last four of five years of Labour rule, the purchasing power of the pension actually fell. No one, least of all the old-age pensioners, would deny that things have gone much better during the Conservative Government's reign of office; and the reason we have been able to do better than the Labour Government is not because we were not more desirous of helping the old, but simply because our society has grown more prosperous, and the relief it is proposed to give to the Surtax payer is considered by many people to be long overdue.

Hon. Members

Oh.

The Temporary Chairman (Mr. James H. Hoy)

Order. If the Minister has the Floor it is only right that right hon. and hon. Gentlemen should give him a hearing. Perhaps a little interruption can be permitted, but we cannot have this continual interruption.

Mr. Barber

I am grateful, Mr. Hoy.

I believe that this reduction will help to make Britain, which is in the main a free enterprise country, still more prosperous. The Opposition are opposed to the Budget because it is geared to a predominantly free enterprise system, and hon. Gentlemen opposite do not believe in free enterprise.

Yesterday, we listened to the usual engaging and entertaining speech from the right hon. Gentleman the Member for Huyton, but I thought that towards the end of his speech he was getting a little weary of his own speech and that he was running out of material. We had a lot of well-worn references to striped toothpaste and American motor cars, references to advertising and even a dissertation on the 11-plus. There was one startling omission from his speech; he did not once make mention of any extension of nationalisation, not even a passing reference to it.

Mr. Mitchison

My right hon. Friend said nothing about cheese, either.

Mr. Barber

The hon. and learned Member says that his right hon. Friend said nothing about cheese. It is as well to know that there is at least one person in the Labour Party who puts nationalisation on a par with cheese. The right hon. Member for Huyton would be, I know, the first to admit that nationalisation is the core of his policy. As he put it the other day: Labour's social and economic objectives can be achieved only through an expansion of public ownership. —what he ominously termed the "weapon" of public ownership. The reason for the glaring omission is not far to seek. The right hon. Gentleman knows full well that the policy which endears him to the Labour Party will never endear him to the electorate for the simple reason that it is totally irrelevant to the problems of the mid-twentieth century.

I believe that the British people will support my right hon. and learned Friend's proposals not only because they face up to the problems of today, but also because my right hon. and learned Friend has had the courage to do what is right.

4.41 p.m.

Mr. G. R. Mitchison (Kettering)

The Economic Secretary has only himself to blame if he had a rather "rough house." He started with an almost record collection of platitudes and ended with an almost record collection of inexactitudes. I think we really might leave him at Chat.

Some time ago the patient with whom we are concerned today was induced by some of the hon. Gentleman's hon. Friends to go on a razzle at the time of the General Election. The patient has been rather ill since then. The other day the family physician, the Minister of Health, bled him a bit, and yesterday we had a diagnosis of his condition from Dr. Jekyll, the Chancellor of the Exchequer. I am not certain that the house physician has added very much of value to it today.

I thought that Dr. Jekyll had really got quite a number of the main points and that he was more or less right about what was the matter with the patient. He did not mince his language. He pointed out that one of the troubles was rising prices and that another was that the index of industrial production had been flattening out, and that all this had the usual effect on our balance of payments. He reached the not very startling conclusion that the question was whether our economy was sufficiently resilient and flexible to cope with the demand of the home market and the need for increased exports. I think that we can accept all that.

Dr. Jekyll pointed out, too, that there were some things very wrong in our approach to our economic problems. He was not satisfied that…the two sides of industry are tackling this problem with sufficient energy. He said: There are too few scientists and technologists. He also said: Labour relations, standards of management, techniques of selling are, in some cases, below what is needed in the present day world."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 800–1.] With none of those do I find much disagreement. Indeed, it is what we have been saying to the right hon. and learned Gentleman the Chancellor from this side of the House for some time past.

I think that the simplest way to see the state of the patient is to compare him with other people who appear to be a little healthier—in other countries. We had the figures about production the other day to pinpoint and illustrate the difficulties which the country is in, but, since the Chancellor finds the main difficulty in the balance of payments and the question of exports, we might perhaps look also at the figures relating to trade.

I will not give them in very great detail, but the position is that since the Tory Government came into office the United Kingdom's share in world trade has dropped steadily every year. In 1951, it was 21.9 per cent.; in 1952, 21.5 per cent., and so on, until in the third quarter of last year—this is the latest figure available to the public as far as I know—it was only 15.4 per cent. The shares of competing countries have been rising, some of them to a very startling degree. The West German share has nearly doubled. This is the result of the Tory Government's treatment of industry in this country.

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

Is the Labour Party therefore recommending that we should follow the policies of the West German Government, which are entirely different from our own?

Mr. Mitchison

It is not only Germany, nor am I recommending that we should follow the policies of half a dozen other countries to whom the same thing applies. What I am saying is that the best proof of how ineffectual the Tory policy has been in this matter is to look at the facts in a comparison with other countries, instead of trotting out again and again the platitudes to which we have just been listening from the Economic Secretary, for they simply do not fit in with the facts.

We can take another test, the volumes of the total exports of countries. Let us take the nine countries which are the main competing ones. They are not only in Europe; they include Canada, the United States and Japan. If we look at the list, this country has the lowest increase, and the highest increase happens to be West Germany's. That is not to say that we should adopt West German methods or policy. They must regulate their own affairs. There is no particular reason for us to do that any more than there is for us to adopt the policy of the seven other countries which are concerned in the comparison. Each one has done better than we have.

Surely it is about time that we considered what our own Government have been doing, and with what scant success. That is the lesson that I want to draw today, because to listen to members of the Government one would sometimes think that they really believe that they have done quite well. They have done very badly indeed by comparison with other countries. That is surely the best test. After all, we would expect that scientific advances if properly applied all over the world would lead to an increase in the general standard of living and to an increase in the volume of our manufactures and that the development of world understanding and technical advances would lead to some increase in world trade.

All that we can reckon on. But to find, when it comes, that the share that we get of it is the smallest of any comparable country surely indicates even to the complacent right hon. and hon. Gentleman whom we see on the Government benches that something is very wrong indeed. I would agree that something was very wrong indeed. I think that the Chancellor recognised it. In fact, Dr. Jekyll made quite a good diagnosis; but when we come to Mr. Hyde's remedies, they are really somewhat curious and remarkable for the state of affairs which he himself has diagnosed.

What is it suggested that we should do to meet this position? We are, first, to rake in a certain amount of money. Out of this, £50 million was raked in the other day by the Minister of Health. The family physician bled the patient to start with. It should be remembered that £50 million is about 40 per cent. of the net increase which is proposed in taxation. I shall say something about that method of taxing people in a minute or two.

The next substantial item in the list for this year is the increased duty on oil. I see the point of that, and I have no particular criticism to make of it so far as it goes. The motor vehicle duties are another £25 million. For this year the Purchase Tax is a small amount, and we have another small item for television advertisement. That is the position this year. The one large personal tax which is to be applied to people is the poll tax imposed the other day by the Minister of Health on the National Health Insurance contributors in respect of the National Health Service. If we go to next year, we get an increased amount for the poll tax imposed by the Minister of Health. We get, again, the oil tax, the motor vehicle duties, Purchase Tax up now by £45 million, and again the other items that I have mentioned.

When we look at the concessions this year, all we get is the concession, to which I am sure none of us has any objection, in respect of the fixed amount allowable against tax for National Insurance contributions. But next year we get the somewhat startling concession of £58 million allowed to Surtax payers. I will say something about that in a moment. If we take a full year, the main change is that that amount is rising to no less than £83 million, so that if we look at the personal taxes put on, we balance on one side the Surtax concessions and on the other the National Health poll tax. Those are the two personal taxes that have come in this year.

Let us see what, in fact, is happening about Surtax. I think we might remember, first, that Surtax payers, as a body, represent rather less than 2 per cent. of the working population. Next, we might see what is to be the result of the concessions that are now made to them. If we look at Table 77 in the last Report of the Inland Revenue Commissioners, which are the last available figures, we see that the result of those figures—no doubt slightly modified from one year to another—is to be that out of the total earned income liable to Surtax nearly two-thirds becomes exempted, and out of the total income liable to Surtax more than two-fifths becomes exempted. In fact, if the right hon. and learned Gentleman were proposing to remove Surtax altogether he is now doing about half the job. That is, of course, the combined result of the additional £2,000 earned Surtax allowance—if I may so call it—and the application of the earned income reliefs.

Looking at the matter in terms of individuals, if we take a man who has an earned income of £6,000 a year, he is to get, according to the Financial Statement, about £650 off his Surtax liability, and his Surtax liability is, of course, now to be quite small. That very considerable concession of £650 comes to this. If we translate it into terms of National Health contributions, about 300 people would be paying an extra 10d. under the poll tax arrangement to balance against the one man who gets this Surtax concession.

Let us look at it another way round. It is a very curious concession, too. I had always supposed that in our tax arrangements we tried to give more to those who had the liability of children at the educable age. I hope that we are all at an educable age, but I mean the statutory age for those purposes. Curiously enough, the amount goes down, the more children the married person has. If one takes the trouble to look at the tables given in the Financial Statement one finds that the married man without any children, and with an earned income of £6,000 a year, gets £675 off. If he has one child, he gets £659 off, if he has two children he gets £644 off, and if three children, £624 off. It is a curious sort of concession that works out like that.

Mr. E. G. Willis (Edinburgh, East)

It is like the rest of the right hon. and learned Gentleman's figures.

Mr. Mitchison

That, of course, is not the only objection which I have to this tax, but I want for a moment to turn to what the object of this arrangement is supposed to be. It has, of course, nothing whatever to do with exports.

As my right hon. Friend pointed out it might just as much be concerned with imports as with exports, and with home trade as with trade abroad. It is supposed to be an incentive to people and a remedying of an injustice. I can see no justice in allowing people who are making a very handsome income so large an amount and at the same time imposing on people who are only getting ordinary weekly pay packets a poll tax which is to be difficult enough for many of them to carry and for which there seems to be no reason whatsoever.

It is time, I suggest, that the Committee listens again to the one piece of concrete evidence which we have ever had on this question. It was in the Second Report of the Royal Commission on The Taxation of Profits and Income. The Commission said: Such rates"— these are Surtax rates— are criticised as tending to repress effort and to discourage the taking of risks, Probably they do, to some, though quite an unascertainable extent. All heavy taxation may be said to have this repressive effect just as, though again to an unascertainable extend, it tends to stimulate effort by diminishing the individual's disposable income. Of course, that is perfectly true in conditions of heavy taxation. But if we are asked to infer from this that the heavy rates have any special disincentive effect upon the receivers of the higher levels of income, so as to justify a shifting of the existing weight of taxation from these ranges to lower levels of income"— that is to say, to justify relief to the Surtax payers at the expense of putting it on a national poll tax— we are bound to reply that we see no evidence that the higher income earners are specially affected by disincentive. And then the Commission gives reasons for its conclusions and summarises them like this: But in the meantime, we should not conclude either from our own observations or from such evidence as we can extract, that the high managerial post, for instance, is declined because its rewards are not thought worth obtaining or that the artist or the professional man abates his energies because tax has made it not worth while that he should exercise them to the full. That was said by the Royal Commission some time ago, and I have never seen any definite evidence to the contrary. I think that it is a very fair and balanced statement of the position. I have never heard anybody who had to deal with this statement say anything, in effect, to contradict it, or to qualify it.

Now we have the Government saying, "There is a great injustice here. There is a great disincentive. There is, in fact, the special disincentive effect", which is exactly what the Royal Commission denied, "and, therefore, we shall, at the very time when we are putting on a poll tax on the population, reduce the levels of Surtax, and do it at a time when we admit that our country's efforts by way of production and world trade are falling behind those of our competitors, at a rime when we recognise that more money has to be collected from the public at large, and that a bard Budget, or a fairly hard Budget, is called for by the circumstances of the case."

What a moment to do this thing. What sense of justice is there in a Government that behaves like that as between the body of taxpayers as a whole and the 2 per cent. of the working class represented by the Surtax payers whose income is earned? That is a very remarkable effort on the part of the Government as far as I can see.

Let us see what else the Government propose. They propose, among other things, to deal with business expenses in a manner that reminds me of someone trying to pick up a red hot poker. Are they really so afraid of their business friends and supporters? Could they not have a little more courage in the matter?

Take one very simple matter, the cars about which we have been talking. It seemed to me that the Economic Secretary was hopelessly confused between investment allowances and initial allowances. But let that pass; it was not the only confusion in his speech. Take the very simple example of cars. No steps must ever be allowed to be taken merely to let the public know that Mr. X, who is driving a Rolls Royce down the street, is driving one belonging to the Y company and not to Mr. X. It is, after all, quite a simple matter to have that stated publicly on the car. But no, it would be too shocking. They could not do anything of the sort. We have heard so much about the Government's attitude towards business expenses, and what amuses me is that they think they are doing something this time—I only hope they will succeed.

Now I turn to the question of the two regulators. The first point is this. If one is to apply a regulator in the hope of dealing with a foreign exchange crisis, one should do it quickly. It does not seem to me that either of the two regulators suggested is suitable or, indeed, possible from that point of view. Moreover, the men of Zurich usually get very active in September, and in September the House is not sitting. These have to have an affirmative Resolution of the House. Does the Economic Secretary, or the Chancellor, suggest that the House will have to be called back in September to get this done? If so, it will certainly not be done quickly.

If the object of these regulators is to deal with a foreign exchange crisis—and such a thing is by no means remote from our present position—then I say that, among other things, they are both slow and unsuited for the purpose.

Mr. Julian Ridsdale (Harwich)

Surely these are in addition to the Bank Rate.

Mr. Mitchison

I thought that the Bank Rate had been dropped tacitly by the Government as a concession, for once, to the wisdom of the Radcliffe Committee, who pointed out what a blunt instrument it was and what bad effects it had in other directions. I should doubt, if the Bank Rate is as high as it is already, whether it would be a very suitable weapon for dealing with an emergency of the kind that I have in mind.

After all, I am dealing with these two regulators because the Chancellor, having diagnosed the illness of the patient, said that these were necessary to deal with any sudden critical condition—that is to say, as I see it, with a foreign exchange crisis. I say that they are quite unsuitable for the purpose. The payroll tax is open to two objections and I will mention them shortly. Both objections were stated clearly by my right hon. Friend the Leader of the Opposition the other day, but there is no reason why they should not be restated, because I think that hon. Members opposite have omitted to deal with them.

The first of them is this. The payroll tax is to operate uniformly all over the country, just as the stipulation about special deposits from the banks is to operate evenly all over the country. No distinction is to be made between advances in a depressed area, and other advances, just as in this case the payroll tax is to be imposed irrespective of the state of employment in the area in question. It is imposed irrespective of the industry, but, subject to the point that was made by the Economic Secretary just now, that it could be done category by category within the Ministry of Labour descriptions. We shall have to follow that out in Committee.

I would simply say that it seems to me extremely unlikely that anything of that sort can be made sufficiently flexible by that particular distinction. I am glad that the Government recognise the weakness of their own instrument by trying to provide for the possibility of doing that, but I think it is a most difficult thing to do.

As for the regional aspect, unemployment in this country now is very largely a local phenomenon and it is very bad indeed in many parts of the country. It would be a terrible thing if, because of some misconception of national necessity, the Government thought that this payroll tax should be imposed, and that it should be imposed, say, in Scotland at the same time as it was imposed in the Midlands.

Mr. Christopher Chataway (Lewisham, North)

Does the hon. and learned Gentleman oppose other incentives to investment for the same reason? An investment allowance or increased depreciation allowance would equally encourage the substitution of machinery for manpower. Would he be opposed to that being applied all over the country?

Mr. Mitchison

I am grateful to the hon. Gentleman. I shall make some suggestions about investment allowances, but they do not seem to me to raise this question. Perhaps when the hon. Gentleman has heard what I have to say he will find that he agrees with me in that respect.

Let me go on with this local question. What is the other reason for it? We have had references to the mobility of labour. We have had today something of the sort from the Economic Secretary. He said that this would encourage people to jump about from one part of the country, or from one industry, to another. This should be considered. The reason a man does not move out of an area of unemployment into an area of employment nowadays is only too often that he cannot find a house to move into.

The Government, when they talk about the mobility of labour, have only themselves to blame if the present position is that council housing has been cut by the Government to such an extent that people are being forced to buy their houses and are to that extent tied to the place where they are working at the time. That has been the policy of the Government year after year, and it still is. In the course of the last five years they have succeeded in halving the rate of council housing, and, at the same time, they have pushed up the rate of building private houses for sale. That is all very well, but it is the worst possible way to encourage the mobility of labour.

As to the transfer from one industry to another, there I agree that the matter depends very largely on the employers in the receiving industry taking proper steps, if it is a case of skilled labour, to get apprentices and to deal with them in a way which we should all wish they did, but which, in fact, they have not succeeded in doing. It is, therefore, no easy matter, and there are other obstacles to the mobility of labour.

Turning to the tax itself, this is a rather remarkable sort of tax in this instance as between one person and another and one industry and another. If, in fact, anything of this sort were to be done by an employer—that is to say, if he contemplated taking special steps to keep workmen and pay more for the purpose—I am certain that it would only have been introduced after very careful consultation with the trade unions concerned. No doubt, the right hon. and learned Gentleman has done something of the sort, but I should like to know what consultation there has been, or is to be, with the trade unions on this question of the payroll tax. It seems to me a most dangerous instrument in the hands of the Government.

Curiously enough, yesterday the Evening Standard came out with an article called "How tough are the Chancellor's new weapons?", with a portrait of the Chancellor at the side to make quite clear whom they meant. The article said: Smaller businesses will quickly find a way around it. As one businessman said to me today: 'We can always come to an agreement with employees. Some would gladly pay 4s. a week out of their own pocket for a while rather than face dismissal.' Is that what the Government contend should be done? I do not know whether this conversation ever actually took place, but it clearly represents the ideas of someone or another about what is likely to happen. It does not seem to me at all an improbable consequence. Do the Government say that that kind of thing is, from their point of view desirable, that to get round it in that way is to the national advantage?

I turn from that to the second form of regulator. The second form of regulator is to impose an increase or to allow a decrease on all Revenue Customs Duties and on Purchase Tax. There is, of course, always the blissful prospect that beer may suddenly become cheaper in the national interest, but it sounds as if it is more likely to be more expensive in the national interest. The same goes for whisky and other things, but, leaving those controversial drinks aside for the minute, what about the general Revenue Duties? What is the position about all those in relation to G.A.T.T.?

As I understand it, the position is that, at the moment, there are conversations going on, particularly with the Six, with a view to freeing trade. Indeed, the right hon. and learned Gentleman mentioned in the course of his speech that this was one of the things he wanted—a reduction of tariffs. Hitherto, there have been certain Customs Duties which have been bound for periods of three years at a time—not changeable—and the last of these periods expired, I believe, towards the end of last year. We know that, at the moment, there are conversations about that going on. Are these duties in any circumstances to be capable of alteration by the regulator—the duties which have been bound in past years and the duties which may be bound in future?

To put the matter very shortly indeed, how can the right hon. and learned Gentleman go into these international negotiations, which are, after all, of very considerable importance, holding in his hand at the same time a weapon of the character of this regulator? If he is to tell us that they cannot conceivably apply to any duties with which G.A.T.T. is concerned, it seems to me that the scope of the discussions in G.A.T.T. will be a great deal narrower than it appears to be. All I know about it at present is gained from a leader which appeared in The Times on 28th February, which purported to give a summary of the present position. It is, to say the least of it, a remarkable idea to introduce this regulator just at the moment when these discussions appear to be at a very critical stage indeed.

Mr. Alan Green (Preston, South)

It is possible that the hon. and learned Gentleman is overlooking some words which the Chancellor used in his Budget speech, when he said: Protective and anti-dumping duties, where quite different considerations apply and international obligations are involved, will be excluded."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 807.]

Mr. Mitchison

I had noticed what the hon. Member mentions, and I had also noticed the Chancellor's use of the words "Revenue duties" in this connection. Unless I have misread the scope of these negotiations, they seem to me to go a great deal beyond protective and antidumping duties, and the hon. Member will no doubt recollect that if there is to be a question of the abandonment of any duty, there have to be compensating provisions under the Agreement. My view of the matter—and I want to be corrected if I am wrong, and I therefore ask the Financial Secretary to the Treasury to tell us about that when he addresses the House—is this. Is there any possible connection between the duties which are to be the subject of the regulator and those which either are or may be within the scope of the G.A.T.T. negotiations. If so, what has he to tell us about them?

I turn from these two points to say a word or two about the Budget as a whole. It seems to me a most inadequate budget for the purposes which the right hon. and learned Gentleman has in mind. It contains nothing that, so far as I can judge, is going to be of the least use in promoting our export trade, by comparison with the home market, in which the right hon. and learned Gentleman, no doubt for some reason, finds a certain menace. There is nothing. When we look at the particular measures, one wonders even more. Take Profits Tax, for instance. I can see the point of the increase in the Profits Tax, but if we were to make it for some useful purpose, surely what we want is to provide for investment by having a different rate of Profits Tax for distributed and undistributed profits. But that is not what is being done. We are now back on the one rate, it is applied to bodies like the co-operative movement, and the increased rate of Profits Tax does not differentiate, as we used to do, between the invested and the distributed part of the profits.

