HC Deb 07 June 1961 vol 641 cc1092-335

3.44 p.m.

Mr. Douglas Houghton (Sowerby)

I beg to move, in page 8, line 5, after "of" to insert "assessing and".

The Chairman

I think that it would be convenient for the Committee to discuss with this Amendment that in page 8, line 5, to leave out "for" and to insert: in respect of income arising in and that in line 6, to leave out "of assessment".

Mr. Houghton

As you say, Sir Gordon, this Amendment can be taken in conjunction with those that you have mentioned.

As this is the first of a series of Amendments to this Clause, perhaps I may be permitted to make some brief preliminary remarks about our general approach to the matter. We on these benches are against Clause 11 as a whole. We shall oppose it, amended or unamended, because in our view it has no rightful place in this Bill and in the Budget in the context of the present economic and social situation.

We are against it, against what went before it in the way of supplementary Budgets, and against what is in Clause 11 now but, without prejudice in any way to our opposition to the Clause as a whole, we have put down these three Amendments, which are designed to correct faults in the Chancellor's own proposals. Even if we accept the right hon. and learned Gentleman's own premises as the basis for the proposal in Clause 11—which, as I have just said, we do not—we consider that he is mistaken in three respects.

First—and this is dealt with in the Amendment I am now moving—he gives incentives retrospectively to all self-employed persons who are assessed under Schedule D on the profits or gains of the preceding year. This is precisely what the Chancellor said he wished to avoid when putting a forward date to the Surtax reliefs in this Clause, and I will be returning to the detail of this Amendment in a moment.

The second of our three Amendments to Clause 11 deals with the incidental advantage that is given to unearned income by the relief which the Chancellor proposes for earned income. By reason of the reduction in earned income for the purpose of the charge to Surtax, the Surtax rate on unearned income is consequently reduced. We have tabled the second Amendment to rectify that fault.

Thirdly, we think that the Chancellor should have restricted or excluded from any business expenses deductible from the Surtax assessment certain types of expenses in which the taxpayer shares some amenity or personal benefit. We contend that these are flaws in a Clause the general principles of which we disagree with as much as with the proposals themselves.

With that introductory explanation, I will now deal with the first of our Amendments. In his Budget statement on 17th April, the Chancellor had this to say about Surtax reliefs: The changes I propose will be applicable to incomes earned—I repeat earned—during this new financial year and thereafter. In other words, the changes will affect what is payable on and after 1st January, 1963. I myself thought that the Chancellor made an aside at that point, although it is not recorded in the OFFICIAL REPORT. I thought that I heard him say that there was no point in giving incentives when the money had already been earned; but I may have been mistaken.

Be that as it may, what the Chancellor is doing under his present proposals is to give retrospective incentives to a certain class of Surtax payer. He intended that the reliefs he was giving should relate to income being currently earned now. He stressed two points. One was that the reliefs would be given to earned income—and we have another Amendment later to deal with the fact that, as I said a moment ago, unearned income will consequentially benefit from the reliefs given.

The Chancellor not only stressed that the relief was to earned income, but that it was to income being earned, as he said …during this new financial year and there-after."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] I quite understand the logic of his approach. He wanted to give this stimulus now, and there was no point, in pursuance of his general objective, in giving retrospectve benefit. So he wanted the benefit of these reliefs to be reflected immediately in these incentives to those who are earning incomes in this new financial year and thereafter.

I suppose that the Chancellor's intention was that the 400,000 key men and women in Britain, including the whole of the Treasury Bench, should, upon hearing of these tax reliefs, show renewed vigour, energy and enterprise. Slothfulness was to be banished, intolerance dissipated, resentment removed, work to rule was to be abandoned and all drags on the fullest use of brain, skill and enthusiasm were to be removed from Monday, 17th April, at 6 p.m., the day of the announcement of their fiscal emancipation.