Again, we are told that a capital gains tax is impossible. I say at once that I should look at the Surtax concessions differently—I do not say that I could accept them, but I would look at them differently—if they were accompanied by a capital gains tax. We were told by one hon. Member yesterday that shares have not gone up very much lately. That, surely, is missing the whole point. Let us take the case which my right hon. Friend referred to, that of a gentleman called Mr. Joseph Gold, who offered on the Stock Exchange a comparatively small part of a property company in which he held, and so far as I know still holds, two-thirds of the shares. He offered 4s. shares at 14s., which was no doubt what he thought they were worth. Within a day or a couple of days, they doubled in value on the Stock Exchange, and a man who was, at the time of the offer, a millionaire, became a double millionaire in consequence.

Is not that something that ought to be taxed? Ought we not to tax that before we start to levy a poll tax on the grounds that the National Health Service costs too much? Ought we not to tax that before we refuse practically any concessions to people like the invalids, the old and so forth? Not a word about additional Income Tax reliefs. We are told that more money is required. Surely, capital gains of that character are the right place to get it? In that case, the gains depends upon what has been happening about land, and if I were the Chancellor it is land and the value of land at which I should look as a taxable object in this country at present.

What has happened is that this Government have got rid of the betterment and compensation provisions in the 1947 Town and Country Planning Act. They are obliging local authorities to pay full compensation. I see the point of that, but they have made no provision whatever for allowing the local authorities to get any proper betterment in return, and the result is that land is shooting up in value all over the country and the local authorities themselves are being made to pay more. We are having quick and feverish rises in the prices of building sites and in the prices of buildings in the centres of towns, and none of this is being touched for the purposes of taxation by the Government. If we ask what are they going to do now, when they have provided for full compensation, what about the other side of the picture, what about betterment, no answer is forthcoming?

I say that if, in fact, that has happened, it is up to the Government, unless, I suggest, they intend to continue this monstrous injustice about land, to find means of providing that the appreciation of land values should be taxed. It is a glaring instance of capital gains. The Uthwatt Committee suggested that it should be taxed, and the Minority Report of the Royal Commission on Taxation also suggested that it should be taxed, and I take that as the most obvious instance at the moment. It is land and property shares which have been the main obstacle in this matter.

I have not dealt and I have not tried to deal with all the points which one has in mind in connection with the Budget, but I would sum up like this. A capital gains tax at present is certainly called for, and, in addition to that, if we are to deal properly with exports, shall have to have, in addition to present provisions, something extra in two directions. First, I suggest that we must have discriminatory investment allowances. We must have allowances which will vary with the national importance of the project in which the investment is being made. We have suggested that in one Finance Bill after another, and everything happening at present confirms my view that something of the sort is inevitable in the long run and it ought to be tackled now.

What has happened about land has called attention to the need for some form of planning. Planning in connection with land and in connection with industrial sites ought to go further than it has gone at present and it ought to be directed to promoting the export trade and the interests of exporters. I do not believe that the planning of industrial buildings will be as useful as it might be so long as industrial development certificates are confined to factories and not required for offices.

I throw out these suggestions because it has been said from the other side of the Committee that, when we criticise this, that and the other, we make no suggestions. It is not our business to do so. But everything in this Budget is so inadequate and so unsuitable for the condition of the country as the right hon. and learned Gentleman himself has diagnosed it that we are bound to say something. I go further and I say that, if ever there was a Budget which reeked of social injustice, this is that Budget. To follow the poll tax and what was done about the Health Service by making at this time, in the country's present difficulties, the concessions the Chancellor has made to Surtax payers seems to me to misunderstand the proper duties of Government.

It is not the duty of the Government continually to favour privilege. It is not the duty of the Government continually to remit to the rich and to deny to the poor. Yet that, in effect, is Tory philosophy at present, and that is the sense and thought of this Budget.

Mr. Dan Jones (Burnley)

On a point of order, Mr. Hoy. Very many hon. Members who have sat in the Committee for three days now are anxious to make a contribution. Am I in order in requesting that hon. Members should contain their speeches within a maximum time of twenty minutes?

The Temporary Chairman

No, it is not in order to do so, but since so many hon. Members would like to take part in the debate, I think that the whole Committee would be grateful if those who speak would shorten their speeches somewhat.

5.21 p.m.

Mr. R. Gresham Cooke (Twickenham)

We are grateful for what you have said, Mr. Hoy, particularly since five hon. Members on the other side of the Committee took 150 minutes between them yesterday.

Mr. Mitchison

I do not want to take up further time, but may I say that if I did take too long I am really sorry. I am apt to do so, and I may have done it. I apologise.

Mr. Gresham Cooke

No, I was not blaming the hon. and learned Member for Kettering (Mr. Mitchison). I was remarking about something which happened yesterday. However, I will say to the hon. and learned Member that I hope he appreciates that we on this side gave him a very fair hearing today although he said some very rude things about the Chancellor and about the Budget. We gave him a much better hearing than was given to my hon. Friend the Economic Secretary. [HON. MEMBERS: "It was a better speech."] It seems that when the Economic Secretary brings out a few facts they are not listened to in silence or in the way that we listen to such things on this side of the Committee.

The hon. and learned Member for Kettering took up the cry which, no doubt, will be reiterated throughout the country. He tried to link the National Health Service contributions with the Surtax remissions. [HON. MEMBERS: "Hear, hear."] The National Health Service changes come in straight away, and the Surtax remissions do not come in until 1963. The two things are totally different.

Mr. John Diamond (Gloucester) rose—

Mr. Gresham Cooke

I must ask the hon. Member to forgive me. I have quite a lot to say, and I do not wish to waste time.

The hon. and learned Member tried to show also that there is no disincentive in the Surtax at its present level. He himself spoke about the non-mobility of labour and the working man being tied to his post. The executive is just as tied to his home in a residential area today because of the very small attraction there is to him in moving from one job to another, since the additional amount of pay hardly meets the cost of putting up his curtains in his new house. This will be put right by the remissions.

I wish to draw attention to the position of the Chancellor in Parliament. It always seems to me that the Chancellor is like a man trying to sail a boat in a fluctuating wind across a heavy tide. The fluctuating wind of economic forces makes him alter course from time to time. The heavy tide which moves him sideways is the tide of Parliamentary opinion as expressed particularly in Questions. One has only to listen for a few days in the House of Commons to hear demands for more pensions, more education, more this and more that. I suppose that we shall hear demands for space research soon. All these demands force the Chancellor each year to increase his expenditure.

Only three years ago, the Chancellor faced a Budget of £5,500 million. Today, my right hon. and learned Friend faces a Budget of £6,500 million. The Chancellor, of course, is the apex of our financial system, but nevertheless his actions are really the result of the forces brought to bear upon him by the whole country and by the House in particular. If the demand for expenditure is very heavy, taxation goes up, as it does today. If the export effort is weak, the Chancellor's position vis-à-vis other countries in the balance of payments is weak.

Will this additional public expenditure and high taxation go into costs in industry? That is the pertinent question we have to ask ourselves. We are, I think, very fortunate in this country in two ways: first, in not having a turnover tax, as some countries have, a tax on everything which goes straight away into costs; and second, in not having such heavy social security charges as are levied on industry in, to take two examples, France and Germany. In the last ten years, we have had to face a rise in expenditure and taxation from £3,600 million to £6,500 million this year. Taking central Government expenditure with local government expenditure, our total national public expenditure today represents over 30 per cent. of the national income.

The Financial Secretary to the Treasury (Sir Edward Boyle)

I thought I understood my hon. Friend to say that the Government were spending £6,500 million this year. They are budgeting in tax for between £6,400 million and £6,500 million, but total Government expenditure will be £6,002 million.

Mr. Gresham Cooke

I am much obliged to my hon. Friend. That agrees with the point I make, and I quite accept that it is total tax which is nearly £6,500 million. The point still remains that the total tax added to the local rates means that we have an overall taxable total of over £7,000 million, which is more than 30 per cent. of the national income today.

Does tax go into costs, and does it affect our export prices? Obviously, the fuel tax, the petrol tax and the diesel oil tax and all the rest of direct charges go straight into costs, and so does the increased employers contribution for the National Health Service. Indirect taxes go into costs to the extent that they affect the standard of living. For instance, if there is an additional tax on cigarettes, this affects the standard of living which, in course of time, affects wage rates because so many wage rates are tied to the standard of living. Thus, the total amount paid in salaries in the last ten years has gone up by 100 per cent., although, of course, many more people have shared in the increase in salaries. But that has been brought about by an over-high rate of Surtax, because some companies have tried to compensate the executive to bring his salary back into some relation with what he got before the war. It is extraordinary but nevertheless a fact that the salary of Dr. Beeching, which is looked upon by so many people as being a fantastic sum, is actually equivalent—having regard to tax and the fall in the value of money—to a pre-war salary of £3,500.

Mr. Loughlin

But he gets £1,700 free of tax.

Mr. Mitchison

Was it taxed before or after the Budget?

Mr. Gresham Cooke

High Income Tax and high Profits Tax, in my view, tend to make industrialists want to push up their rate of profit slightly in order to take care of the higher tax and, therefore, industry generally tends to push up prices. So while I am quite sure that this Budget will damp down claims for higher salaries in the Surtax ranges, through the remissions which have been given, there will be a tendency to push up prices—[HON. MEMBERS: "Hear, hear."]—marginally, yes—through the extra Profits Tax.

A company which has a profit of £300,000 and will now have to pay additional Profits Tax of £7,500 a year will try to find that in some way or other, and, I think, will tend to try to push up prices somewhat. So I ask whether heavy taxation is one of the factors which tend to make our exports sluggish.

I should like my hon. Friend the Economic Secretary to initiate a survey within the Treasury during this year to find out to what extent our tax burden of £6,500 million a year goes into the costs of industry. It would be an interesting exercise, and we could use the knowledge acquired when making our judgment of the position for next year.

This brings me to the subject of the two new economic regulators. I am in favour of a possible 10 per cent. on Purchase Tax and Excise Duty, but I cannot say that I am in favour of the payroll tax. It seems to me that it will be an addition to costs without being an inducement to manufacturers to make their labour more mobile. Take the example of the motor industry. In the last three or four months it has been going through a very difficult period, but in the knowledge that probably things would improve by about February. I cannot believe that, for the sake of the extra 4s., firms would wish to get rid of men for whom they knew they would have employment again in the future.

I should like sincerely to congratulate the Chancellor on his efforts to amalgamate Income Tax and Surtax into one scale. I think that must come. It would be an advantage to the Treasury to have Surtax under P.A.Y.E. with a quicker collection, in the some way as Income Tax is collected. I consider that a heavy rate of Surtax is inflationary. Many Surtax payers do not save the money they ought to over the summer months, and on 1st January they disinvest savings or capital in order to meet payments due in January, February and March. It might be possible to bring Surtax under the same code arrangements as P.A.Y.E. The taxpayer could agree a provisional code number with the Inland Revenue officials. I am glad that the Chancellor is assimilating the rules of Income Tax and Surtax, and in that connection some useful suggestions were made in a leading article in the Economist this week.

The most serious task facing the nation this year is undoubtedly the need to increase exports. The hon. Member for Kettering referred to our failure to increase our exports as fast as other nations, but we must not lose sight of the fact that our exports are increasing year by year and have done over the last few years. Every great nation is increasing its exports, but we are not doing so as fast as many, including Ger- many and Japan. On the other hand, in the last five years our exports have increased faster than those of the United States of America. The older countries have not increased their exports as fast as the modern ones. We all agree that there is a great deal to do. I wish to advance four or five reasons why we are being held back in the matter of exports, and I wish also to make some suggestions about how the position may be remedied.

The first disadvantage is our geography and our language. The Common Market has been going forward with exports faster than any area in the world. If a Dutch businessman, sitting at his desk, wants a new machine or a parcel of goods, or a spare part, very quickly, he has only to ring up a German factory where the requirement is put on a lorry that night and will be in the businessman's factory the next morning. What is the position between Holland and ourselves? The businessman would ring up a manufacturer in the Midlands who would send the consignment to Harwich. It would stay there a day and then be put on the ship where it would remain for another day. It would be unloaded at the Hook and then it would have to be delivered to the businessman. It would, in all, take about four days. I think the most practical thing we could do to get over the woeful deficiencies in our communications with the Continent would be to allow the enterprisers of the Channel tunnel to go ahead. I do not think that would cost us anything. There might be a guarantee called for, but no expenditure. It would be the best link we could make with the Continent and would improve our exports.

Then, of course, there is our language. It is all right in America and in certain other parts of the world, but it certainly makes for difficulties in Europe. In my view, every sales executive ought to learn two foreign languages. If he cares to answer this point when he replies to the debate, perhaps my hon. Friend the Economic Secretary will make clear that the cost of learning a language, if it is paid by a company, is a charge which can be set against tax—the cost of sending an executive to a language school.

We must make more use of our scientific and engineering graduates. Yesterday, the right hon. Member for Huyton (Mr. H. Wilson) quoted some figures about the machine tool industry which I will not deny. The 90 leading companies in the machine tool industry have between them only 25 engineering graduates. While the percentage of draughtsmen in the machine tool industry in Germany is 6.6 per cent. of the total personnel and in Switzerland it is 7.2 per cent. of the total personnel, in the United Kingdom the figure is only 3 per cent. We must make more use of our technical ability. Having been interested in the matter, I think that one of the reasons why we could not over the last few years make a car as successful as the Volkswagen is because the foundry practice in this country for casting an air-cooled engine was not good enough five or ten years ago. We have a long way to go in some matters.

If possible, we must improve our links with the Common Market. The stumbling blocks have been agriculture and horticulture. I was impressed recently by being told by a farmer who specialises in beef and corn that he had got his costs down to a stage where he was fully competitive with France and Germany, and so he did not mind whether this country went into the Common Market. I think that a useful augury.

Top management mainly works very hard in this country, but we cannot be sure about all top management. Some executives must get up a bit earlier in the morning. When I go to Germany I am always amazed to find that one can pick up the telephone at 8 o'clock or 8.30 in the morning and be sure of contacting the managing director at his works. Recently my daughter travelled across America and stayed with the families of American executives. She told me that the executives are in their offices by 8.30 in the morning and seldom leave before 6.30 in the evening. They take their lunch in the office.

I know that in the North of England most executives get to the office at 9 o'clock, but there are too many in London who do not get there very much before 10 o'clock. I know that because I have seen some of them on Woking Station at 9 o'clock. However, I think the Surtax remission will encourage the younger executives to get on and get up a little earlier—

Mr. Loughlin

Give them alarum clocks. It would be cheaper.

Mr. Gresham Cooke

—because they will have more chance of saving instead of paying out to the Special Commissioners.

Coming back to my previous point, I do ask the Economic Secretary whether the influence which high taxation has had has been one to make our exports sluggish over the past five years, because if that is so we really have not got to take on any other commitments like space research at the present time, particularly as I read in the papers that the space rocket programme of the Russians is costing the equivalent of the whole of our defence programme at present.

This is not a crisis Budget as was hinted at by the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) in his article in the Financial Times last Monday. It is not a crisis Budget at all. But if we want to take our proper place in the world we have to show more aggression and more energy in world markets. If, on the other hand, we want to enjoy the slow tempo of England and our long weekends the only answer will be for us to impose import controls and make ourselves a completely self-contained autarchy, and I think that would be very disastrous.

I congratulate the Chancellor of the Exchequer on his Surtax proposals, which will help our executives and, I hope, make them more energetic, but while for my part I have some doubts about our heavy commitments, I hope that the Treasury will not in 1961 to 1962 commit this country to any more expenditures which would mean an increase in the tax burden in the future.

5.42 p.m.

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

Before I come to the main part of my speech, let me through the Economic Secretary say to the Chancellor of the Exchequer that I saw a pensioner receiving treatment this morning in one of our largest pensioners' hospitals and the first fruits of one of the Chancellor's actions in the Budget, of his remitting taxation on the compensation which the pensioner is getting from Germany. It has made all the difference to that man. I congratulate the Chancellor on doing it.

It looks to me as though we have now entered a time when instead of arguing about the trade cycle we argue about the inflationary cycle. The facts come round year by year with almost monotonous regularity, and very often in the same way. We hear the story about our being at the bottom of the league, about safeguarding the £, the necessity to cut back consumer goods expenditure; we have hire-purchase restrictions brought in: and then, of course, on the other side of the medal, the easing of credit, the easing of hire-purchase restrictions, investment allowances and all the rest.

Nobody, in principle, disagrees, because these problems are understood by the majority of thinking people, and one can recognise the inflationary movement when one sees it—if, for instance, one is putting up a small extension, as I was towards the end of last year at my works. One day four bricklayers laying bricks, next day there is not a bricklayer on the site, and then one goes to the contractor and asks, "What has happened to the bricklayers?" He says, "Oh, a speculative builder up the road swiped them all. He has been down here and offered them 1s. 10d. an hour more and they have gone." That is inflation.

I have a friend who is a gamekeeper. His name is Joe. Every now and again I go up to the moor behind our house and I talk to him because he is an interesting chap. Gamekeepers very often are, you know.

Mr. Joseph Slater (Sedgefield)

Poachers.

Mr. Rhodes

Precisely.

On this occasion we stood with our elbows on the fence and just watched, and in between chewing grass he said, "I can tell thee quick as anybody when there is going to be a credit squeeze." I asked, "How do you make that out, Joe?" He said, "I am slick as Selwyn Lloyd in telling when there is a credit squeeze needed." I said, "Come on, tell me, Joe. I am wanting to know." So he said, "My pitch is watching this main road in the morning early and watching it at night, and I see busloads of workers coming out of Lancashire and busloads of workers coming out of Yorkshire, and they pass one another here. They are all going to do similar jobs, and it is quite obvious that manufacturers can do a bit of poaching, too." It struck me that he put his finger right on the button. There it was. All the waste that goes with a shortage of labour.

"Mobility of labour", the President of the Board of Trade says, "between firm and firm." Well, we have lost workers on our side who go over to the same kind of jobs in Yorkshire; and they lose people on their side who come over to our side to do the same kind of jobs; and for this situation the Government must accept some responsibility. They cannot claim credit for having spurred on the economy and done the job well at election time, as they do, without taking some of the blame. They have got to take a bit of the rough, too.

The Economic Secretary is a young chap whom we all like.

Mr. Loughlin

Speak for yourself.

Mr. Rhodes

Yes, he is a pleasant lad and has made a fair sort of try with the Tory Central Office brief this afternoon—it could not have come from the Treasury, or if it did I have a poorer opinion of the Treasury than I had before I started. But he makes a big mistake. Despite his efforts, despite his good humour and all the rest for which we like him, we on the back benches on this side of the Committee—and over there on the back benches, too—say to him that we regard anybody who calls into aid arguments from the economics pre-1951 as a second-class brain. I issue that as a friendly warning. It is agreed by pretty well everybody that that 1951 was a long time ago. I give the hon. Gentleman this word of advice as somebody who would be relinquishing his place in Parliament. I think that it will stand the hon. Gentleman in good stead when he is on his way to promotion if he drops such out of date arguments.

In November, 1958, hire-purchase controls were eased. The Prime Minister went to the Cotton Board conference and his explanation of Government policy and intention was so effective that £30 million were made available to the industry during that time. The incidence of hire purchase and the Bank Rate during the intervening months from November, 1958, up to the present, is interesting.

The banks went in for hire purchase immediately after it was obvious that there was money to be made in the hire purchase field. Personal loans were given. There was a time when it was possible for a man living in my village to leave his work, go to Coventry, walk into a bank there where he was not known and be able to obtain a loan of £300 without any security. That, at least, has now been changed, and the banks now give loans to regular customers only. But these were the sort of things which gave impetus to a gradual upsurge of activity in the production of all consumer goods and no one was very particular about whether they were needed or not.

The accent was put on cars. The President of the Board of Trade urged higher production and entry into the American market without giving any thought to the hard bargain he should have struck with the Americans when it came to the export of our woollen goods. It is high time that we got rid of this political chicanery and really got down to the facts and to the economic needs of the time. If an industry has one hand tied behind its back, as we have in our woollen industry in the American market, it is no use a Minister giving us a lecture, as the Economic Secretary did this afternoon, on how to improve export efficiency. We know damn well that the Americans have an arrangement with the Japanese. We know that it is these things that distort the economy.

Many people in this country have a vested interest in inflation. Can anyone deny that? If we look at the prices on the Stock Exchange and the yields against those prices, can we believe that there are not thousands of people who have an interest in inflation? Does not the land speculator have an interest in inflation? That point has been laboured sufficiently. The speculative builder has an interest in inflation, too, has he not?

Mr. Stratton Mills (Belfast, North)

Did the bricklayers have an interest in inflation?

Mr. Rhodes

Everybody has an interest in inflation. Does the fellow who has an interest in monopoly care two-pence about inflation? He can get round all these problems. Does the chap who has to do with a price maintenance product have an interest in inflation? On this subject of people who have a vested interest in the prices on the Stock Exchange, I should like the Economic Secretary to tell the Chancellor that working people now are intelligent enough to make their own assessment of a situation in which within twelve months prices on the Stock Exchange have doubled and their own wages have gone up by only 7½ per cent. We must take into account this element of their reaction before the Government start exhorting anybody or flagellating anybody in order to spur them on. There must be an accepted basis of agreement on social practice before we can move forward to a productivity we all so covertly desire.

Sir John Barlow (Middleton and Prestwich)

The hon. Member is quoting the value of shares on the Stock Exchange to make his point, but no doubt he saw the other day a pamphlet issued by the London Stock Exchange which showed that the total value of all shares and securities during the last year had been reduced slightly. They had not doubled in value as the hon. Member suggests.

Mr. Rhodes

All right. Let us make it eighteen months. It does not alter the validity of the argument.

Mr. Stratton Mills rose—

Mr. Rhodes

The hon. Member will have an opportunity to have a crack at me later on.

What about the people who are outside the privileged group that I have mentioned? Large stores perhaps have an interest in inflation, and perhaps those who have large stock inventories wish to keep up the state of inflation as well. The power of these people is terrific, but what about the other businesses who for a long time have been struggling along on low margins? What about them when they are faced with a Budget of this kind? Many of our industries, including the one in which I am engaged, have been on a competitive basis for a long time.

Let us consider the tax on fuel. I do not take it lightly. I do not accept it on the same basis as that of many of my colleagues. If it is virtuous at one time to conserve labour and how to use it economically to reduce costs so that we can compete in the world markets, it is equally right to consider it in the same way at other times. Last year we decided to install a completely automatic boiler plant. It is up-to-date. We were faced with the question of what fuel we should use, and we came down on the side of oil.

The price we pay for the commodity is £8 a ton. One penny a gallon means £1 a ton. So the Chancellor of the Exchequer has put £2 a ton on the price of oil. We have had an arrangement with a firm in Germany for the swapping of "know-how" preparatory to the Common Market. The firm is in almost the same line of business as ourselves, so perhaps at some time we can fit in together and come to an arrangement. The German firm in München-Gladbach in Western Germany pays £5 a ton for its oil.

Mr. Nicholas Ridley (Cirencester and Tewkesbury)

Is the hon. Gentleman aware that there is a 25 per cent. tax on that same German oil?

Mr. Rhodes

This man still pays £5. I have no argument whatever about the proposition Members on this side have advanced about the price of coal, but does not the example I have given show the ridiculous situation we are in and the kind of piecemeal effort that the Government makes? A fuel policy is wanted. Why should a manufacturer who has spent his life's savings on re-equipment be subject to this imposition by somebody coming to the Dispatch Box and raising the price of his fuel by £2 a ton?

This is the sort of thing the Government should be looking into, instead of thinking in terms of penalising our own manufacturers. The German wool firm imports wool from Australia, as we do. It may surprise the Economic Secretary, who has much homework to do before he will be really on top of that job, to learn that the German firm can get wool landed at its factory in München-Gladbach seven times cheaper than we can have wool unloaded in Manchester or Liverpool. The difficulty of getting ships to come into British ports enters into this. Knowledge of the mess there was in the London Docks last year has had its influence. I beg people who have any influence among working folks to put these economic facts before them, because it is their living. But above all there should be a fuel policy.

I come now to the payroll tax. When the Economic Secretary was on his feet I asked him what he would do about the Remploy factory. He had not a clue.

Mr. Barber

I stated at least three times very clearly what the powers of my right hon. and learned Friend would be as regards any form of discrimination between categories of employees. Therefore, as Remploy is not a category within the National Insurance Acts, it obviously cannot be considered distinct from any other employees.

Mr. Rhodes

That is the third reiteration of the evidence that the Ministers at least, whether the Treasury does or not, do not understand the implications of this tax. I say that categorically.

Mr. Barber

I want the Committee, particularly the hon. Gentleman, to understand this. If he will tell me what he does not understand about what I have said, I will do my best to clear it up, because I am genuinely trying to provide the answer.

Mr. Rhodes

I am sure that the Economic Secretary agrees that he has a long way to go. In support of this argument we have had the illustration of foreign countries, particularly France. I have diligently read P.E.P.'s book on this, which came out before last year's economic debate. My experience from visiting German, French and Italian factories is that, allied to a payroll tax, there is an element of relief by way of depreciation, Profits Tax or export performance. That is not new, but this payroll tax is new. The Economic Secretary will find that out sooner or later, because it is nothing but a penal tax.

In France depreciation is on a replacement basis. It is on the basis that if someone buys a machine now for £1,000 he is able to take into consideration in twelve months, two years, five years or ten years' time at his own will the replacement cost at the time, which with the inflationary trend we have experienced could well be £1,500 or £1,600.

An effort to stimulate the economy by a payroll tax is absolute and utter nonsense. The Treasury and the Ministers have not got down to the basic principles of what constitutes stimulation in terms of re-equipment. Re-equipment is thought out months and years in advance. If a manager is spending money, he ponders if it is to be on a vertical or horizontal basis and how much he can afford to spend. You cannot really influence policy by simply putting a tax of 4s. per week on all employees.

We think that this tax is penal. It will put prices up. What we want to do is to lower prices. I suggest the Economic Secretary should hold up this tax until he has given more thought to it. It should be held up until all its implications have been carefully studied. I ask the Government to consider whether there is anything in the method adopted in Italy of taxation on machines. I say this quite deliberately, because that method is employed and it is argued by many experts that a system of taxation on machines is much better than a pay roll tax.

I also suggest that the Economic Secretary asks his right hon. Friend the President of the Board of Trade to approach each industry for which the Board of Trade is responsible and ask it to give him a Report on how many work studies have already been made in each factory in each industry. Such an action will be far more profitable in the long run for exports than this pay roll tax. If the President of the Board of Trade did that, it would stimulate the work study movement throughout industry, which would be far preferable to bringing in a punitive weapon like the payroll tax.

Let the Economic Secretary compare this puerile spur to efficiency with the Russian method. We heard yesterday about the links which the Praesidium of the Supreme Soviet has with research in the Soviet Union. An item in the Guardian caught my eye this week. It stated that a man in Russia, after exhaustive tests, had found that if he planted grain he got four times better results than from sowing it. The Soviet Government has, therefore, issued a challenge to technologists in the Soviet Union to produce a machine, before the end of 1961, which will plant grain. Does anybody doubt that they will get such a machine? Of course they will.

I ask the Economic Secretary to pass these suggestions back to the President of the Board of Trade, and also to think more deeply about the payroll tax in relation to industries which are now on a competitive basis.

6.13 p.m.

Mrs. Margaret Thatcher (Finchley)

I feel in two minds about being asked to follow a man who has described his friendship with a gamekeeper, particularly as he described it in such graphic terms, using four and five letters words. Therefore, it might well be proper if I do not follow him too closely in his excursions to the Continent. I hope that he will forgive me if I do not follow his argument, but I have a number of points which I wish to make which have not been gone into in detail before in the debate.

First, I should like to deal with the question of a capital gains tax. My purpose is to make clear the extent to which the Inland Revenue already has powers to deal with speculators—powers which, I believe, are not fully used at present. These powers come under Case 1 of Schedule D, and it is settled law that a person who speculates in land is taxable as a dealer and not as an investor, so that the profit taken from the result of his annual transactions is liable to Income Tax.

When the first Royal Commission on Taxation of Profits and Income reported on this matter, in 1920, it was not then settled that a single isolated transaction by way of sale of land could be treated as a taxable transaction, but since that time it has been established that one isolated sale of land can be an adventure in the nature of trade, and can give rise to Income Tax in the ordinary way.

There is nothing to limit that principle to land. Indeed, it has been extended in many settled cases to include commodities. It has also been extended—this was decided by the Court of Appeal as far back as 1944—to where a person, in trying to sell land, endeavours to do so by way of putting that land into a separate company and selling the shares instead. The profit on the sale of shares is likewise taxable as an adventure in the nature of trade.

That was decided, in a judgment delivered by the then Master of the Rolls—my hon. Friend the Economic Secretary will be familiar with it—in the case of Associated London Properties v. Henriksen and that case has never, to my knowledge, been used again by the Inland Revenue. Many hon. Members who have professional contacts with tax matters must know that they have frequently advised, in certain tax schemes, that they depend on the fact that the Inland Revenue will not invoke that case.

I do not know why it has never been invoked, but the average person does not realise the extent of the powers which the Inland Revenue already possesses to tax speculators in land and shares. I do not believe that these powers are being used to the maximum. All that the Inland Revenue has to do is to raise an assessment, and it is the easiest thing in the world for a member of the Inland Revenue office to sign an assessment. It is not then up to the Revenue to prove that assessment; the onus is on the citizen to prove that the assessment is false. Thus, the Revenue has very extensive powers indeed.

My right hon. and learned Friend the Chancellor of the Exchequer made a small reference to these powers being extended to a greater extent in future. I welcome that, because it is the speculator in shares that we want to get at—the person who is making a business of buying and selling shares, not to hold them for their income producing properties, but to live on the profit which he makes from the transactions. That is the person most of us would like to get at, and I do not believe that there is need for any change in the law at the moment to enable us to do so.

Certain aspects of the revenue law were suspended for ten years on the directive of a former Chancellor, and this was called the "Chancellor's umbrella". If such a directive can result in the suspension of certain aspects of the revenue law for about ten years, then one hopes that a warning from the Chancellor would result in the Inland Revenue invoking the powers it already possesses.

Secondly, I hope that we are seeing the end of the period when succesive Chancellors seem to think that any reliefs they give in the Budget can be recouped by putting an increasing tax on company profits. This tax is about as high as it should be at the moment, and I find it a little ironic that, when companies are being asked to increase exports, they have an increasing Profits Tax, which means that they keep a decreasing amount of the results of the efforts they make in getting more export business.

At a time when they are asked to scrutinise expenses more closely, it is made less profitable for them to do so, because they retain a lesser amount of the result. At a time when they are being asked to carry out more investment in order to re-equip and install modern machinery, the resources out of which they have to do it are being depleted by increasing taxation. Last year, there was a 2½ per cent. increase in the Profits Tax, which has not yet been felt in full. Now, another 2½ per cent. has been added. In two years' time companies will be feeling the increase in taxation imposed in these last two years.

My right hon. and learned Friend and his successors should be warned that in future Budgets it is not right indefinitely to go on transferring the tax burden from individuals to companies. Companies appear to be the "Cinderellas".

Added to what the Chancellor does, in a few years companies will have to bear an increasing rate burden as rates are transferred to some extent from householders to industrial premises. I understand that companies will also have to take a large amount of the increase in tax on heavy oils.

These factors, I am certain, will ultimately increase prices. I think that over the last year, when profit margins have been squeezed, we have had a period in which companies have tried to take all the increases in costs without increasing their prices. They are now getting something which will clearly increase their prices, and they know that there will be an increase in consumer expenditure at the same time.

There is no point in tinkering about with prices. They will say, "If we are to increase them, let us increase them by an amount which will take into account not only the increase in taxes and costs which we have to bear, but those we are likely to have to face during the next twelve to eighteen months". That is a danger which arises from the Budget.

Thirdly, may I make one or two comments about the Chancellor's remarks about the structure of taxation. I welcome any simplification of the structure of the tax system, but I should like to take up one point which the hon. and learned Member for Kettering (Mr. Mitchison) made about Profits Tax. I do not think many people realise the tremendous simplification in Profits Tax which occurred when we went from the differential rate to the flat rate. Speaking as one who has a professional interest in tax matters, I say this, that the charging sections for the distribution charge which are inevitable if we have a differential rate of taxation are among the most complicated of the whole tax code. They give rise to more technical anomalies than any other section of tax law.

The moment we make tax legislation extremely complicated, highly technical, and highly anomalous, it gives rise to much scope for tax avoidance. If we want to avoid tax avoidance, we have a duty to try to make the charging sections as simple and as straightforward as possible.

The hon. and learned Member for Kettering quoted the Royal Commission's opinion on Surtax. I notice that he did not quote the Royal Commission on either the capital gains tax or Profits Tax, because they were contrary to his interests in that respect. I would be very much against changing back Profits Tax to a differential rate, and I think that it is right to retain the flat rate. It helps considerably in a simplified taxation of companies.

While I am on the question of the structure of taxation, may I gently encourage the Chancellor to battle as hard as he can with the Treasury. The reasons he gave for not amalgamating Income Tax and Surtax are strangely reminiscent of the reasons why P.A.Y.E. could not be introduced before, in fact, it was introduced. I believe that a memorandum exists in the Treasury setting out the reasons why it was impossible to introduce P.A.Y.E., the memorandum having been brought out about a year before the system was introduced.

As regards the modifications to double taxation, the necessity for one of them would not have arisen had it not been for the fact that we have our taxation in Schedule D of Case I and Case II profits on the preceding year basis. If we are going in for simplification in the structure of taxation, it seems to me that this would provide an excellent opportunity for the Chancellor to carry out the recommendations of the Royal Commission and change to the current year basis. It is a change which I would welcome and I hope that it will be undertaken.

I should like to make one or two comments about Government expenditure. Various hon. Members have quoted various figures without giving the sources, and I notice that the proportion of Government expenditure and Government taxation to gross national product appears to have varied during the debate from about 31 per cent. to 25 per cent. I had better give the source for my figures. It is one of the most interesting things in Budget and economic debates to try to deduce from what hon. Members say which periodicals they have been reading. I know that some hon. Members have read Lloyds Bank Review of April, 1961, because references have been made to the beginning and end of that publication, and some hon. Members have read the middle as well.

The figures given there relate to total Government expenditure at the national and at the local level. It compares total Government expenditure as thus defined to total gross national product at factor cost. The figures on page 4 show that Government expenditure has risen from 9 per cent. of the gross national product in 1890 to 42 per cent. in 1952, and was 37 per cent. in 1959. [Interruption.] The hon. Gentleman has obviously not read the periodical. The article, entitled "Past and Future Public Spending", is most interesting. It is written by Professor Peacock and Mr. Jack Wiseman. It is shortly to be published as a book—I have no interest in its publication.

Mr. Woodburn

When the hon. Lady talks about public expenditure, I take it that she means Government and local authority expenditure. It is still public expenditure if people spend it themselves instead of the Government. For instance, if the Health Service charges were transferred back to the people to spend, it would still be public expenditure.

Mrs. Thatcher

I defined what I meant. I accept that of the 37 per cent. a certain amount is not a charge on the annual output but is what one would call a form of transfer payment. Nevertheless, the Government have control of 37 per cent. of the expenditure of the total gross national product. It is extremely high, and it brings us to the heart of the problem, that we, as new hon. Members, cannot begin to tackle the burden of tax until we have some means better than we have at the moment of controlling the size of Government expenditure.

I believe that it is folly for any hon. Member to lead the public into believing that there will be a fall in the absolute figure of Government expenditure. There will not be. It is almost certainly bound to rise, if only because the welfare services are expanding, and, for another reason, that much of the expenditure has been on current account. There is a good deal of expenditure and replacement of capital account which needs to be caried out if existing services are to be maintained at their present level. We will not see a fall in the ordinary figure of Government expenditure, but we have to control it as a proportion of the gross national product.

I look forward to reading and debating the recommendations of the Plowden Committee when they are published. At present, the system of control of Government expenditure is very dangerous in that it gives all the appearance of control without the reality, and that is about the worst situation which one can possibly have, the theory being that there can be no new expenditure which has not been approved in an Estimate; no expenditure can be approved in a draft Estimate until it has been approved by the Treasury; and no increase in staff can be had in excess of an amount approved by the Treasury.

Those three things may be all very well in theory, but they do not lead to effective control of Government expenditure throughout the year, and until we manage to solve this problem of controlling the amount effectively by Parliament I do not think that we shall be able to devote our attention to considering how the burden is to be distributed as between one kind of taxation and another.

Finally, I want to refer to one or two miscellaneous points. I am grateful to the Chancellor for his reduction in Surtax, because it will help married women teachers who want to return to their profession, but I hope that in his overhaul of the structure of taxation he will assess the incomes of married women quite separately. I do not mean that he should make merely a technical assessment; there should be a separate charge. That would be far better than the method by which he chooses to proceed at the moment.

European countries are absolutely unanimous in feeling that we are the hardest of all in our treatment of the wife who goes out to work, especially the wife in the middle-class income group who does so. When we find it unanimously expressed that we lag behind Europe in a certain respect special attention ought to be given to the matter by the Chancellor.

I thank my right hon. and learned Friend, on behalf of many of my constituents, for granting relief from tax in relation to the compensation given by the Germans to the victims of Nazi persecution. I have had a great deal of correspondence about this, and I know that this concession will help many of those victims who live in my constituency.

I look forward with even more eagerness to my right hon. and learned Friend's next Budget, when we shall get the result of all that he has undertaken to do in the present one, and I wish him well throughout the many battles that he will have in the process with his Treasury advisers.

6.31 p.m.

Mr. J. Idwal Jones (Wrexham)

I listened with interest to the speech of the hon. Lady the Member for Finchley (Mrs. Thatcher), which was very well informed, but I hope that she will pardon me if I do not follow her arguments. I want to describe to the Committee the impressions left on me when I listened to the Chancellor on Monday. There were moments in his speech when we all thought that we were being led up to a new and imaginative departure in Government policy: we thought that we could glean a definite and welcome change in policy. But, like the grand old Duke of York, he marched us half way up the hill and then suddenly marched us down again.

I should qualify that remark by saying that the opposite process applied to those on the Government benches. He led them halfway down the hill at first, and how very glum were their faces then! But then he suddenly marched them back again to the top, much to their glee. His performance was a masterpiece of strategy. The glum faces of hon. Members opposite were suddenly transfigured by gleams of profound satisfaction. The whole speech added up to being the greatest class Budget of modern times. In fairness to the Chancellor, it must be said that his was a very brave and courageous speech. Who but a brave Chancellor would have dared to hand over £83 million to the highest earners only a few weeks after the Government had raised Health Service charges by £65 million? It was bravery, nevertheless, debased to brazenness, and courage reduced to outrage.

The crux of the problem is our balance of payments. This the Chancellor glossed over beautifully, as is admitted by hon. Members on both sides of the Committee, although 1960 was our worse balance of payments year for the last decade. The Chancellor skated skilfully over the subject, like a master performer, but he offered no solution of the problem. So the problem remains, and it will remain until the question is faced from the point of view of production. The facts of the situation are admitted by all. To meet our obligations we require a surplus of £450 million a year, earned through goods and services. The year 1959 was a good one. We are told that our surplus was then £51 million, which is only one-ninth of our recognised requirements if we are to have a safe basis to our economy.

In 1960, we had a deficit of £344 million. In other words—this is a striking fact—we were £800 million short of our requirements. What followed? We were saved by borrowing. We borrowed heavily through Bank Rate manipulations. Hot money, easily attracted, came into the country, but that hot money can easily be attracted elsewhere. Those facts are known to all.

The stark truth which has to be faced is that this nation has become utterly dependent on the short-term borrowing of hundreds of millions of pounds a year. Do not let us delude ourselves; the big concessions made to a mixed crowd of about 300,000 Surtax payers is no answer to the problem of production and productivity. Unless the answer is found we shall be faced, with the same problem a year hence, perhaps in a more acute form.

Many years ago I came to the conclusion that the Government are working to preconceived but false ideas. I refer in the first instance to the doctrinaire attitude about wages displayed by hon. Members opposite. On Monday, the Chancellor stated that The rise in personal consumption must be restrained"—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 801.] What he meant, in practice—and what other hon. Members opposite mean when they say this—is that the personal consumption of the wage-earning class must be restrained. We are familiar with that argument. The President of the Board of Trade expressed it on 7th February, 1961, when he said: if we allow demand to expand, the home market gets too strong, incomes rise faster than output, prices rise, imports rise, and exports fall". The hon. Member for Dorset, South (Viscount Hinchingbrooke) expounded the same argument. He said: The trade unions are now the greatest engines of inflation that exist in our society…The trade unions alone are rogue elephants in our society. They are absolutely uncontrolled…they create money out of nothing."—[OFFICIAL REPORT, 7th February, 1961; Vol. 634, c. 286–340.] The hon. Member instanced the case of the National Union of Agricultural Workers, forgetful of the fact that the maximum wage of its members is only £8 9s. a week. It is time that we got this picture clear and in its true perspective. It is no use adding together the various wages and incomes of different groups and then finding the average. That average obviously cannot be the correct figure for the lowest or the highest paid members of our community. Yet, when the lower income groups seek increases it is the average which is presented to us as a reason for resisting their claims.