One can almost hear the hum of their increased activities. It was certainly the Chancellor's intention that this should happen. But we find, incidentally, that by the method of assessment for Income Tax under Schedule D the Chancellor is conferring retrospective incentives on people who have already earned the money and cannot possibly now give him any reward for the initial period over which they will get their Surtax reliefs.

I refer, of course, to all of those in business on their own—professional men in private practice and other self-employed persons—who are assessed under Schedule D on the profits of the preceeding year. As we all know, SurTax assessment are based on the Income Tax assessments made for the same year. For 1961–62, Surtax will be levied under Income Tax assessments for this current Income Tax year 1961 to 1962.

The Surtax assessments are not, however, made up until the Income Tax assessments for the year have been settled, and that is why there is a period of eight months after the end of the Income Tax year before the Surtax assessments are completed and the notices and demand notes are sent out.

As the Chancellor pointed out in his Budget statement, the Surtax assessments for 1961–62 will be the first in which these reliefs are given and the reduced Surtax will be payable on 1st January, 1963. As we can see, whereas those in employment during 1961–62 will be taxed on the incomes they are earning now, in the case of tax assessments on profits and gains—for the individual trader and professional man in private practice, and others similarly self-employed—Income Tax for the current year, 1961–62, will be on the amount of profits or gains earned in the Income Tax year 1960 to 1961, because the basis of assessment in this year is the profits and gains of the preceding year.

In those circumstances, it follows that Clause 11 gives relief to these people on incomes which were already earned—earned, indeed, before the Chancellor rose to his feet on 17th April. And there is no point either from the standpoint of incentive or fiscal justice in relieving incomes which were earned before the Chancellor announced these proposed reliefs. We cannot, therefore, agree to retrospective incentives. We do not think that they make sense. Indeed, the Chancellor's only possible excuse for introducing Clause 11 into the Bill is that he believes that it will add to the economic and industrial strength of the country.

As my hon. Friends and I said on Second Reading, there can be no justification for Clause 11 on the ground of equity, when it was preceded by earlier measures imposing higher National Health contributions and additional Health Service charges. The Chancellor raised substantial additions of revenue by those two previous measures. No one would tolerate what the Chancellor is proposing in Clause 11 unless he believed that it had something to do with the strengthening of our economy at this time.

The Chancellor cannot say that the number of Schedule D Surtax payers is so inconsiderable that it was scarcely worth worrying about this particular anomaly. There are, in fact, as far as I can trace, about 50,000 individual Surtax payers—traders, professional men, and so on—who have Schedule D assessments of more than £2,000 a year. There are 50,000 others who are in partnerships where the Schedule D assessments are also more than £2,000 a year. Not in all cases of partnerships is each partner liable to Surtax, if the total profit of the partnership is only £2,000 or £2,500 a year. I quote these figures from Table 38 in Command Paper 1258, which is the Report of the Commissioners of Inland Revenue. Traders and professional men and other self-employed persons in the Surtax range are neither inconsiderable in number, nor in the total income on which they pay Surtax.

My hon. Friends and I hope that it will not be too hard on the self-employed Surtax payers to say to them that the reliefs from Surtax in their case should be deferred for a year, so that the incentives we wish to give them shall apply at a time when they can be reflected immediately in greater effort, greater efficiency and in other ways which will be revealed when they receive the incentive.

Sir Derek Walker-Smith (Herefordshire, East)

While the hon. Gentleman is considering this point, will he, in addition to the question of incentives, appreciate that it is a principle of Income Tax law that there should be equity between taxpayers? Would he give an undertaking whether, if at any time in the future Surtax is raised should the party opposite come into power, there will be a similar deferment of operation in respect of profits of Schedule D taxpayers?

Mr. Houghton

It would, of course, depend on the circumstances in which Surtax was raised. This is not a fiscal operation. It is, as I see it, an economic operation. The Chancellor is using the instrument of taxation to achieve certain economic objectives. I cannot see any other purpose for the proposal he is making in the context of the present situation.