People who receive £8 9s. a week, such as agricultural workers, or bus workers, and railway workers, who are getting £10 a week, are all told, when they ask for 10s. a week extra, that they are threatening our economy. We are reminded of the danger of inflation, and that our balance of payments would be in jeopardy if these claims were met.

I am heartily tired of that argument. There are other inflationary pressures at work in this country and there are other sources of revenue, about which the Chancellor had very little to say on Monday afternoon. He never admitted to the inflationary tendency of the handout to Surtax payers—to the people who spend not upon necessities or near-necessities, but upon luxury goods which could very well be exported, to the good of this country.

I will give examples of investments of which I read recently. An investor who invested £120 in 1952 in Jaguar cars is now worth £3,300, or twenty-seven times as much in nine years, without having put a single additional penny into his original investment. An investor who invested £250 in the British Assets Trust in 1952 is now worth £1,500, or six times as much, without investing a single additional penny in his investment. An investor who invested £400 in Glaxo in 1952 is now worth £4,000, or ten times the original value. There is not much evidence of sweat and blood in that type of gain. These people do not spend their gains on necessities, or near-necessities, but on luxury goods which could very well have gone to the export trade.

We hear the oft-repeated argument that an increase in wages will bring pressure to bear in the home market and our economic position will be brought into jeopardy. At the same time, there is the sickening spectacle of our Clores and our Cottons, hovering like hawks ready to swoop down on their prey. It is a frightening thought that two or three financiers can juggle with scores of millions of pounds, seeking to reap their millions of tax free gains, when the country is unable to balance its trade accounts.

Mrs. Thatcher

What makes the hon. Gentleman think that the gentlemen whom he has mentioned were not, in fact, taxed on their gains as dealers?

Mr. Jones

That is the general impression. Although our economy is sick, it does occasionally rally to make a small balance, but as soon as it rallies a little it is subjected to a lethargic inoculation. We know what that is. It is high interest rates which stupefy, but, by some strange alchemy, that which stupefies the economy is tonic to the financiers of the world. It is true that the economy is sick, but it is a sickness inherent in our economy—the sickness of an acquisitive society.

I now come to the payroll tax. This is a new departure which has obviously not been carefully considered nor enthusiastically received by hon. Members. The hon. Member for Eastleigh (Mr. D. Price), in his speech yesterday, could give it only qualified support. He said: I think that we will need to know a little about it in detail."—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 1105.] When the President of the Board of Trade spoke on this question all that he could say was that he thought that it was a good idea. It seemed to him to be a good idea. He said: This is the argument for a payroll tax and it seems to me to be a good one. The right hon. Gentleman thinks that it will be a good idea. It seems to him to be a good idea. He is not absolutely certain, and the Committee and the country have a right to expect Ministers to be absolutely convinced themselves that their policy is right before they embark upon a new departure in policy.

The objects of the payroll tax are several. There is the question of revenue. The Chancellor may, if he desires, raise additional revenue to the extent of £200 million. Is there anyone in the Committee who does not believe that this 4s. payroll tax will not be passed on to the consumer? Is not that the line of least resistance for the industrialists? Are we so naive as not to believe that this is exactly what will happen?

Then there is the other avowed purpose of the proposal—to provide an incentive to the industrialist to capitalise his industry and make it less labour intensive and more capital intensive. It was in this connection that I heard the President of the Board of Trade using an expression which I had not heard for many years. It was: …our scarcest commodity is labour,…"—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 1008.] Labour is a commodity—to be bought and sold, moved about and dispensed with. Marx would have rejoiced to see the Tory President of the Board of Trade sitting in the gallery of prophets. If labour is our scarcest commodity, why quibble when it asks for a better price? But labour is not a commodity. I am on these benches because I have always believed that labour is not a commodity. It is a human being with family attachments and with social and community roots.

Direction of industry? No. There is not an hon. Member opposite who believes in the direction of industry. Industry must not be directed. Industry may be persuaded, but it must not be directed in this land of freedom. That is why the Distribution of Industry Act, one of the finest pieces of legislation that this country has ever had in the economic field, has been nullified by the Government. They do not believe in the direction of industry.

But labour—here is a treasured commodity to be moved about. The Government's policy is to give incentives to the industrialists to dispense with labour, so that through the play of economic forces it can be directed to where it is most wanted and where it will provide the greatest gain to the industrialist. What does it matter if families are pulled up by their roots and communities in certain of our semi-industrial areas, in the Principality of Wales, to take an example, are weakened beyond repair?

Comparisons with other Western nations are inevitable, and when we are making comparisons with other nations we do not come out favourably. It was the Chancellor who, on 6th February, said: Germany's exports, have more than doubled; the United Kingdom's have gone up by about a quarter…."—[OFFICIAL REPORT, 6th February, 1961; Vol. 634. c. 57.] Fifteen years ago that country lay in ashes. Her factories were razed to the ground, her people had to be fed according to the calculated amount of calories available. And yet our country, with no industrial centre further removed from the seaboard than 50 miles, has been allowed to fall seriously behind a country which, fifteen years ago, was reeling before the devastating blow of the most crushing defeat in history. What an indictment of ten years of Tory rule. And yet we are asked to believe that Surtax concessions will help to solve the problem.

In February, the President of the Board of Trade said that the Government had freed the economy at home. That is exactly what the Government have not done. The country is in the clutches of foreign financiers and we have virtually lost sovereign control over our economy. Were it not so, there would be no dilemma today between our finances and our production. What the Chancellor said on Monday offered little hope of restoring the sovereignty of our economy.

6.50 p.m.

Mr. Julian Ridsdale (Harwich)

The hon. Member for Wrexham (Mr. Idwal Jones) has had some interesting things to say about production, productivity and wages, but it is unfair of him to blame the Government alone for our export performance in comparison with Germany. This was a comparison which the hon. and learned Member for Kettering (Mr. Mitchison) also made.

It is right to recognise that costs are a vital matter in exports. There is no doubt that Germany has been helped in her exports by the moderation of the demands of the trade unions, perhaps because they have memories of what inflation would mean if it were to return. Let us also be fair, however, and realise that West Germany has had, too, a constant pool of labour coming in from East Germany, which has kept labour costs competitive.

Mr. Bruce Millan (Glasgow, Craigton)

I wonder whether the hon. Member knows that in the last two or three years, at the very least, German wages have risen more rapidly than wages in this country. That argument, therefore, no longer holds.

Mr. Ridsdale

The Germans have been able to pay more wages now because of the greater investment and savings which they have made and, therefore, the greater productivity that they have achieved.

The worst of speaking in a Budget debate is that what one says is judged not only now, but in a year's time when one comes to make one's next speech and turns back to see what was said a year ago. No doubt the success of my right hon. and learned Friend the Chancellor's Budget will be judged not now, but in a year's time, when we see the effect which it has had on the balance of payments in 1962.

Given that American trade is taking a turn for the better, that we are able to make good use of the considerable investment that we have been making in our manufacturing industry and that the country lives up to the responsibilities of full employment in a free society, we have a good chance of improving what, we must frankly admit, is an awkward situation, to say the least. The key depends upon whether the country will live up to the responsibilities of full employment in a free society and whether we can keep cost inflation, which threatens us, under control. My hon. Friend the Economic Secretary had some serious words to say about this in opening the debate this afternoon.

The background to the Budget is one of prosperity, and not adversity, for the country. Prosperity, however, is not without its fears and doubts, as adversity is not without its hopes and comforts. It is of these fears and doubts against the background of a prosperous, fully-employed United Kingdom that I largely wish to speak this evening, but against the background, also, of a country in which personal savings last year increased by £450 million and in which there was a rapid rise of total investment in 1960, with total fixed investment about 8 per cent. above the previous year, with manufacturing industry leading the way and with stocks increasing by £600 million, although I am not certain how much of these stocks included unsold durable goods.

There is no doubt that never before in our history have we had such a high standard of living. There is all this and a good deal more on the credit side. Against that, however, on the debit side, as my right hon. and learned Friend the Chancellor of the Exchequer said so clearly in his excellent Budget speech, we have the adverse balance of £394 million, the fact that our imports increased by 13 per cent. against a much smaller rise in exports and our failure to build up a surplus, as the hon. Member for Wrexham said, of at least £450 million in our balance of payments if we are to expand our exports and maintain our trading position in the world. I spoke about this in the Budget debate a year ago.

We face, too, a failure to keep our place in the sterling area markets in the face of stern competition from the United States, from Japan and from the Common Market countries. Our chief concern on the debit side, however, is the threatening cost inflation caused by wage increases and shorter working hours ahead of increases in industrial production. I have no doubt that the price stability of the last few years is gravely threatened and that this is the chief problem that faces us.

Fears and doubts there must be against a background of prosperity when we examine more closely our economic position. Certainly, however, I do not want to move to deflationary and restrictionist policies. I want to maintain our growth of economic activity. Nevertheless, because of the tightness of our economy, I cannot help feeling that we have been holding back in the last few years those sections which are the foundation of our economy. I refer particularly to the metal and engineering industries and their shortage of labour. That is why I support to a degree the payroll tax, although the Treasury will have to be careful about the small man and the small firm. I hope that it is intended to have its effect upon the bigger employers of labour and not to hurt the small man or the small business, who certainly do not hoard labour.

It is a fair criticism that, in trying to do everything, we have watered down the best and have failed to give success its true reward. That is why I welcome the Surtax changes, but I deplore the increase in the Profits Tax. Bearing in mind, however, the importance of ensuring that justice and fair play prevail, I am sorry that, at the same time as the Chancellor made his Surtax proposals, he was not able to bring justice to that small section of pensioners who will be so hard hit from the method which has been chosen to help them with the prescription charges.

As a whole, however, I have felt that our economy of the last few years has been a soft economy, divorced from the reality of the competitiveness of the harsh and hard world which we face abroad. That is why I welcome the intention to lower industrial tariffs and why I hope that we shall get a closer association with the Common Market countries, although we should not enter the Common Market at any price, as some people have suggested.

What has disturbed me about our economy has been the growing lack of national purpose against the background of material prosperity and the highest standards of living that we have ever known. If one has time to pause and to stand back and stare, one cannot help but ask where we are going and what is our aim.

Commenting on last week's great Russian achievement, Professor Sir Bernard Lovell is reported as saying that it was because of a singleness of purpose and human sacrifice in material comforts on a scale unknown in the West. If Western civilisation continues to disregard this example of the great results of investment in science, in education and in research, it will do so at its peril. Is it not possible to inject a little more of that singleness of purpose into our economy, not with the heavy hand of the State, but getting over to the country, at this very late hour, the responsibilities of full employment? The Chancellor has given us a last chance to do this—a last chance to keep full employment by this threateningly tough, though largely neutral, Budget. I welcome the fact that he is encouraging us along the right lines where we must face up to realities and our position in the modern world.

But is there not still more we can do? Are there still not too many restrictive practices on both sides of industry? Are we really content to allow Germany to take our place as the leading credit country in the world outside the United States and let them always go ahead because they are prepared to make more sacrifices for tomorrow than are we? Germany is consuming 56 per cent. of her national income, compared with 65 per cent. of ours and she is investing 22 per cent. of her national income compared with, in the last few years, our 15 per cent., 16 per cent.; and while our figure has gone up to 18½ per cent. now it is still not enough. Have we not, in these last few years, to a certain degree been taking the easy way out?

It is not exactly encouraging for the future when we consider that between 1957 and 1960 the annual rate of consumer expenditure had increased by £1,400 million at 1954 prices, and that during the same period the annual rate of gross fixed investment at 1954 prices, apart from house building, increased by only £400 million. The question must be asked: have we not been sacrificing our national responsibility for easy and comfortable living? One thing is certain. We cannot have our cake and eat it. The Government have not been doing enough to bring the reality of these kind of facts, harsh as they are, over to the country, although the Chancellor has moved a long way in that direction.

The key, of course, in this Budget, rests on using our labour force more productively and drawing heavily on the new capital equipment that has been installed. Yet the major need is for unity of purpose, realising the kind of competition we are facing and to make us live up to the responsibilities of full employment as one nation, and not as a nation divided. This can be done and it will be better to get out of our difficulties by increasing productivity and expansion than with deflationary policies and restrictionism. However, there are risks in attempting to accelerate out of this problem in the neutral type of Budget the Chancellor has brought in when there is a large payments deficit and no seeming co-operation from the trades union element.

I hope that we shall get that cooperation, because if we fail now the result undoubtedly must be deflationary policies and restrictionism. I hope, above all, that we shall get that message over to the country, because none of us wants to go back to the 5 per cent. protectionist attitude of the 1930s. But there is the danger that we shall be forced to take such restrictionist action if we fail to get that co-operation to expand productivity on both sides of industry, to keep prices stable, and to keep our costs competitive with other countries.

On the whole, I congratulate my hon. Friend the Chancellor on his Budget. The overall deficit of about £70 million is the smallest that we have had for many years. I think it is a good augury for stability in prices and strength of sterling. He has not done all I had hoped, but no Chancellor ever does. It is, however, a step in the right direction and I hope that it will be the first of many Budgets he will introduce. I hope, also, that he will lay stress in the future on the three vital points which I consider we must have in Britain today: enterprise, investment and saving.

7.7 p.m.

Mr. Arthur Holt (Bolton, West)

I am glad to follow the hon. Gentleman the Member for Harwich (Mr. Ridsdale) who, unless my memory plays tricks on me, is the nephew of the Prime Minister who burdened this country with its present protective tariffs. It was nice to hear him say this afternoon that now, after thirty years, he thinks that it would be a good idea if this burden was removed from around the country's neck.

The hon. Member then went on to make a very tough kind of speech. He said that industry was too "cushy" in many ways, that industry was soft, and that we had to get it more competitive, but I regret that although the question of a reduction in tariffs arose—to bring more competitiveness into industry—he seemed to be rather tepid in the amount of reduction that he was prepared to accept.

Mr. Ridsdale

Since the hon. Gentleman has made reference to my family, it is only fair that I should point out that if he would do a little more research he would discover that my family had Liberal connections as well.

Mr. Holt

I am glad to see that the hon. Gentleman is giving some promotion to that side of his family.

There are so many subjects upon which one can touch when discussing the Budget that it is rather difficult to decide which ones to eliminate and which to bring to the fore. I shall, therefore, avoid being too discursive.

There are two important innovations mentioned in the Chancellor's proposals as being regulators, and I hope to have an opportunity of discussing those at a later stage, perhaps when we debate the Finance Bill. Since I shall be commenting on those regulators later, I will take issue with only one of them at this stage, one which drew comment from the Sunday Express last week, when that newspaper said that the proposal to bring in a payroll tax in the form proposed might lead to the resignation of the Minister of Pensions and National Insurance.

That is an interesting comment and one must believe there is something in it, especially when one considers the way in which the proposal was put before the House. The Chancellor said in his Budget speech: I propose to ask for power this year as a temporary expedient to collect such a surcharge, should it be needed… The Chancellor then said: I will, however, continue to examine other methods of levying such a surcharge. Should Parliament be asked to grant this power again next year, I would put forward fresh proposals."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 808–9.] The proposal therefore seems tentative, and I ask the Economic Secretary whether the Committee is being misled. Does the Chancellor, in view of the opposition that he has had to the proposal, have any intention—in the kind of circumstances that may arise in August or September this year—of introducing such charges? If he has not, it is quite wrong that the Committee should spend any time giving serious thought to the proposal.

I can understand the reasons for the objection made by the Minister of Pensions and National Insurance, because it would completely undermine the defence which the Government made when the Health Service contributions were recently increased—and which were attacked by hon. Gentlemen on both sides—and which were, in fact, taxation increases. It was a removal of the cost of the Health Service directly from the Exchequer to the contributors, but, nevertheless, it was a form of taxation.

This was denied. But if the stamps are now to be used as a surcharge for a payroll tax, it completely demolishes that position. I hope that before the debate is over the Chancellor, or another representative of the Treasury from the Government Front Bench, will take the opportunity of being extremely frank with the Committee about the seriousness with which the Chancellor views the payroll proposal.

Mr. Barber

I will deal with that point now. I can assure the hon. Gentleman that if my right hon. and learned Friend thought that the economic situation was such that it was desirable to use this regulator, he most certainly would do so.

The only other point that I should like to make in answer to the hon. Gentleman's last observation is that, of course, the only reason why the National Insurance scheme has been used for the implementation of this policy, this second regulator, is that it seemed to us to be the most convenient form of doing it, as it would not involve any additional staff or any new machinery.

Mr. Holt

However, it is not thought so satisfactory that it is proposed to continue it next year. In fact, the Chancellor has said that he intends to find other methods of doing it.

We have had the usual elaborate ceremonial of balancing the Budget, which completely passes my comprehension. Even last year's Budget was about £150 million out. But we are told that the home economy may be in great peril unless the £80 million or so of extra taxation is imposed. This is a piece of nonsense which we go through each year. When anyone will find a way of avoiding it I do not know, but I should have thought that there was one simple way of avoiding it, even if the Chancellor thinks that he has to balance the position by increasing taxes.

The alternative way would be to balance the position by reducing Government expenditure. In this case, the Chancellor could well have done so by getting rid of the ridiculous and wasteful expenditure which the Government are still devoting to the production and maintenance of the independent British nuclear deterrent, which helps the defence of the country not one whit. That would save us between £150 million and £200 million a year, which would have balanced the Budget nicely and allowed us, instead of putting an extra tax on vehicles, to double the expenditure on roads.

If the Economic Secretary thinks that motorists are convinced by his argument that vehicle taxes are very small, he must talk to a few of them over the next few weeks. There is not a motorist in the country who is not aware of the vast amount of money that he provides by one tax or another; it amounts to about £650 million. The Economic Secretary said that the expenditure on roads this year would be about £80 million. That is a little higher than I thought the actual figure was. I believe that new construction and major improvements amount to only £67 million: but perhaps the Economic Secretary has included something else.

Even if we include all that is provided by direct grants to local authorities and the proportion for the police force, the taxes provided by motorists amount to three or four times what is spent in every way on the roads. I should have thought one of the Government's principles would have been that not a single extra penny of taxation should be applied to motorists until they had been provided with a decent road system.

My chief complaint about the Budget is that it does not deal even with the problems as set out by the Chancellor. I should have thought that he would have accepted that stable prices were a "must". The hon. Member for Ashton-under-Lyne (Mr. Rhodes) spoke earlier about everybody having a vested interest in inflation. If that is what he thinks, he should go round canvassing in his constituency again, because there are many people who certainly have not a vested interest in inflation. There are many people who have suffered very greatly from inflation. I entirely agree that there are some others who have a very big vested interest in it, and that is probably one of the troubles.

We want stable prices, higher exports to overcome our balance of payments difficulties, and growth. I should have thought that the Committee as a whole would have agreed that we shall not get stable prices by tinkering about with this other regulator in putting 10 per cent. on a lot of Excise and Customs Duties and Purchase Tax. Neither shall we get stable prices through the increases in taxes which have already been announced in the Budget. Most companies will certainly attempt to put the Profits Tax on their costs, and, if there is inflation about, they will succeed. The oil tax, also, will tend to push up prices. So the Chancellor's Budget has done nothing towards making prices stable. On the contrary, it has tended to push them up.

What we require is either the same taxes or lower. We want lower tariffs for the kind of reasons which were given by the hon. Member for Harwich. In the Chancellor's Budget proposals there was just a passing reference to tariffs, and I shall have a little more to say about them later. I should have thought that our savings were really not yet so high that the Chancellor could not have thought of some other methods of encouraging them. If the hon. Member for Halifax (Mr. Maurice Macmillan) has an opportunity to speak, I am sure that part of his speech will be directed towards this subject, and I expect that I shall agree with him.

If the Chancellor had taken the bold move of cutting tariffs and, at the same time, had offered further stimulants and encouragement to increase savings, I should have thought that he might have used his regulator temporarily to increase the Purchase Tax on some articles. I think that the effect of doing it that way would have been actually to lower prices, and we should not have had a big increase in imports.

The problem of lowering import duties at this time—it is obvious in one sense—is that there might be a flood of imports, and if we did this we must take the other steps in harmony with it to ensure that the purchasing power is either not available for buying a lot more goods or is diverted into savings. That could have been done to the great benefit of everybody.

There was one important omission from the Chancellor's speech on Monday and from the speech of the then Chancellor during last year's Budget, when I also referred to it. There has been no reference whatsoever to the greatest economic and political experiment that has been made in this century or for a longer time. This experiment has had a most tremendous effect, and it will have a bigger effect on our economy than perhaps many people realise. I refer to the Common Market. There has been not a word about it, not even a passing reference.

The Common Market is often stated in this House to be a fine example of a growing economy, something that we should like our economy to be, and a lot of very impressive statistics are quoted. I am sorry that the hon. Member for Harwich is not yet among those in the House who want to see us in the Common Market. He used the phrase "I am not one of those who want Britain to go into the Common Market at any cost". I have not met such a person yet. I do not know to whom he is referring when he talks in that way. This is a frequent line of criticism from some hon. Members opposite.

Mr. Ridsdale

I was referring to some members of the Liberal Party whom I have met on the Continent, who have often made speeches as though they think that we should go into the Common Market unconditionally. I cannot agree with that.

Mr. Holt

It is very easy to cause misconception in this matter. Certainly, the view of the Liberal Party is that we consider it very important to get into the Common Market, and that the difficulties of Commonwealth trade, agriculture and other problems, as well as some of the political difficulties, do not present insuperable obstacles. We think that the important thing is that the Government should make the political decision, and should decide to go into the Common Market and work with the other members of the Common Market for the kind of aims that they have in mind. This is the great decision that we have got to make.

It is because this country has never given the impression to the Common Market countries that we are prepared to go in and work with them on the same political basis that they will make little move towards us in overcoming some of our technical difficulties. If the Government would only make this major political decision in a positive sense, and not merely say that they have no objections to some of the institutions, there would be great advantages.

The way in which the Government have often put their case is illustrated by the words of the Lord Privy Seal, when, in February of this year, he addressed the Western European Union and made some very important statements. He said:

…we are not afraid of common institutions. We recognise there would have to be common institutions to control a common or harmonised tariff. But no arrangements would be satisfactory to us which did not involve"— this is, I think, the most important statement that has been made by any Government spokesman on the subject— a political as well as an economic relationship with the Six. That is very important, but there is throughout the speech an attitude that the first moves must come from the other side. We were invited to go into the Common Market years ago and we turned it down. If we are to get into the Common Market we must use the initiative ourselves.

Britain has been investing an increasing amount of money in Common Market countries. In 1957, private industry invested £20 million; in 1958, £35 million; and in 1959, £58 million. For 1960, there is a similar figure. I have not got the final figure, but it was running at the same rate in the first half of 1960.

It is likely, however, that these figures do not show what is actually happening, and no doubt many hon. Members can give examples of firms which have recently taken steps to enter the Common Market. I.C.I. is a well-known example. Massey-Ferguson is setting up a tractor factory in Beauvais with the intention of turning out 75,000 tractors a year. Then there are Standard Motors, the Metal Box Company, Bowaters and the British Motor Corporation, all setting up factories in the Common Market.

Not only the big companies but the small one are doing this. I have been extremely anxious about this recently, because there has been such a case in my own constituency. Earlier this year I had a communication from a firm which had quite an important business with the Common Market countries. I was told that the firm would have to decide soon whether, should Britain go into the Common Market, to build an extension to its factory in Bolton. If Britain was not going into the Common Market, it would have seriously to consider setting up a factory in Holland.

Moreover, this firm had an association with an American company which also was prepared to do the same thing. Either the American company was going to make an arrangement with the factory at Bolton, whereby some of its products would be manufactured in Bolton and use would be made of the same sales organisation for getting the products into Europe, or, alternatively, if Britain was not going into the Common Market, this American company would set up a factory in Europe. I did all I could to ascertain what were the real possibilities of our getting into the Common Market. I consulted the President of the Board of Trade and others and I was unable to get any assurance.

I should like to quote briefly from a letter that I had from this firm: The first point is that, as I anticipated, our American friends were not prepared to accept a policy of 'jam tomorrow,' and are now making arrangements themselves to put down a plant inside the Common Market, which as I had previously told you, might quite easily have come to Bolton if the situation had been different. So far as we ourselves are concerned, competition from firms in Belgium and West Germany is becoming more acute, and on our most vulnerable product we have now decided in principle to start a small independent manufacturing organisation in Holland, between October and December this year. I have no doubt that there are other hon. Members who have had exactly the same problem, and unless the Government get on with this and do something about it this year, this kind of thing will multiply to the serious detriment of the competitiveness and of the creation of employment in this country in the future.

It is this kind of thing about which we should have heard something in the Budget. If this problem is tackled now we shall get efficiency and competitive mobility, and the country can go ahead. But frankly, while there is this lack of spirit of adventure in the Government, this lack of determination to seize this new opportunity in Europe, why should the Government expect industry to have it? I ask that this year the Government should set an example by showing some enterprise in their own policy in Europe.

7.27 p.m.

Mrs. Patricia McLaughlin (Belfast, West)

I hope that the hon. Member for Bolton, West (Mr. Holt) will forgive me if, in view of the lateness of the hour and the number of hon. Members who still wish to speak, I do not follow him into the intricacies and problems facing us in the Common Market. I would only say that we have great responsibilities to our Commonwealth and our other old alliances which we should not forget.

May I take this opportunity of offering my congratulations to my right hon. and learned Friend the Chancellor of the Exchequer on having the temerity to produce a Budget with a new look, a Budget which is endeavouring to move the creaking joints of the Treasury. I can only hope that he has a plentiful supply of energy and ideas with which to manipulate and grease those joints so that we have a really new look in planning the economy and a forward look at the years which face us.

Those of us who remember Professor Parkinson's lecture, and the way in which he pilloried the Government's system of budgeting, will realise that many people outside Parliament find it much more difficult than even those inside Parliament to understand the many intricacies and complexities of Government accounting, and anything which can be done to modernise it and make it comparatively simple will be a great help. I should like also to congratulate the Chancellor on having taken so many new steps which we believe are only a few of those to which we look forward with the idea of simplifying generally our taxation system and the Government's planning of the country's economy.

I should like to say how much it is appreciated by all the areas particularly interested that the investment allowances in the shipbuilding industry are being continued, as far as we can see, during the lifetime of this Parliament at 40 per cent. That is one thing which I know to be a matter of considerable importance to the people in our part of the United Kingdom in regard to the future of the shipbuilding industry. I believe that it will encourage the yards there and all those who are in control of shipbuilding to go forward and modernise and become up to date, so as to enable us to compete even more effectively with other countries in shipping and in the servicing and repair establishments which we need so urgently to keep the shipping lanes going fast and smoothly throughout the world of commerce.

I should like to make one or two other comments, first, about the new regulator proposal. This is a proposition to add or deduct anything from one to 10 per cent., either way, on the present taxation level generally, Purchase Tax and all types of Revenue Duty. Surely, this must be a better way of regulating the needs of the country from time to time. Many of the areas which are very short of development, and I include Northern Ireland specifically, have felt it very severely when the Bank Rate has suddenly been put up, because that is one of the methods which, in the past, Governments have had to use particularly in regulating the economy. This new regulator will surely be a greater easement all over the country, and will fall less heavily on one area than another.

It will be a good thing to know that this regulator is there, and that it will be used before a very sudden increase in the Bank Rate, if it should be proved necessary to use it at all. The credit squeeze, the special deposits, and so on, are always bound to affect particularly areas not so fully occupied with industry and commerce as those areas which might be called the over-occupied areas. Therefore, spreading consumer demand throughout the country is surely an imaginative and fair way of endeavouring to keep demand within control, especially when we have to find some means of preventing too much demand outrunning supply.

The need to maintain a stable £ and the great importance of showing the world our determination to have a stable economy and a £ which can measure up to any other currency in the world is obviously demonstrated in this Budget. I believe that we are facing now a new trend in Government thought in the way of keeping this country from suffering the traditional run on the £ every so often, which has caused us so much difficulty, and I can only hope that the Chancellor's efforts will meet with the success that they deserve.

I should like to mention the question of Surtax. Surtax has been almost a dirty word, like profits. Today, it is recognised as something imposed at much too low a level on people endeavouring to put their very best into the country's needs, and it is particularly welcome because of the fact that, although we have not yet managed to achieve recognition of married women as individuals in their own right for tax purposes—they are still chattels and rather out of date—at least we can look forward to the Chancellor doing something about that in future years.

I know of many women who have had a professional training and now have families, who would like to give some of that knowledge and training back to the country, and who will welcome this new opportunity. It will make it much easier, now that the Surtax level has been raised, to persuade their husbands to allow them to take other work, such as in teaching and in the nursing services. In many instances, we are looking for further help from women, and it must be found from amongst the married women, who, we believe, will now have the incentive to go out and find a worth-while job and share in the profits and the great prosperity which are offered in return.

My hon. Friend the Member for Finchley (Mrs. Thatcher) mentioned in her speech that she was particularly sorry that married women did not have their own taxation separate from that of their husbands. I am sure that she would be the first to agree that, having achieved such a step forward in this aspect of taxation, we can now look forward to the years ahead without undue worry about this matter.

The question of expense accounts was also raised in the Budget, and a great deal has been said about the high rate of expense accounts and overspending. I think that it would be right here to pay attention to the fact that there are many parts of our country in which expense accounts are practically non-existent. Expense accounts must vary according to the needs of the industry and the people concerned, the amount of entertaining that they have to do, the number of visitors from overseas, and so on, but when one moves outside the Greater London area and one or two of the major provincial industrial centres we find that the average expense account is very small indeed. I believe that if we were to look at most of the production areas we should find that in the majority of cases expense accounts are literally non-existent.

In most of these areas, the people concerned in business are more anxious to bring into their own homes visitors from overseas and business people and entertain them, and I believe that it is mostly done at their own cost. I think that if, in future, expense accounts are taxed, they will not bring in the huge amount of revenue that some people might have expected them to do, and which I myself once thought would be the case. After investigation I came to the conclusion that we always heard about the large ones and very little indeed about those which were minute or practically nonexistent.

Now I should like to turn to something which is not actually in the Budget, but which has been mentioned by the Chancellor in his speech. The President of the Board of Trade recently made an announcement about the increase in all the various allowances, insurances, and so on, under the Export Credits Guarantee Department arrangements. This, surely, must be a great help, and be particularly welcomed by small industries which, in the past, have found it extremely difficult to underwrite themselves in slightly more adventurous contacts abroad and sometimes in the actual finding of those contacts when their turnover is small and their total facilities are, perhaps, limited. I am sure that in finding these contacts this will be a very good boost to our export endeavours.

Here we have the question: how can our exports be developed? My own part of the United Kingdom—Northern Ireland—has a particularly good record in this matter. Per head of the population, our record stands very high in the export figures, and the majority of the firms there, being family firms or small limited companies, have had to battle for their export orders. Not very long ago, I visited fourteen different factories in this area and was amazed to find that in many of them anything from 50 per cent. to 60 per cent. of the total production was exported outside the United Kingdom. I draw attention to this for the reason that I feel that if we are doing something like that in a development district which has enormous difficulties in unemployment, distance from other important centres, and so on, it is only fair to mention something which may not be helpful.

I come now to the proposed payroll tax. We are very grateful to my hon. Friend the Economic Secretary for his explanation this afternoon. It gives us less worry when we know that the yield of any levy put on employers by a payroll tax in Northern Ireland will be taken into the Northern Ireland Exchequer direct and will not go into the British Exchequer, as we previously had, perhaps, supposed. I believe, nevertheless, that the Chancellor would do well to consider seriously the effect which such an imposition would have on Northern Ireland or on any development district. Although it is with great relief that I welcome what my hon. Friend said this afternoon, I must still express my unease and that of many people in Northern Ireland about the dangers of this levy should it ever be introduced.

I hope that we shall have an assurance from the Chancellor that he will use a payroll tax only as a last resort and that he will consider means of applying it on a variable regional basis. If it were applied nationally and on every industry equally, it would be very dangerous for us. On the other hand, if it were applied on a varying basis, not, perhaps, to those industries which were not doing well or which were not, in fact, over-employing, that would be a great help. I will not detain the Committee now, because I hope to have another opportunity of raising the matter during the Committee stage of the Finance Bill.

I most earnestly commend to my right hon. and learned Friend the thought that, when something is done for the good of the national economy, one must be very careful that it does not hit and weaken the already weaker parts of the national economic structure. A payroll tax, I am sure, would never be a suitable measure for Northern Ireland. I hope that my right hon. and learned Friend appreciates this, for in Northern Ireland unemployment is twice as high as it is in Scotland. Today, we have 8.6 per cent. unemployment among male labour, a fact which must always be remembered.

During recent months, a working party has been preparing and studying proposals to help Northern Ireland in order to make that part of the United Kingdom economically sound and to provide there the work which is so badly needed. Various proposals have been under discussion between Her Majesty's Government here and the Prime Minister and the members of the Government at Stormont. I understand that proposals have been laid here now for some little time. Such proposals are absolutely essential, and it is most important that some of them at least should be implemented as soon as possible.

Amid all the wide discussion of his Budget, I want my right hon. and learned Friend to remember Northern Ireland. I hope that he will assure us that the proposals before the Government are being very urgently examined and that those which may most easily and speedily be implemented will receive attention very soon. The need in Northern Ireland is urgent.

Mr. E. Fernyhough (Jarrow)

Will the hon. Lady give the Committee a little more information about these proposals, about which she seems to know everything but about which the rest of us know nothing?

Mrs. McLaughlin

I only wish that I could oblige the hon. Member. He anticipated my concluding sentences on the subject. These proposals are a matter of discussion between the two Governments concerned. To the best of my knowledge, they are not known to anyone outside the Cabinets of both Governments. It is impossible for me to explain or emphasise any one particular proposal. All I know is that these proposals have been discussed. They are extremely urgently needed in Northern Ireland, and the sooner we know what they are, and when they will be implemented, the better pleased we shall be.

This debate has been conducted in a very serious frame of mind against the background of national needs and national endeavour in the export trade. We could do a great deal more in exports if, as somebody rather crudely put it, we were to stand up on our hind legs and get on with it. There has bean a certain stimulus in the Budget to individuals to get on and do more. The Prime Minister once said that exporting is fun. I believe he meant the sort of fun which explorers have when they meet a new challenge or which adventurers have when they climb a mountain never climbed before. It is that kind of strenuous and robust fun which my right hon. Friend the Prime Minister has in mind, and it is that which is important today. I hope that the stimulus given in the Budget to the country's economy will prove worth while in increasing our exports.

7.45 p.m.

Mr. Joseph Slater (Sedgefield)

The hon. Lady the Member for Belfast, West (Mrs. McLaughlin) has spoken on a theme which hon. Members representing constituencies in Northern Ireland have followed whenever I have heard them speak during the last seven or eight years, that is to say, unemployment in Northern Ireland and the heavy incidence of it there compared with other parts of the United Kingdom. Yet, if the hon. Lady's statement is correct, Her Majesty's Government have taken no effective action to ease the situation in Northern Ireland.

The hon. Lady drew attention to the different trades and industries established in Northern Ireland, to their performance in the export markets, and so forth. Surprisingly, in her opening sentences, she congratulated her right hon. and learned Friend for the "new look" he had taken in his budgetary proposals. During the last ten years we have had Budget statements from successive Tory Chancellors, from the present Prime Minister, from the Home Secretary, from Lord Amory, and from the Minister of Aviation, who resigned from office, and now from the present Chancellor. So many tributes have been paid to the right hon. and learned Gentleman for the way in which he has presented his Budget that it would appear that he has regained some of the popularity he once had before he became Foreign Secretary. If this is so, all I can say is "Good luck to him"; he will need it before he leaves his present office.

The jubilation of his supporters was very pronounced when he made his announcement about Surtax. This was to be expected, after the wide publicity given to the constant agitation from Tory back-benchers we have witnessed in the House during the past twelve months, which has been echoed in the columns of the Tory Press. The attitude of those Government supporters is nothing new to us. It will always be there so long as we have a Tory Government and Tory Chancellors of the Exchequer. The appeal of the Budget has always lain in what was in it for Tory supporters. On this occasion, they have every cause for jubilation. If hon. and right hon. Members opposite would only analyse the substance of such speeches as the most effective one made by my hon. Friend the Member for Jarrow (Mr. Fernyhough) yesterday, they would come a little nearer to reality.

We were informed that in this country today there were 300,000 Surtax payers, and these were the people who were to benefit most. There is no doubt that those who are in line for promotion will be waiting expectantly for a speedy advance. Yesterday, the President of the Board of Trade condemned criticisms of the action taken by the Chancellor to assist Surtax payers. The right hon. Gentleman said that these people had for so long been denied any form of benefit or consideration. They had been denied any tangible or monetary recognition, and something ought to be done for them, in view of the fall in the value of money over the last ten years. The President of the Board of Trade may argue, as other hon. Members have sought to do, that wages are going up and that pensions have increased. But such arguments in no way prove the case for the action which has been taken by the Chancellor.

Wages paid in industry have been low for a long time, and they were kept low while profits were being paid out to capital investors. It should not be forgotten that though these 300,000 Surtax payers may have been seriously affected by the drop in the value of money, so also have other people been affected, particularly those working in industry and in receipt of a low basic wage and those with small fixed incomes. Do the arguments advanced by the President of the Board of Trade eliminate the need for further consideration being given to that section of the community?

Hon. Members opposite make the mistake of getting their' priorities wrong. I have no objection to good salaries being paid to people in important positions. We must meet the market price for any such appointment. But who creates the market price? It is not the universities They are in dire need of staff which they cannot get because they cannot compete with outside interests over wages and salaries. I believe that the Chancellor and the Government must give special consideration to this problem if we are to produce the scientists and technologists about which there is so much talk.

Though we may have to meet the market price for these jobs, we cannot escape the fact that assistance is needed for many other people. To hear some hon. Members opposite talking, it would appear that industry in this country is a one-man show, that industry is run by executive and by management. I have never accepted that. I admit that management and executive have an important part to play, but unless we can secure the confidence of those who work on the shop floor we may as well close down our industries.

I accept that energy and imagination is required as much today as at any time in our history. If we are to boost our standard of living in this competitive world, we must increase our exports. But if we think that by stamping an article "Made in Great Britain," we can attract a queue of people to buy it, we are much mistaken. It may be true that we earned good dividends for ourselves in the past when we led the world in the industrial field, but that day has gone. We have been overtaken by other countries. It may have been salesmanship which once gave us an enhanced position, but the present-day problem is how to break through the new barriers erected by other countries which have outpaced us in their industrial progress and development. It may be that our geographical position is responsible for restriction in movement. Yet I believe we have the technicians and the brains in this country which, if given the opportunity, could make an indelible impression upon world trade even today. We must not be outpaced in productivity by our competitors, for if that happens, we shall fail to maintain our standard of living let alone improve it.

Yesterday, in an interesting speech, the hon. Member for Eastleigh (Mr. D. Price) reminded us that he was an unrepentant expansionist. I believe the hon. Member, knowing his association with I.C.I. I can understand his reason for agitating along those lines. Apart from the capital investment programme which I.C.I. is carrying out in my constituency, it has now decided to begin a large-scale manufacturing operation within the area of the Common Market. I.C.I. proposes to invest no less than £100 million in that area during the next ten years with the object of capturing the chemical business on the Continent. I have no doubt that when this information was conveyed to the Government they said "Amen to that". But it would be well for us to remember that this Government did not accept the expansionist policy until about two years ago and then only after constant agitation by my right hon. and hon. Friends. Now we find that the Government have become an expansionist Government, and are proceeding with policies by which they claim there will be expansion throughout industry.

It has been said in this debate that there is a drop in unemployment. I should like to see the figure brought much lower. There are still areas in this country which are seriously affected and many men have been out of work for far too long. Every effort should be made to remove the fear of redundancy and dismissal which still lurks in the minds of employees in certain industries. Like other hon. Members who represent constituencies in Durham, I want to see new industries brought there to make it unnecessary for people to be transplanted to other parts of the country from the county in which they were born and grew up and which they love. I have no doubt that the attention of the Board of Trade has been brought to the report regarding the railway shops at Darlington. Darlington Rural District is within my constituency. Many of the men working in those shops are worried—and have good cause to be—by the possibility that the shops may close down. I request the President of the Board of Trade to interest himself in this matter and to enter into some consultations with the Minister of Labour about it.

As a trade unionist I am conscious of the fact that when our export trade falls short our people suffer. I do not think our workers in industry are afraid of examination, whether it be self-examination or examination from any other source whatever, and to look for ways, if need be, of repairing any defect arising due to the human element in organisation, but, even while saying that, surely it is not too much to ask that managements, too, should put themselves through the same process to discover why it is that so many firms have made such a small contribution to our export trade. They, too, in turn ought to point out any deficiency and lack of enterprise which has helped in keeping the level of our prosperity so low. I venture to suggest to the Committee that by this system of investigation they would find that the shortcomings of the average industrialist have contributed more to our failure to make an upward thrust in exports than has the average worker through strikes in this country.

My right hon. Friend the Member for Huyton (Mr. H. Wilson), in a most impressive speech, which did not receive the acclamation of Members on the other side of the Committee—it was, in my opinion, an expressive speech, despite anything said to the contrary—referred to the effects of the first two Measures of the present Chancellor of the Exchequer, and I would say to the Chancellor and the Government that the working people of this country will not forget so easily the action that has been taken about increased contributions through the new Health Service charges. These were—let no one deny it—further penalties upon the people least able to bear them. As was pointed out in the debate we had upon those charges, the imposition of such a polltax system as that will seriously affect many people. An appeal has gone out from this side of the Committee, but it has been ignored. We as a party make no apology for mounting an attack upon this Government for such disgraceful action as they have taken.