I agree with the right hon. and learned Gentleman the Member for Herefordshire, East (Sir D. Walker-Smith) that if we defer the concession on the ground that this concession is related to a special effort, to give it prematurely would not further that objective. We should, further, certainly have to consider, if Surtax were increased in the future, whether a deferment in their case would be justified, having regard to the deferment in Clause 11 which is now proposed.

If we leave it as the Chancellor proposes, ray hon. Friends and I consider that the Schedule D taxpayer will have undue advantage over the Schedule E taxpayer, because the Schedule E taxpayer will have to sing for his supper before he gets the reward. He is exerting himself now to justify the relief that he will get in the year 1961–62 on the income that he is earning now. But the self-employed business or professional man will get relief on income earned during the year 1960–61; that is to say, he will get relief before he has bestirred himself—

4.0 p.m.

Mr. Michael Shaw (Brighouse and Spenborough)

How would the hon. Gentleman deal with this proposal that he is putting forward with regard to the opening years of professional assessments and also, indeed, with regard to the closing years? Clearly, it would be possible to get out of this difficulty in many cases by having a cessation of partnerships and starting new partnerships later.

Mr. Houghton

The hon. Gentleman, for whom I have a great respect and who is an accountant, is trying to complicate my argument. He is trying to make things difficult for me. What I am trying to do is to convince the Chancellor of the Exchequer that if there is any sense at all in Clause 11 it does not make sense to apply these incentives retrospectively to a certain section of the taxpayers concerned. That is what I want to get over to the Chancellor, and I do not want to be deflected by any accountancy complications raised by the hon. Member for Brighouse and Spenborough (Mr. Shaw).

This is a perfectly simple point. As we shall see later, when we come to other aspects of Surtax, there has been an abundance of manipulations of liability to Surtax to achieve certain purposes or to place limits on reliefs which might not on logical grounds have any limit at all, but which have been imposed as a matter of judgment especially in the relations between one citizen and another and one group of taxpayers and another.

I think that in this case it can be argued that fiscal equity would require that all Surtax payers should get their reliefs at the same time on the same Income Tax assessment made in the same year—and that is perfectly logical—but I want to pin the Chancellor down to the motive behind Clause 11 and I do not want anyone to help him wriggle out of it. The truth is that unless the added incentives, which the Chancellor said were the mainspring of his approach to Clause 11, are in the forefront the whole time, they are merely an excuse, and I do not think that the Chancellor would try to deceive the Committee and the country by using incentives as a blind for reaching some accommodation with the Conservative Party on the whole question of the high levels of taxation and the better-off.

I know that it is absolutely in the tradition of the Conservative Party to relieve the rich of tax and to impose it on the poor. We know that. It has done it this year. Indeed, the echoes of our protest against it have hardly died in the corridors of the House. Only a few weeks ago we were opposing the imposition of additional Health Service charges and National Health contributions and some of us said that this was the preliminary to reductions in Surtax. I stated that publicly. I said to my constituents, "You watch. This is merely a curtain-raiser to the reliefs on Surtax". Everybody knew it was coming.

I gave examples of the introduction of Health Service charges and National Health contributions several years ago at a time when earned income relief was extended for Income Tax purposes to incomes between £4,000 and £10,000 a year. In fact, I believe I am right in saying that earned income relief was extended from £2,000 to £10,000 a year only a few weeks after the introduction of additional Health Service charges and National Health contributions.

I am asking the Chancellor to dispel this belief that this is how the Tories behave. He said that incentives lay at the root of the proposals that he was making in the Budget, and I want to keep him to that. If I keep him to that, then I think that we on these benches are justified in pointing out one of the weaknesses of the method by which he proposes to do it. With great respect to my hon. and learned Friends, I do not see that we can justify giving Surtax reliefs for a period when, for all we know to the contrary, lawyers were turning down briefs, solicitors were rejecting business, accountants were delaying producing their accounts to inspectors of taxes and when there were other evidences of laziness, resentment or indolence owing to the high levels of taxation, all of which are now to be remedied by these Surtax reliefs. We see no reason for giving reliefs during a period when these undesirable features may have been in evidence. Those reliefs should be related to conscious effort to justify them.