I said at the beginning of my speech that this Government have got their priorities wrong, and if we are to recover from our setback and to take our proper place in the world then they have got to be more conciliatory to the ordinary people in society than hitherto, and if they are not, it may mean not only that the Government will suffer, through the lack of confidence in their administration of affairs, but that the nation as a whole will suffer.

It appears from the arguments from the other side of the Committee that hon. and right hon. Members opposite believe that by being relieved the Surtax payers will work harder and better. I can only say that it leaves me with a sense of disgust that such could be the case. I look upon people as individuals, not a numbers, indivduals with a true sense of decency, but that is not supported by that expression of opinion about the effect of this Surtax relief. On the other hand, hardship has been imposed upon the people of this country, and in crisis after crisis during the last ten years this Government have directed that imposition should fall not upon those well positioned to bear the burden but upon the weakest section of our community.

Therefore, I claim that this Budget which has been presented by a new Tory Chancellor, which has received the praise and acclamation of his supporters, does not assist those people who are in need. I do not believe that it is the intention of the Government that it should be the case.

8.4 p.m.

Mr. Maurice Macmillan (Halifax)

Perhaps, having complained at the Chancellor's policies before, I may be allowed to congratulate him tonight, not only on his courage in presenting the measures he has put before us, but upon the determination for the future as shown in his speech and the confidence with which he approached the great problems which confront us.

May I welcome the threats—if that is not too strong a word for them—implied by both the Chancellor and the President of the Board of Trade yesterday? It would, perhaps, be better to call them warnings, warnings that there is a limit to the extent to which Government action, budgetary or otherwise, can help the economic situation, warnings that a great deal is now up to industry itself and that neither side of industry can expect indefinitely the protection of the inefficient, who may now feel certain that there is to be some degree of stick as well as some increase of carrot.

I hope that I am right in reading this into what the Chancellor and the President of the Board of Trade had to say, because there is a disappointing element in this Budget. Those of us who are pleased at the way in which the Chancellor and the Treasury are tackling the future should not allow our pleasure to prevent us from expressing our desire for still more.

Hon. Members

More what?

Mr. Macmillan

I myself was disappointed that there was not a deeper reform of our tax system. We were assured by the Chancellor that he is continuing that. I hope that this will enable him to look again at the whole question of company and individual taxation, and that in doing so he will perhaps be able to find a slightly less blunt instrument than the poll tax, the payroll tax, which has been introduced as a temporary expedient to deal with emergencies, because really if we think carefully of this payroll tax we see that its nature is more effective as a permanent weighting of the cost of labour compared with the cost of machinery in industrial production and less effective as a temporary measure than either the Customs or Excise powers may be. I think there is still room for a deeper reform of our tax system, not least in the field of Surtax and capital gains tax, which I do not, I hasten to add, advocate, though I hope to say a word about it in a minute or two when I come to investment and savings, about which I feel, as hon. Gentlemen opposite guess, most strongly.

There is a great deal to be done still to increase the use of capital equipment. I think it was my hon. Friend the Member for Eastleigh (Mr. D. Price) who made the point that investment alone is not enough and that it is the efficient use of capital as well as labour which we have got to aim for. I am still not convinced that there are not various methods of accelerating the rate at which machinery could be written off which would greatly help our export trade.

Nor am I happy about the methods being used to prevent the hoarding of labour. We on this side are not seeking a pool of unemployment, as has been said. The whole point is that such measures to prevent hoarding of labour are only necessary and only effective if there is work for the labour displaced by those measures to go to, otherwise there would be no point in doing it at all; the situation would not have arisen. So I think there is reason for saying that as a permanent reform it is not at all relevant to this situation.

I do not want to weary the Committee with what has been said before, but I do hope that this period, which the Chancellor has said he is going to use to examine our tax structure and examine what he can do for the future, he will also use for the sort of examination of industry in detail which has already been suggested in the Committee today and which many of us have recommended in earlier debates on the economic situation.

There is a great deal yet to be gone into there, both on the side of managements and the side of labour. The hon. and learned Member for Kettering (Mr. Mitchison) made great play about the need for management to encourage apprenticeship in order to get greater skill in industry. It is not only managements that make it difficult for young men and boys to become apprentices. There are industries in which the restriction of new entry becomes a trade union concern. I hope that the inquiries now going on will throw some light on that situation.

In order to secure the growth we need in our economy, we must have this sort of examination of the problems of individual industries. It may well be that we shall have to consider an extension of the principle of the Restrictive Practices Act so that it applies to the subject of labour as well as capital and management. If I remember rightly, that was part of many of our election manifestos in 1945. It certainly has appeared from time to time in party documents since then. I would say that it is almost time that we started to act as well as talk about this problem.

But, apart from the individual problems, there is the great difficulty which we have all been discussing of what is now known as "growth". I am certainly no restrictionist, and I would very much favour an expansionist economy. The hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), who dwelt at some length on this subject, rather under-estimated the conflict which arises between our banking and trading interests, for example in the use of funds at our disposal in the International Monetary Fund. I do not know how much it is possible for a banker to borrow without causing loss of confidence. In commerce there is no difficulty about a business going to a bank and requiring an overdraft, but what would town or country think if that bank itself wanted an overdraft to enable it to carry on? It may be that because of short-term difficulties, caused possibly by the reduction of tariffs and the increase of imports, we may require to borrow in a way that we cannot do without endangering confidence in sterling.

Hon. Members on both sides of the Committee have said that the real answer is to increase our export trade, and in this connection I should like to say something about Surtax. I feel that it is much more a question of general stimulation of economic activity than the provision of direct incentives to individuals, just as in the Common Market it is not really the tariffs put up against individual goods and the products of individual industries that are the great difficulty, but the whole climate of opinion created in the middle of Europe by what the Europeans themselves call economic inter-penetration. It is that kind of climate of opinion and stimulus of activity that we require in this country, and a desire to sell and a feeling that we can go ahead. I believe that these measures are beginning to produce just that climate.

The hon. and learned Member for Kettering said that he did not know what effect Surtax has on the efficiency of executives. In small businesses it may well have an effect. When there is a high level of Surtax, to get the level of man required, he may well have to be paid so much gross than an employer can afford only one such person when he needs two, and so he has to do with someone else less good in another capacity. This is a facet of the problem which has not yet been mentioned in the debate, but in smaller businesses of which I have personal experience it is a very real difficulty. It is also a difficulty which leads to the use of marginal, fringe benefits instead of direct payments, which I hope sincerely will begin to die down under these concessions.

There is one gross omission from the Budget. It has been mentioned by my hon. Friend the Member for Taunton (Mr. du Cann), and I share his deep regret that nothing has been done to help or stimulate savings. I know that National Savings and other personal savings are running at a high level, but I do not think that there is any reason why in this sort of Budget some further encouragement to saving should not have been given. There are many ways in which it could be stimulated. I will not worry the Committee with them now, but, as my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) said yesterday, minor concessions can be sought by way of moving new Clauses to the Finance Bill later. These sorts of concessions create no balance-of-payments difficulties. Nor do they create inflation, because by definition they are concessions in taxation given only to money saved and not to money spent which causes demands for goods.

There is, however, one wider consideration in this matter of saving to which I should like to refer. It seems to me that we are now in danger of facing a division of our population not so much into the haves and have-nots as into those who have a direct share and those who have only an indirect share in prosperity, those who, as it were, are participators at second-hand. In some ways the great increase in national savings emphasises this difference, because it is an increase in institutional saving and not in the direct participation by individuals in industry. There is a similar and parallel trend on the side of those who are in employment, because as businesses tend to increase in size so the individuals in them tend to become less independent and less important in every way.

We are forming in some ways an élite in taxation and high earnings of managers and skilled workers, but it is a dependent élite, depending either on the State or large-scale industry, depending for wages, in some cases for houses, and for pensions, whether top hat schemes or the new scheme of the Minister of Pensions.

I hope that tax concessions given to Surtax payers will help to increase their independence, but I would point out to the Economic Secretary, who talked about the mobility of senior executives, that nothing ties the senior executive more than having his pension rights and the whole of his future and that of his family firmly anchored to one firm and being unable to move out of it. A matching concession to relieve taxation on income saved might have gone very well with this Surtax concession, because the higher earners are not in any way directly encouraged to save. They get concessions indirectly by tax savings on annuities and so on, but again their savings are attached to those of an institution and to that extent they are losing independence.

We are seeing an ever greater divorce between ownership on the one hand and management on the other, and a divorce between labour and ownership at a lower and on a smaller scale, and the Budget contains nothing designed to meet that difficulty. I know that this is part of a wider problem and that all these things are being looked at. I sincerely hope that the Chancellor of the Exchequer can reassure us that he is going into all these matters as well as going into what he has already told us about. We know that he is to examine taxation and monetary policy, including international monetary policy, as far as that is possible. He has implied that he will look at industrial organisation. I hope that that includes the examination of all restrictive practices.

I fear that we have not seen any sign that my right hon. and learned Friend is looking more deeply into the social implications of all this. I do not often agree with the right hon. Member for Huyton (Mr. H. Wilson), but on this occasion I think that he is right in saying that it is not right to examine this or, indeed, any other Budget without considering both the scope and the financing of the social services. This is obviously not the time to go into it in great detail, but I hope that we can be told that this is a problem which is being dealt with comprehensively. It is a question of how much it is to be left to the individual to pay for the necessities and how much is to be undertaken by the State. I do not think that anybody on either side of the Committee would go so far as to say that all the necessities of life should be provided by the State through taxation and wages and salaries provide only for the luxuries. I do not think that anybody on either side of the Committee would say that no necessities should be paid for by the State but that we should go back to the old laissez faire idea. Somewhere between the two extremes there is a level which is suited to 1961.

Our social services are based on a Report which contained only pre-war information. My hon. Friend the Economic Secretary was taunted for thinking as far back as 1951, but our social services are based on the economic conditions of 1931. It is time for an unbiassed study similar to that made by Lord Beveridge of what is suitable, possible and desirable in the context of the present day. That is one of the things which must be tackled soon before we can get a really comprehensive reform either of the taxation or fiscal system or of our economic policy in general.

After all, I am not asking for very much. The Chancellor of the Exchequer in the Budget has begun to paddle in the waters of 1961, and I am only asking him to get right in and swim. If he examines these problems, I have no doubt that he will find that changes are needed. He showed in his Budget statement and in the Motions he proposed that he is not frightened of drastic or far-reaching changes. It has been implied in the debate that perhaps some of his colleagues are.

If that is so, I can only advise my right hon. and learned Friend to remind them of the words used by my right hon. Friend the Prime Minister. It is true that they were written in 1938, but they still apply: However drastic and far-reaching changes may be, if they are in line with the trend of evolutionary development, they do not invite a plunge into the unknown. They are thus more likely to receive the assent of the instructed section of the community, on whose shoulders will fall the responsibility of carrying them into effect. These are wise words, and I hope that the Chancellor of the Exchequer in the course of the next year will heed them.

8.24 p.m.

Mr. John Diamond (Gloucester)

I hope that I shall not embarrass the hon. Member for Halifax (Mr. Maurice Macmillan) by saying that many of us on this side of the Committee will undoubtedly agree with a good deal of what he said. His has been about the only speech from the Tory side which has admitted that public expenditure is not necessarily a vice. The general view of back benchers opposite is that all public expenditure is a vice. To satisfy the Financial Secretary, I counter that by saying that the general view on this side is that all public expenditure is a virtue. We do not think that all private expenditure, especially expenditure on luxuries, is a virtue.

The hon. Member for Halifax is prepared to look at the problem objectively. That is some advance, at all events. He said that he is an expansionist. We welcome that. He said that a great deal had to be done about exports. We agree. In particular, he said that the Surtax relief would not solve that problem. We particularly agree with that sentiment. Although the hon. Gentleman was right in saying that the Government were justified in saying to trade and industry that it must do a great deal itself, that is not a sufficient argument to justify the President of the Board of Trade washing his hands of the whole problem of increasing exports, as, in effect, he did in his speech yesterday. He said that he found the problem difficult and left it to industry, in effect.

That is not sufficient. The Government have done many things which have deterred exports and have not done sufficient to encourage exports. As the whole of our difficult situation stems from inadequate exports, which, in turn, stem from inadequate productivity, efficiency, design and determination to export, perhaps I may weary the Committee by dwelling for a few minutes on that topic. It is perfectly true that it is difficult for the Government to influence exports, because a study of the problem and the researches into it shows that achievement varies as between firm and firm, as between big firm and big firm, as between little firm and little firm, and as between two firms of the same size in the same industry. There is no general pattern which the Government can necessarily pick upon and say, "This is what is causing inadequate attention to exports, and this is what we must do".

Nevertheless, there are certain things the Government should not do. What the Government should not do is to proclaim continuously that things are so satisfactory that there is no need to do anything about them. The hon. Member for Halifax mentioned the Prime Minister. Perhaps the hon. Member is more entitled than anybody else in the Committee to mention the Prime Minister. The Prime Minister has said many times, particularly at election time, but also at many other times, that we have never had it so good, that things are very satisfactory, that the balance of payments situation is satisfactory, and that the economy is so healthy.

I do not know why the Financial Secretary is looking amused. It is not surprising if ordinary men, who find it easy to get orders on the home market but difficult to get orders on the export market, say to themselves, "Why should I break my neck? Why should I go to all this trouble, with all the extra forms and additional overheads, if it is not necessary and I have it on the authority of the Prime Minister that things are all right? Why should I pay attention to that lunatic accountant of mine who is advising me to do these things, saying that it is necessary in the long-term interests of industry in this country, when I have the authority of the Prime Minister and of the President of the Board of Trade for paying no attention to him?"

The Government must stop creating a soft attitude. They must, instead, engender a hard and tough attitude. The inherent attitude of businessmen in this country is to rely on the home market and not on exports. I never saw that so clearly as just before the war, when we had a great number of refugees, particularly from Germany, starting businesses here. I was closely concerned with them. Time and time again I noticed that, whereas the Englishman in business was satisfied to work hard in the home market, the German refugee, naturally, and without any economic drive or incentive, looked to the foreign markets. He did not concern himself with the fact that what he was producing might have no market in this country. The pattern of his thinking was the drive for exports. There is a natural tendency in this country to rely on the home market, and we must encourage more and more a tendency to go into exports.

If this past year has shown us anything new, it is that we are no longer entitled to correlate investment and increased investment with increases in efficiency and, therefore, increases in exports, knowing, as we do, that efficiency leads to greater competitiveness and easier means of exporting. Although there has been an increase in investment, it has not been matched by increases in productivity. We must take this important factor fully into account.

The explanation is that we were a little slovenly, or tended towards over simplification, in correlating increased investment with increased productivity. Increased investment is merely the manner in which we clothe bright ideas, and it is these which are lacking. If bright ideas are lacking, then investment is barren. We need more bright ideas and the stimulation of bright ideas. Far from stimulating them, however, the Government have been depressing and holding them back by creating this generally soft attitude.

My second point is that if the Government interfere too hastily with the flow of orders of a particular industry, like the motor car industry, they tend to disrupt the export trade. The motor car industry lost a great many exports when it had to cancel overseas orders and extend export delivery dates as a result of the enormously increased pull of the home market when hire-purchase restrictions were removed. The Government cannot play about with such restrictions, affecting, as they do, particular industries in that way.

I appeal to the Government to create this hard attitude, because it can be demonstrated that it works. The point of time when the motor car industry started to go overseas and to increase exports enormously—and one should remember that 95 per cent. of some types of car are exported—was when the Labour Government told it, "No more motor cars for the home market. If you want to manufacture, look abroad."

The point of time at which the aircraft industry, which is also vital for exports, went into the export business in earnest was when the Government defence programme passed its peak and began to come down rapidly, when the Government said, "No more aircraft for the home market; look abroad." These were the two occasions which marked the tremendous increase in the rate of exports of these two new and important export industries.

The chemical and steel industries are also important for exports, I do not want to be to controversial, but one of the major arguments for the nationalisation of the steel industry is the inadequate construction and investment in it, leading to shortages of steel supplies which could be exported. Not only the steel manufacturers, but those making up steel components into articles sold abroad have been held up because of shortage of steel.

In the chemical industry there is the same story. I want to quote from an article by the Assistant Director of the National Institute of Economic and Social Research, published recently in The Times, which told us about comparative American and British experience in building and investment in the chemical industry. When planning new capacity, Americans tend to err on the high side and this gives them a competitive advantage in exports, especially in chemicals. But, as one manufacturer said, 'we had not the guts to put up a large enough plant'". That is what one manufacturer said to the investigators investigating on behalf of the social research team, that "we had not the guts to put up a large enough plant".

I speak from first-hand knowledge. I will not identify the industry too closely, nor the individual. That would not be proper, but I speak from first-hand knowledge about an industry which has built a large new plant. I asked the managing director to state the basis on which he had decided the size of the plant. He said that it was to satisfy possible demands of the home market. I asked him about a new plant being built in Holland for the identical product and the basis on which that had been built. He said that it was to satisfy the home market there, plus a good deal more. I then asked, why a good deal more? He said that that was their attitude. They put down plant sufficient to supply more than the home market because they feel that this would drive them and encourage them to export. That was the attitude of mind, and I repeat that we should refrain from creating a soft attitude and create a hard attitude to encourage the need to seek export trade.

I do not want to refer too closely to the payroll tax, because time does not permit, and there will be occasions later, when we can go into it in more detail. At all events, if the Government have this in mind, they could be more helpful by using employment exchanges and various other methods open to them to encourage skilled labour which is in short supply to go to those firms which are greatly concerned in the export market. Indeed, the more they are concerned with the export market the more help should be given to them and less help given to those who merely look to the home market to sell their products.

Those are various methods by which the Government could help. As the hon. Member for Halifax said, the Government could help enormously by adopting the attitude of mind which exists in the Common Market.

Mr. Loughlin

I hope that my hon. Friend will not misunderstand me, but I ask him to make it clear that when he talks about the possibility of the Government, through their agencies, assisting export industries to get labour he has not in mind any form of direction of labour.

Mr. Diamond

I am grateful to my hon. Friend. I thought that it would have been clear that I had no such intention in mind, but I am grateful to my hon. Friend for enabling me to clarify the point. I have no such intention in mind, but the fact remains that when employers need labour they go to the employment exchanges, and servants of the Government are there to assist them. It should be possible for those Government servants to give more assistance in one direction and less in another, and create the attitude of mind that if employers need skilled labour, which is probably the greatest need of manufacturers and exporters, they will have to state the proportion of their products which are exported. It could be 20 per cent., 30 per cent. or 50 per cent.; the more the manufacturers exported, the more help they would receive.

I have already referred to the Common Market and the dynamic attitude which exists there. It would make an enormous difference if we were to adopt that attitude of mind.

One other point which I know will not find general acceptance is that the need is not only for scientists and technologists, but for men in the Arts as well as particular artists. I am most impressed by the way in which Italy has increased her export trade purely as a result of the design of her products. I cannot imagine people living in Florence not producing excellent designs. The design of goods is something to which we pay too little attention. We can achieve a great deal more in the export market, not merely on a competitive price basis, or even on the strength of our salesmanship, which is not bad. When I was in the United States a short time ago the Americans said that the reason why we sell abroad so well was that our salemanship was a lot better than theirs.

We have to give credit where credit is due. Apart from these reasons there are many cases where sales take place purely on design, colour, form and packaging—all those things which appeal to the eye and create a demand, and which we tend to neglect in our very unaesthetic approach to building, and many other forms of work. The Government could do a great deal more to help exports. It is a vital need. They should not, as they seem to do, wash their hands of it and say, "We now leave it all to you".

The hon. Member for Halifax also said that he did not think that the Surtax provisions would solve the problem. This was a masterly understatement. The Surtax provisions were the main provisions in the Government's Budget, and I hope that I shall be allowed to spend a few minutes in bringing a little fresh air and clarity to this outworn, outdated, incorrect and folkloreish idea that high taxation is a deterrent to initiative and hard work. I am sorry to delay the Committee, but it will be appreciated that the whole of the Government's case is based on this idea. I must destroy thoroughly this ridiculous attitude, and also show that the alternative argument—that there is a general sense of injustice because of high taxation—does not apply.

I do not need to waste any time in demonstrating that this has nothing to do with exports. It is too absurd for words to suggest that a rebate to all Surtax payers is a direct encouragement to exports. I want to deal with the question on the much more fundamental basis that there is no evidence to support the theory that high rates of taxation are a deterrent to incentive and hard work. The most difficult point at which to seek to disprove this theory is the point at which P.A.Y.E. and overtime operate. My hon. and learned Friend the Member for Kettering (Mr. Mitchison) referred to the Royal Commission's conclusions about executives, but I want to take the case which is much more difficult for me to disprove—the case of the man who receives his pay every week, and out of whose earnings tax is deducted. If the high rate of taxation affects anybody it will affect that man, especially when he has to work overtime.

Three-quarters of those who were asked about the matter felt that this was a great deterrent to working overtime and to hard work generally. The Royal Commission had heard witnesses who said this, although they had not supported it by any figures. The Royal Commission therefore thought it had better consider the matter more closely, and it made 1,500 inquiries of workers. Of every worker asked the question, "Do you think that this is a deterrent to hard work?" three-quarters replied "Yes." The Commission then asked the important question, "What about you? How much is it a deterrent to you? Never mind whot you think about the others—out of your own experience, how much of a deterrent is this to you?" One-third said that it was a deterrent and another one-third said that it was am encouragement. The numbers expressing the two opinions were almost exactly equal.

Those who needed the money had to work all the harder, the higher the rate of tax was, to pay for television sets, washing machines and similar appliances which they, in their simple and sensible budgeting regarded as extras. After devoting their basic wages to their wives they regarded what they earned in overtime as being suitable to spend on paying for additional household goods. The Royal Commission therefore came to the conclusion that the argument that this was a deterrent was not proven. The Trades Union Congress had previously looked into the matter and had reached the same conclusion.

I am sorry to bother the Committee with reports, but it is necessary for me to kill this idea stone dead. In a more recent report, which has already been referred to by my hon. Friend the Member for Grimsby (Mr. Crosland) and can be read in HANSARD, P.E.P. came to the conclusion that there was no evidence to substantiate the idea that high taxation is a deterrent to incentive and hard work. The most recent report is that of the Medical Research Council. Its psychological team investigated the same matter and came to an identical conclusion. There is not a jot of evidence the other way—except the belief of so many people, and practically all hon. Members opposite, that high taxation is a deterrent.

It is interesting to us, as a social oddity, that so many people should hold a view which is such utter nonsense, but it is still held. It is held by businessmen almost unanimously. I have a great deal to do with businessmen, and I make it my business to ask as many as I can in important jobs, such as the managing directors of large businesses, "Do you believe that high taxation is a deterrent and that high rates of Surtax are a deterrent to hard working and initiative?" One hundred per cent. answer, "Yes". I then say to each one, "What about you?" How much less hard do you work because of the high rates of taxation?" Each one says, "I am an exception; I am different"; or, "I have an interesting job"; or, "I have my shareholders to look after"; or, "I want to make a success of my job"; or, "I enjoy working hard". They are all reasons which prompt human beings, and they are the true propellers to action.

One gets this answer time and time again. At luncheon time today, I asked the managing director of a very well-known firm, with branches all over the country, and with a great number of executives in the Surtax class, "What do your executives think of the Budget?" He said, "They are very pleased with the Surtax relief." I asked, "How much better will they work as a result of it?" "Don't be silly", he said, "These are people who have grown up with the firm and worked their way up into the position of executives. They are keen, loyal, and love to work hard. I can rely on them. It is an insult to them to suggest they are not working their hardest already."

Then we come to the professional men, the doctors who have been killing their patients until Surtax relief and who will now cure them! The solicitors who have drafted documents incorrectly and will now draw them correctly! The accountants who have been certifying balance sheets falsely and who will now sign them correctly and with honour because of the Surtax relief!

Do I have to refer to hon. Members opposite? One busy solicitor—I hope no one will press me for his name—said, "Of course, it is a great deterrent, and this Budget is a good thing because of that." I said, "How much harder will you work?" He said, "I am an exception". Every one of us is an exception. Every one of us who has a job of work does it because he is a human being, who moves by ordinary motives, of which financial profit is one, but not the most important one. What about the 300 hon. Members who sit opposite and who come here day after day and work hard for £1,750 a year less—what is the average on the other side?—£1,250 for expenses, leaving, say, £500 a year or £10 a week?

Mr. Willis

And a knighthood.

Mr. Diamond

I am talking about the Surtax relief on the £10 a week. Will they maintain that they will do their jobs a lot better and will turn up in the Division Lobbies more often because of Surtax relief? Is it not utter nonsense?

What about the President of the Board of Trade? I asked him, in an intervention yesterday, how much better he would work. He, too, is an exception. He said, "I have an incentive which money would not buy". He is dead right. He was caught on the hop and told us the complete truth. He is here to serve the country to the best of his ability and we respect him for that and understand it.

What nonsense it is, therefore, to say that we shall do our work better because of the Surtax relief, or that we have been deterred by high rates of Surtax. It is not a deterrent. It has never been a deterrent. Surtax relief cannot be justified on these grounds at all. If the grounds claimed are that a general sense of frustration has been caused by high rates of taxation generally, I invite the Committee to listen to the deductions in Surtax payers' taxation which have already taken place.

The Committee has been discussing Surtax as though it is entirely separate from other taxation and the Surtax payer has had no relief in the past, whereas we all know that Surtax is the higher rate of tax on the same income. Let us consider some of the savings to Surtax payers from 1951–52 to 1960–61, from the last year of the Labour Government to the latest year of the Tory Government.

For a man earning £5,000, married and with two children, the effective rate of tax during those ten years has been reduced from 9s. 11d. to 7s. 1d. in the £ without these latest reductions. He has had a £700 reduction in his tax bill. The man earning £10,000 a year, who paid £6,500 ten years ago, now pays only about £5,000, having had a reduction of £1,400 before today's reductions are taken into account.

That man has had £1,400 given to him during these ten years. Is it necessary to give him another £1,300 in one fell swoop? Before this Budget, the man earning £10,000 a year, married and with two children, paid an effective tax rate of 10s. 3d. in the £, or approximately half. He spends half his money himself and he joins with the rest of us in spending the other half for needy objects. There is no general feeling of over-taxation which has given him a sense of frustration.

Therefore, neither on the ground of deterrent, nor on the ground of a general sense of being too highly taxed and a sense of frustration stemming from it, can these Surtax proposals be justified. They can, however, be utterly condemned, because for the first time the richest section of the community is being chosen to be given something.

There is nothing in the Budget for the ordinary taxpayer, nothing for the small man about whom we hear so much from the benches opposite, nothing for the pensioner, nothing for the people, who help in our export trade—the scientist, the laboratory manager, or the young executive getting £2,000 a year.

Mr. Woodburn

There is no election this year.

Mr. Diamond

That is true. I am trying to increase our exports, to get the country out of this dreadful position in which people cannot export because we immediately get into balance of payments difficulties. I am trying to get the country out of this vicious circle. I am demonstrating that far from helping, the Budget will do precisely the reverse.

How pleased will the laboratory assistant, the young technician, or manager feel when he knows that in this one Budget, the boss is given £1,400, £1,500, or £1,700 a year when he does not have a penny for himself? How co-operative will that make him in the terms described last night by the hon. Member for Eastleigh (Mr. D. Price)? It was the hon. Member for Eastleigh who has made the best speech in this debate from the opposite benches, including his own Front Bench. He did not say that Surtax was a deterrent, or that the Budget would solve our export problems.

The hon. Member said that he believed in having a happy boss and that one of the ways of making the boss happy was to give him an Income Tax rebate, to reduce his Surtax. How happy will the 19 million ordinary employees who get nothing out of the Budget feel when they know that a quarter of a million people will get £80 million to spend between them whilst they themselves get nothing?

Far from helping in our export drive, this will be a great deterrent. It is unfair, this pandering to the greed of the Tory backwoodsmen. It is merely going to the lowest level, satisfying those who said such dreadful things about Lord Amory, the Chancellor last year, who kicked him out, who maligned and attacked him, as a result of which he resigned and has gone to another place. It is that opinion which has won this year. It is the dissent of that opinion which has produced this grossly unjust Budget.

Here we are, at 8.55 p.m., discussing Surtax relief. In a few hours from now we shall be discussing welfare foods that are required by the most needy in our Welfare State. It is no use the Government trying to hide their shame behind the pretence that this Budget is concerned with Profits Tax. The facts of the situation are, as we all know, that £65 million was taken out of the National Health Service and the next thing we knew was that over £80 million would be given to Surtax payers. No one can deny the historical sequence of events. If the Government had not made up their mind to make a Surtax reduction of this extent, they need not have touched the National Health Service, the welfare foods, or any of the other much needed services.

It is a shameful situation and I am delighted that my right hon. and hon. Friends will vote against this Budget.

8.57 p.m.

Mr. Stanley R. McMaster (Belfast, East)

The hon. Gentleman the Member for Gloucester (Mr. Diamond) was not fair to those hon. and right hon. Gentlemen who also want to take part in this debate, particularly from the important point of view of Northern Ireland.

This Budget, which we have been discussing for three days, is an extremely tough Budget. It was presented by the Chancellor as a tough Budget, and I regret that it does not give more relief to the Income Tax payer. I say that quite frankly, though on the other hand I welcome the minor changes, particularly those affecting the victims of Nazi persecution. I realise, also, the great emphasis which has been given throughout the debate to the importance of exports and, therefore, the necessity to control consumption at home.

I welcome the changes which were announced just before the Budget to E.C.G.D. These changes, coupled with the investment allowance assurance of 40 per cent., will be of particular help to Britain's shipbuilding industry. I am particularly interested, of course, in the shipbuilding yards of Northern Ireland, where the threat of unemployment at the moment is severe.

I regret that the E.C.G.D. changes seem to have been coupled with the Budget and thus have come rather late in the year, with the result that we have lost several important contracts. I recently read about these lost contracts, one of which went to Germany, and another—for road construction equipment—went to the Argentine because Britain could not offer the same guarantee or cover in order to obtain the necessary finance, as could our overseas competitors. The reduction in Stamp Duty on bills of exchange will also help the exporter. Today I saw a Bill of Exchange stamp to the value of £20. The reduction to 2d. is bound to encourage British exporters.

The major factor in the Budget is no doubt the two new regulators which the Chancellor announced could be used at any time during the year. I agree in principle with the idea that the regulators should be used at any time during the year. This was recommended in the Radcliffe Committee's Report, as I said, in connection with the E.C.G.D. It is a great pity that important changes like this should in the past always have been linked to the Budget. They have been well received by the financial and business editors in the national Press.

I welcome the two regulators, but I should like to qualify what I have said with a few words on the payroll tax. I agree with what my hon. Friend the Member for Belfast, West (Mrs. McLaughlin) said earlier. She expressed great apprehension about the payroll tax. The threat of a payroll tax was very badly received in Scotland, Northern Ireland and other depressed areas with high unemployment. We require more details, and I would ask the Financial Secretary to provide them. I consider that the details should have been much more clearly thought out before the Budget.

If this tax is to be used solely as a regulator, then the case for exempting development areas in Britain and Northern Ireland seems to be very strong. Such regulators are totally inappropriate to such parts of the United Kingdom. However, if there were exemption for such parts of the United Kingdom, we should have a very desirable effect, one which is apparently embodied in the Distribution of Industry Act, because manufacturers whose industry had a high labour content would be encouraged to set up in those areas, and that would help more than anything else to solve the unemployment problems in such areas in Northern Ireland and Scotland.

I urge the Chancellor to give special thought to the suggestion that such areas should be exempted. I welcome what the Chancellor has already said and what the Economic Secretary said today with respect to Northern Ireland. If such a payroll tax is imposed, the yield will be paid back to the Exchequer in Northern Ireland, but that in any event will be used for ordinary Government purposes similar to those under the Distribution of Industry Act, and something more than that is required.

I wish to consider for a moment the serious effect on industries with a high labour/production ratio, industries which are called "labour intensive", such as shipbuilding, textiles, mining and transport. Many of these industries can least afford this tax, and yet they contribute a very high proportion of their output to exports than other industries such as brewing, electricity and property, which are "capital intensive" and employ little labour.

Also, the effect on apprenticeship schemes of the suggested payroll tax should be considered by my right hon. and learned Friend. As was pointed out in a leading article in The Times today, such a payroll tax would have a very bad effect on apprenticeships because it would make it very expensive for firms to engage in such schemes.

Let us for a moment examine the purpose of this tax. If the regulator has been introduced in order to supplement existing physical and monetary regulators—Bank Rate, and so on—the introduction of such a weapon in order to restrict consumption and so relieve pressure on the export industries is surely inappropriate. I have two criticisms to make here: first, as a regulator, its effect is much too slow; secondly, instead of helping exports, particularly marginal exports, it will tend to increase prices at a time when we need to keep prices down in order to help exports.

On the other hand, if it is intended to stop the hoarding of labour and to encourage investment in labour-saving capital equipment and automation, it should be applied straight away so that it can be taken into account by manufacturers in their estimating. How can a shipbuilder quote a firm price if suddenly he has to pay 1s.-4s. extra tax per head of all his employees, not to mention the probable increase in prices of his raw materials and other factors? The greatest disadvantage of this weapon is its uncertainty. Far better regulators are the Special Deposits and other monetary controls.

So far as labour hoarding is concerned, will the 4s. per head be effective? The motor-car industry appears to have been vindicated of hoarding labour, as its recent successes in Geneva and New York indicate. Were these firms wrong in keeping on their employees short time? This proposal will only put up the costs of such firms at a time when they are most anxious to enter new markets.

Another important point is this. Is automation in factories to be based on the assumption that in future there is going to be a payroll tax of 4s.—that is, I per cent. to 2 per cent. of labour costs? Machinery installed on this assumption could well be too expensive and not make the best use of capital and labour resources.

This is a most drastic weapon, and I should like to ask the Government whether they have put their own house in order. There is need for a radical reassessment of the needs of the economy. Railways appear to be spending too much. Their capital cost is too high and they are not making the best use of capital equipment. Mining is not being carried on in the most efficient manner. We are closing our opencast mines and concentrating on the labour intensive deep mines. Is this the best use of labour? Is the Civil Service economising in its labour? I am sorry to see an increase in Profits Tax. This cannot help our export industry and it can only put up costs.

With these qualifications, I welcome this Budget and I support my hon. Friend the Member for Belfast, West in her remarks on the recommendations to the Northern Ireland Government which are being considered at the moment. I hope they will be given speedy consideration in order to help industry in Northern Ireland.

9.8 p.m.

Mr. Douglas Jay (Battersea, North)

I have some sympathy with the predicament in which the Chancellor found himself when preparing his Budget. I do not really suppose that the right hon. and learned Gentleman himself, to do him credit, believed all this rubbish about potential exporters all over the country being held back because they were sulking about Surtax. The right hon. and learned Gentleman was once a Liberal. He has had a somewhat chequered career in his last office, and I suppose he felt that he had to prove he was a real Tory this time.

The President of the Board of Trade in January made a public speech saying that Surtax ought to come down, and then there were a lot of weekend visits at Chequers in which there were a number of public leaks to the effect that the Prime Minister, too, thought that some concession should be given on Surtax. Therefore, I am afraid the wretched Chancellor was put in a position in which he had to do something of this kind, whether he liked it or not.

The President of the Board of Trade said yesterday that we ought to have social justice even among Surtax payers. Incidentally, the President seemed to forget that all the reductions that we have had in the standard rate of Income Tax over the past years have benefited Surtax payers already. With the general proposition of equity among Surtax payers I entirely agree. But if the President of the Board of Trade thinks that social justice among Surtax payers has been achieved by the Chancellor's proposals he cannot have studied the actual tax tables in the Financial Statement very closely. The more one studies these tables the more it becomes apparent that the Chancellor has given these huge and extravagant Surtax concessions in practically the most inequitable way possible. He has handed hardly any of the benefit to the people whom he was professing to encourage—the young and active export salesmen and executives and so forth.

I cannot help thinking that the Chancellor must have been so bemused by the one-ninth, the two-ninths, the £2,000 and the £4,000 and all the rest of it, that he did not investigate what he was actually doing to the real taxpayers with actual incomes and their actual circumstances in real life. He said that he was going to help—and these are his own words in his Budget speech—the "managers, scientists and technologists", but if we look at the tax tables we find that it is not the £3,000 a year man, the £4,000 a year man, and even the £5,000 a year man, who benefit most. Apparently they are below the level at which the Tory Party cares.

The right hon. and learned Gentleman has given away by this Budget nearly half the whole yield of Surtax—an enormous tax relief—of which the heaviest benefit, proportionately, goes to the £10,000 a year, £12,000 a year and £15,000 a year incomes. Taking the single taxpayer on £3,000 a year, the tax paid as a result of these changes comes down from £907 to £794—about £113 a year—but at £10,000 a year it comes down by £1,250 a year, and at £20,000 a year by £1,800 a year. The £10,000 a year man actually gets relief by these proposals equal to practically the whole of the tax paid by the £4,000 a year man; or, to put it another way, at £3,000 a year the tax is cut by these proposals by about one-seventh, but at £10,000 a year it is cut by nearly one-quarter.

Mr. Gresham Cooke

The more tax one pays, the more remission one gets.

Mr. Jay

I thought the hon. Gentleman would say that, but did he not notice what I have just said—that the percentage reduction in the tax is much higher at £10,000 a year than at £3,000 or £4,000 a year? I ask the Chancellor whether he meant to do it that way. Has he studied the tax tables and how his proposals will work out?

This is fantastically inequitable and bad for incentive, even between Surtax payers. It does not encourage or energise the great bulk of the technologists, managers and scientists, the people whom I agree ought to be helped. The income figures in the tax tables are net incomes after deduction of superannuation subscriptions and all the other allowable expenses, and this means that a man is classed in the tax tables at £10,000 a year in plain language is receiving altogether probably £12,000, £13,000 a year or rather more.

The scientists, technologists, export salesmen and the great bulk of managers, and every single worker in the publicly-owned industries, except Dr. Beeching, are not being paid £12,000 or £15,000 a year at all. They are receiving £2,500, £3,000 or perhaps £4,000, and they get an almost negligible proportion of the Chancellor's huge give-away. It is, in fact, the company chairman, the pluralist directors, the property dealers and the very wealthy who get the larger windfall from these proposals.

Secondly, these concessions are not limited, as the Chancellor tried to imply in his Budget speech, to earned Surtax income at all. I wonder whether the Committee realises, though I suppose the Chancellor does, that by this extraordinary method of tax reduction a man getting £1,500 a year on earned income gets nothing from this Budget. But if he is receiving £1,500 of earned income plus £1,500 of unearned income, if single, he gets £42 a year. If he receives £2,000 a year all earned he gets nothing at all. But if he gets £2,000 a year earned income, plus £2,000 a year unearned, he gets £80 a year to encourage him to more initiative and enterprise. That is not a tax relief for earned income at all. It is partly a relief for unearned income; for it is the possession of unearned income which carries one into the zone which gets the tax relief. I wonder if the Chancellor knew that was what he was doing, and how he justifies it.

Moreover, the proposed cuts are quite inequitable as between smaller and larger families; and they heavily aggravate what, in my view, is the worst defect of our direct tax system already, namely, its extreme unfairness at almost every level of income between the single earner and the earner with a number of dependants. Some figures have been given before today. To take one example, at £3,000 a year a single person will now receive a bonus from the Chancellor of £113 a year. A married couple with three children will receive £60. At £4,000 a year, the single earner receives £287 a year, but the couple with three children receives £113. What possible relation has that with incentives, and how can the Chancellor justify it?

I sum up the Chancellor's extraordinary proposals in this way. They are highly inequitable even between Surtax payers. The concessions go to a vast number of people not engaged in exporting at all. They give very little indeed to the great majority of salaried managers, scientists and executives; and many very wealthy taxpayers will benefit simply because they have large unearned incomes.

In addition, the Chancellor's concessions to the very large incomes are more lavish even than those given by the right hon. Member for Monmouth (Mr. P. Thorneycroft), the present Minister for Aviation, in his 1957 concessions to the Surtax payer. The right hon. Member for Monmouth gave about £500 a year to the single taxpayer with an earned income of £10,000 a year. The present Chancellor is giving him about £1,250 a year. The 1957 Budget gave about £500 also to the man earning £20,000 a year. The present Chancellor gives £1,800. Without question, therefore, on the evidence of the Chancellor's own tax tables, this Budget is the largest and most vicious step backwards towards economic inequality and social injustice in this country since 1939. Taking it in the context of the steep rises in the Health Service charges and National Insurance contributions introduced in the last few months, which will be paid by those earning the lowest wages, it must be regarded as the most reactionary Budget introduced in this century, with one exception, the Budget of September, 1931, which was memorably described by Lord Keynes at the time as "replete with folly and injustice". For the President of the Board of Trade to describe the Budget yesterday as an act of social justice was the greatest piece of nonsense and humbug I have ever heard. No wonder it was found necessary to postpone the Budget until after the local elections.

The Budget and the Health Service charges follow a series of other measures by the party opposite during the past five years designed to increase inequality. The total yield of National Insurance contribution and Health Service charges is now over £1,100 million a year. This exceeds the total yield of all Income Tax on wages and salaries, and, of course, it represents a major and highly reactionary change in our tax system imposed by a Tory Government. There is no doubt now that the total weekly levy paid in Income Tax and contributions together becomes a higher proportion of income as one goes down the scale from £10 or £9 a week.

From next July—I suppose the Chancellor realises this—an employee contracted out of the Government's superannuation scheme—incidentally, perhaps against his will—will pay 12s. 2d. a week in contribution, even though he is earning not more than £8 a week, as many people still do today. Can the Chancellor really deny that such a worker earning £8 a week will pay a higher total proportion of his income in tax and contribution together than many people earning a great deal more? In my view, that 12s. 2d. a week, and, indeed, the general 10s. 7d., is an iniquitous burden for a man with that level of income and several dependants to support. Indeed, the regressive principle it represents is a contradiction of the policies followed by progressive Chancellors in this country for the last fifty years.

In addition to that, in addition to these tax changes, dividends have been increasing faster than wages for a number of years past. The Chancellor made no estimate of this at all in his Budget statement. I wonder whether the right hon. and learned Gentleman even looked at the facts here before deciding to make these precise tax concessions. According to his White Paper on National Income and Expenditure, the total income from employment, that is wages, salaries and pensions—before tax, of course—has risen since 1955 by 33.8 per cent. But total dividends and interest payments have risen by 58 per cent. in the same number of years. The truth is that, even without allowing for a much greater prevalence of tax avoidance among Surtax payers than among the unfortunate P.A.Y.E. population, the inequality of incomes has undoubtedly been increasing in this country within the last six years.

On top of this, and what is probably even more important, capital gains have been persistently increasing the economic advantage enjoyed by that small majority of the population which happens to own equity shares. I am grateful to the Financial Secretary for assisting me by correspondence to make an estimate of how great are these annual gains. The fact that emerges from the annual statistics is that the total annual undistributed profits of companies nowadays, after tax and dividends and after depreciation, has risen to about £1,000 million a year. That is an addition to the private property which equity holders enjoy annually without making any effort or putting up any new money at all. It means, in fact, that any owner of a well-spread group of equity shares is receiving an increasing income of at least 5 per cent. a year at the present time without lending any more money, and, of course, the value of his property is going up by very much more.

Mr. Leonard Cleaver (Birmingham, Yardley) rose—

Mr. Jay

I am afraid there is no time for me to give way to the hon. Gentleman.

I see that the equity income of the Prudential from its reserves rose by 18 per cent. last year; and that is in one year alone. This, of course, is the reason for the persistent upsurge of equity prices which were carried to a new all-time record yesterday as a result of the Chancellor's Budget. Yet at a time when all this is going on and these huge capital gains are accruing to a small minority the Government insists on still investing the whole of the funds of the National Insurance Fund in gilt-edged; and the Chancellor had to admit to me at Question Time last February that the value of gilt-edged held by that Fund has depreciated by £338 million since 1951. That is actually six times the total yield of the contribution he is levying in the present year.

Frankly, I think that any Chancellor who invests the whole of the contributors' money in gilt-edged at the present time, and none in equities, is not performing his duties as a trustee and is not keeping faith with the contributors to the Fund. I see that the Prudential, if I may quote it again, last year invested 30 per cent. of its new investment funds in equities rather than gilt-edged.

I believe that the real moral of this persistent modern tendency for private capital gains in a mived economy like ours is that we ought to shift the emphasis of taxation increasingly on to capital gains and distributed company profits rather than on personal earned income.

These are the private receipts which are growing most rapidly and with the least effort, and with the most damaging effect on social equality. Yet yesterday the Chancellor told us—in 1961—in a few rather cursory and causal sentences, that he thinks a capital gains tax is impractical in this country. How can it be when the Americans have been working it for thirty-five years past? If the Chancellor wants to know how to work it, he has only to look at the memorandum which was written by the Inland Revenue and included in the final report of the Radcliffe Committee on taxation.

There is no truth either in the argument beloved by the party opposite that this country is staggering under some unique or intolerable burden of taxation or Government expenditure. The National Institute of Economic and Social Research has just exploded this myth once and for all. It has shown in its March review that it is not Britain but Western Germany which holds the record amongst the major countries for channelling the highest share of its national income through taxation and social security. West Germany comes out top of this list with 34 per cent. of her national income, and we follow with 29 per cent., France coming above us with 32 per cent. The President of the Board of Trade has been challenging us saying that if Germany was successful did we want to imitate her, but it is interesting to note that Germany devotes a higher proportion of national income on public expenditure than we in this country.

Nor is it even true that in fact our tax system before this Budget was more progressive than any other. It is not merely the Scandinavian countries but, as the National Institute shows again, it is the United States which raises a higher proportion in direct taxation and a lower proportion in indirect taxation than we do; and, indeed, even the marginal rates of direct tax on personal income at the highest level, even before this Budget, were higher in the United States than they are in this country.

But, of course, if the Chancellor really believes that his Surtax cuts are going to send a great impetus of energy through all our exporters, he has only to study the effect of the cuts which the right hon. Gentleman the Member for Monmouth made in 1957. He came along with his spring Budget of 1957 and he told us, "Our theme is expansion," and he made a number of cuts in the Surtax. What happened? Between 1957 and 1958 we had the biggest fall in production in this country in any year since the war, and the biggest fall in the volume of exports in any year since the war, and a very large fall in investment as well. I may add, if it is any consolation to the Chancellor, that the then Chancellor resigned before his next Budget came round.

Therefore, I believe that the long-term changes we really need are a substantial tax on realised capital gains, a shift in Income Tax from personal earned income to distributed profits, a relief for small income earners, particularly those with large families, and an end to Purchase Tax on a number of household necessities on which it is still charged.

I see something to be said for the Chancellor's plan for changes in the Excise taxes between Budgets, but I should like to ask him a question just to get the facts clear. I suppose it is not intended that the Government would impose a higher tax by this method on a number of commodities which bear Excise taxes before getting permission from Parliament—when, perhaps, Parliament might not be sitting—and then come along afterwards and ask for retrospective approval from this Committee? If that is what is proposed I think it would be highly objectionable. I think we should get that clear before this debate is over.

On the other hand, I must say that I see nothing whatever to be said for the idea of this payroll tax. In the first place, as the hon. Gentleman the Member for Belfast, East (Mr. McMaster) said, it really is an insane policy to apply this sort of tax indiscriminately in areas which are troubled and perplexed by surplus labour. I hope that the hon. Gentleman will vote for the Amendment which we shall certainly put down to the Finance Bill to exclude all the development districts from the operation of this tax.

Mr. McMaster

And Northern Ireland?

Mr. Jay

And Northern Ireland.

But, quite apart from all that, it surely is rather a monumental piece of cynicism that we have been told for years that rises in labour costs would be inflationary and price us out of export markets and all the rest and now we are suddenly told that a rise in labour costs, provided it does not come through an increase in wages but through this tax, will be beneficial after all because it will stimulate industrial development. The Chancellor gave us a homily this week about higher wages, and then we had the extraordinary speech of the Economic Secretary this afternoon. But if this is really so and we are now told that a rise in labour costs is desirable, for heaven's sake let us have it by a rise in wage rates.

The truth, of course, is that any direct charge on costs of this kind, whether the National Insurance contribution or this surcharge, is a direct addition to financial costs and, therefore, to prices, including those of exports; whereas a tax coming out of profits to pay for our social benefits or anything else is not in the main an addition to costs or to prices. The Chancellor does not seem to realise that because we finance a great deal of social expenditure by taxes on profits rather than charges on costs, we confer a great competitive advantage on British exports throughout the markets of the world. It would be utter folly to throw this away just at the moment when we want to enhance the competitive power of our exports. I hope that we shall hear no more about this amateurish and half-baked proposal for a payroll tax which the Chancellor introduced.

The most remarkable feature of the debate perhaps has been the complacency and, indeed, the defeatist attitude of the Chancellor and the President of the Board of Trade towards the present plight of our balance of payments. We are, after all, faced with the highest United Kingdom deficit for ten years. The Government have performed a remarkable feat in achieving this in a year of high world trade and of terms of trade extremely favourable to this country. I still do not know what the Government mean to do about it.

The March returns of overseas trade show that there has been no significant improvement, and we have had absolutely no information in the debate about what Ministers propose to do if there is a severe exchange crisis this Autumn. Are they relying on some new form of help from the Central Bank and the International Monetary Fund? If so, we have been given extremely little information about the concrete methods by which this will be achieved.

We have been told often in debates on economic affairs that there is a dilemma between, the aims of growth and balance of payment solvency, and between incentives on the one hand and social justice on the other. But the astonishing fact is that in the last twelve months we have achieved neither growth, balance of payment surplus, price stability nor social justice. When the President of the Board of Trade asks what we on this side of the Committee would do, I have to remind him that his Government have been in power for ten years and have failed to achieve all the main objectives of an intelligent economic policy.

I am astonished when the Chancellor of the Exchequer argues, as he apparently does, that we are now fully employed and that demand is again pressing on our resources. It is extraordinary when production has stagnated in three years out of the last four, and the index of production published this morning shows no change at all since January of last year, to be told that we are now in a condition of over-employment and over-strain. Is it really the Government's view that after three years of stagnation, and one year of advance, we are now, after another twelve months of stagnation, producing to capacity and unable to stand a further stimulus? If that is true, it is an astonishing commentary on the way in which our economy has been conducted in the last few years. Production ought to increase by 4 per cent. or 5 per cent. a year. After a year of stagnation we ought to achieve by the end of next year a level of production at least 5 per cent. to 6 per cent. above what it is at present. But instead we are told that the brakes must be put on once again.

The other necessity for an expansionist policy—I am an unrepentant expansionist, like the hon. Member for Eastleigh (Mr. D. Price)—is to keep our imports within the level that we can afford. There is no doubt whatever now, looking back on it, that the President of the Board of Trade's sweeping and unilateral removal of import controls in 1958 and 1959 was recklessly premature and was the cause of the 40 per cent. rise in manufactured imports which took place in that year, and of the balance of payments crisis from which we are now suffering and which is inhibiting any further expansion.

That is not merely our view, constantly expressed at the time. It is the view, as the President of the Board of Trade knows, even if the Chancellor of the Exchequer does not, of Sir Roy Harrod, who is a devout free trader and a passionate believer in G.A.T.T.

Now that the President of the Board of Trade has made the hasty blunder of taking these controls off, it is much harder to replace them, even though with a deficit of £344 million we should be perfectly entitled under the G.A.T.T. rules to do so. So the Government now find that they have to limit imports (because they have to be limited one way or the other), by holding back the growth of production and employment, and a reluctant Chancellor of the Exchequer is forced for this reason to balance the tax cuts that he wanted to make by tax increases at the same time and by increases in the health charges.

The irony is that this is where Tory freedom has now led us. It now deprives us, not merely of growth, social justice and international solvency, but even of the sweeping general cuts in taxation which I know that real Tories desire more passionately than anything else, except the restoration of corporal punishment.

9.37 p.m.

Mr. Alan Green (Preston, South)

I have sat through the whole of the Budget debate, or at least most of it, and have heard many very interesting speeches. It would be presumptuous of me, particularly today, to try to answer particular points made today; and I have no intention of doing so.

There are, perhaps, one or two comments which might apply to speeches made by right hon. and hon. Gentlemen opposite. It is very easy, very natural and entirely understandable to make exaggerated attacks upon, or claims for—depending upon which side of the Committee one happens to sit—particular measures and particular purposes in such a matter as a Budget. I rather take the view of the hon. Member for Ashton-under-Lyne (Mr. Rhodes), that these sort of polemics are not very appropriate today. I believe that very many people outside the House of Commons, and, indeed, inside it, are getting very bored with him. I want to avoid it if I possibly can.

Mr. Callaghan

I do not mean any personal offence to the hon. Gentleman. I have great respect for him. He has said that he does not intend to answer the points which have been made. There are 73 Ministers. The Financial Secretary has not been present throughout today's debate. We have not seen the First Lord of the Treasury. Is it not discourteous that we should not have a reply from the Government to the points which have been made from this side of the Committee?

Mr. Green

Sir Gordon, you called me. I believe it is a reasonable point to make that private Members, on which-ever side of the Committee they sit, still have some rights. I propose to exercise mine. The question raised by the hon. Member for Cardiff, South-East (Mr. Callaghan) is, no doubt, interesting, but a little irrelevant to this discussion. These polemics, though understandable, are not necessarily relevant.

If I understand hon. Members opposite correctly, they would welcome a differential in the rate of Profits Tax between undistributed and distributed profits, with a lower rate on undistributed profits; and a higher rate on distributed profits. It is, therefore, remarkable to find the right hon. Member for Batter-sea, North (Mr. Jay) suggesting that the growth of these undistributed and less highly taxed profits in the hands of owners of the equity would be a most undesirable social product. That is the kind of contradictory thing into which one falls if one goes too much into polemics and too little into the contents of the Budget.

Mr. Jay

I said that it would be highly desirable if we had a capital gains tax, but not otherwise.

Mr. Green

I will come to that in a moment, but the first product of having a lower rate of profits tax on undistributed profits is to encourage that undistributed growth for the benefit on the equity shareholder which, in another sentence, the right hon. Gentleman said was all wrong. He must be a little careful about where logic leads.

I want to make a point which was not made in his speech by the hon. Member for Ashton-under-Lyne. I feel that I might talk to him a little, because we share certain common experiences. We are both those terrible fellows, chairmen, who are to be such beneficiaries of the reduction in Surtax. Perhaps that makes a bond between us. We also represent Lancashire constitutencies, and both, in common parlance, have marginal seats. We are both practising the difficult art of textile manufacture. I have his permission to reveal something which he told me in private, and which I want to use as my lead to my main theme.

I have seen for myself the hon. Member's very progressive woollen textile mill. He has done me the honour of showing me round it on three occasions. It is very impressive. I have his permission to say that he has told me—and I share his experience—that this is the first year in which it will be difficult, if not impossible, for him to absorb increased labour costs by increased capital efficiency.

The reason for this is not a percentage wage increase on the basic wage rates, but a shortening of hours, which has had an even greater effect than such a wage increase would have had. This is a most serious point. He put it to me privately, and I am grateful to him for giving me permission to make it public. I consider it to be the main defence of the Budget, and I hope to show the Committee why.

Each one of us, on whichever side of the Committee we sit, is, in a sense, his own Chancellor. In that sense, each of us will always be able to think of a better way of doing a particular thing than the way in which the Chancellor may choose to do it. In that sense I would have dealt with Surtax in a different way. In that sense, no doubt I would have done other things in a different way because in this respect each of us, quite properly, is his own Chancellor. That is why I chose the hon. Member for Ashton-under-Lyne as a sort of lead in for me.

I think that the Budget is good because its central point is the establishment and the securing of a really large surplus. I agree with the hon. Member for Ashton-under-Lyne. There is every indication that a serious inflationary situation is on the point of developing. Because I believe that to be true, and having done a sort of strip-tease of quips, or polemics, or whatever it is of speeches made by right hon. and hon. Gentlemen, I believe that they hold essentially much the same view. That being the case, there was a duty on my right hon. and learned Friend to secure a large above-the-line surplus this year, and I will say a little more about that presently.

Mr. Mitchison

But not, at the moment, to reduce Surtax.

Mr. Green

I understand the hon. and learned Gentleman's attempt to draw me off the central point, but I will not be drawn away from it.

For what it is worth, I have done researches into the past Budget deficits and the net capital needs for the nationalised industries and the Post Office. My figures work out this way. Over the last nine years there has been a cumulative overall deficit on successive Budgets of about £2,130 million. The net capital requirements of the nationalised industries and the Post Office which must be added to that deficit appear to be £1,101 million, making total capital requirements to be found of £3,231 million over a period of nine years.

Those needs seem to have been met from extra-budgetary funds such as National Insurance, the iron and steel realisation account, departmental balances, and so on, of about £996 million, and external transactions through the Exchequer Equalisation Account of about £254 million. Total net borrowings from the public, that is National Savings and various Treasury issues, amount to about £1,132 million, leaving what one might call the residuary element—I believe that that is the fashionable phrase—of unsecured additional notes issued of about £849 million over this period.

Over a period of nine years an increase in unsecured pound notes of £849 million is less than £100 million a year. It is not a great deal in each year, but, accumulating year by year over nine years suggests a serious cumulative factor.

I assure right hon. and hon. Gentlemen opposite that I am not very doctrinaire about the point to which I am now coming. To me this £100 million or so over and above what the Government secure by savings or revenue, but still spend, would not be too serious if we were not, throughout the whole period, having full employment, carrying heavy defence liabilities, giving genuine aid on a massive scale to under-developed countries, and if we were not—whatever the to-and-fro across the Floor of the House—developing our general social services.

But because those four heavy and very honourable burdens have been carried through the same period of nine years for which my right hon. Friends have been in power, this relatively small, unsecured £100 million annually addi- tional to the total purchasing power of the country, with no real resources behind it, has been overloading at the margin, and that has mattered a great deal. I suggest that that is the main reason why it has been impossible to plan for a smooth growth of the economy during this period.

If my argument is acceptable I have given a very good reason why the central theme of my right hon. and learned Friend's Budget shoud be applauded today. He has secured a sufficient surplus above the line to make it absolutely sure that his overall deficit of £67 million or £69 million will be met by net increases in unforced, true national savings. This is the central point of the Budget, and the other matters that go with it are less important, although they are extremely interesting and very necessary to talk about.

During the last nine or ten years this country has either ben overspending or has been undertaxed to the tune of about £100 million in each year. I take the view—and here I will no doubt enter into legitimate controversy with the right hon. Member for Battersea, North—that it would be better to reduce spending by £100 million than to increase taxes by £100 million. Perhaps we can argue that point at some other time. The margin has been quite small for all these years', but it has accumulated each year and now a very large Budget surplus has become necessary. I am delighted that my right hon. and learned Friend has budgeted for it.

I should like more time to consider the payroll tax in the form presented to us. As a regulator of the economy over the years I can see much virtue in such a tax—a good deal stiffer than this one but carrying with it a substantial remission of other taxes on industry and commerce. Such a policy, persisted in over a period of years, would be an economic regulator in terms of making our industry and commerce a good deal more efficient, and also of increasing the determination of employers to produce a generation of more highly skilled workers. One of the things which is occasionally forgotten in this age not only of space travel but automation is that the more expensive and complicated a machine is the more important, and not the less important, becomes the worker with that machine.

This is something that hon. Members on both sides of the Committee appreciate, but we have a tendency to encourage a wholly wrong and unnecessary fear that workers in industry are in danger of being demoted or displaced by automation and expensive machines, and, therefore, of becoming of less importance. This is far from being true. The more costly, the more complicated, the more productive the machine, the more important are the men who work it. It is essential that we devise and stick to policies to increase this combination of skill and conscience which is the absolute heart of the British economy, or it should be, and the absolute prerequisite of this growth in the economy that so many people ask for and so few study how to achieve.

If we are to have a payroll tax, I would personally, suggest that it should be regarded as a true economic regulator rather than as a revenue raiser. The other suggested regulator seems to me to be somewhat more fitted for its purpose of day to day, or month to month, or quarter to quarter regulation than the payroll tax itself. I should, personally, be sorry if the new idea, which I welcome very much, of the payroll tax was, in fact, not used to develop this truly tractive power within the economy which, I believe, it could develop instead of being used as a short term ad hoc measure.

Finally, I welcome my right hon. and learned Friend's determination to make our economy much more competitive, if I have understood him aright. I hope that the ultimate message which will go out from this Committee, however much one quarrels about the details, is that the Chancellor will have the undivided support of the nation in protecting sterling, whatever measures he may have to take to do it.

My right hon. and learned Friend is not a monster any more than right hon. Gentlemen opposite are pseudo-monsters—I hope that they will not deny it—and I am perfectly certain that in their heart of hearts, at the end of the day, they are just as determined as he is to make the defence of sterling, a great reserve currency, priority No. 1. It is very important, not merely in this country but right across the world, that they are just as determined in fact, however they may cloak this in their political arguments, as my right hon. and learned Friend to make the defence of sterling priority No. 1. If we are to continue, whichever side is in opposition, to make this country a secure base on which later to secure further growth in the economy, I have no doubt that our first duty is to protect and restore, indeed, to nourish, the strength of the £ sterling, and I welcome my right hon. and learned Friend's approach in those terms primarily.

I am prepared to give full credit to the members of the Opposition Front Bench for putting that priority first if they happened to be sitting where my right hon. and learned Friend the Chancellor now sits. I am sure that that is the case with them and I hope that they will find it in their hearts to say so clearly and unequivocally before we all go chasing our tails again in political polemics with which the British public is now heartily bored.

Mr. J. E. B. Hill (Lord Commissioner of the Treasury)

I beg to move, That the Chairman do report Progress and ask leave to sit again.

Mr. Willis

On a point of order. I did not hear what the Motion was, Sir Gordon.

The Chairman

The Question is, That the Chairman do report Progress and ask leave to sit again.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.