I have taken rather a long time in moving this Amendment because I was deflected from my main task, but I hope that there may be opportunities of dealing with any further arguments which hon. Members opposite may raise in the course of the debate.

Mr. John Diamond (Gloucester)

Clearly, two views about this matter are held in this Chamber. There is the view expressed on the benches opposite, that Surtax relief is an encouragement to effort. There is the view held on this side of the Committee, that relief from Surtax is the plea put forward by those who find themselves in a soft spot and would like it to be softer. The view that I hold very strongly is that all the arguments advanced from the benches opposite for reductions in Surtax are "phoney" and are known to be "phoney", and that this Amendment demonstrates that to the full.

My hon. Friend the Member for Sowerby (Mr. Houghton), who introduced the Amendment so forcefully and fluently, referred to an aside by the Chancellor which did not appear in the OFFICIAL REPORT. In fact, there is in the OFFICIAL REPORT a statement which is as clear as a bell, when the Chancellor said, in the debate on 17th April: It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] Let us examine what the Chancellor has said, not in the high hopes which my hon. Friend has expressed of producing some logicality of treatment on the other side of the Committee, but merely to demonstrate, as I am convinced the Chancellor knows, that this so-called incentive is utter poppycock and that everybody who has considered it has found it to be utter poppycock, that no careful investigation has shown one iota of evidence that reduction in Surtax is an incentive of any kind and, indeed, that the evidence is overwhelming that it is the reverse for the commonsense reason that if a person needs something he works to get the money to buy it, and that if the tax is higher he has to work the more to have the net cash left over with which to buy what he wants. That is common sense, proved by every single investigation which has taken place.

I repeat that I am not on the same high level as my hon. Friend the Member for Sowerby. I have no hope of producing sincerity or logicality on the other side of the Committee. I limit myself to demonstrating the utter falsity of the arguments which have been deduced. The first argument is that "it would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort." Those who make efforts are people assessed under Case II of Schedule D, people who carry on professions, people like the hon. Member for Brighouse and Spenborough (Mr. Shaw) and myself and many other professional people in the House, people who work very hard in the House and outside, people on whose judgment a great deal of business decisions are made, people on whom, therefore, the prosperity of the country depends to a certain extent.

Mr. Ellis Smith (Stoke-on-Trent, South)

To a certain extent.

Mr. Diamond

I said "to a certain extent". I do not exaggerate. I say that these are all people who ought to exert the greatest effort in the work of the country. We all share that view.

The Chancellor's theory is that, if we reduce their Surtax, that will be an incentive, but we must not reduce it retrospectively because that would be nonsense. It would indeed be nonsense. All these people are assessed on the basis not only, as my hon. Friend rightly pointed out, on the previous Income Tax year's income but, much worse than that, on the basis of the accounting year ending within the previous Income Tax year. I will give an example to explain what I mean.

My birthday is on 30th April. I hope that everyone will take due and proper note of that so that I shall receive the right sort of communications from the respective sides of the Committee. I am a professional man and, as a matter of coincidence, I end my accounts on 30th April. On 30th April, 1960, I ended my accounts, and the effort which I put in in the distant twelve months from 1st May, 1959—it is almost prehistoric—until 30th April, 1960, resulted in the income I earned which will be assessed for the tax and Surtax on which I will receive relief under these provisions which we are discussing now, that relief being supposed to be an inducement to make me work harder.

What greater piffle than that could anyone produce? It is work I did in May and June, 1959. I was not then even able to direct arguments against the Chancellor, because he was not in that office then. This demonstrates how ridiculous it is for the Chancellor to say that his proposal is based on an incentive for this very large class of taxpayers and Surtax payers.

The hon. Member for Brighouse and Spenborough tried to blind my hon. Friend with science. He was, of course, quite unsuccessful because my hon. Friend has a very scientific mind. He has probably spent as many years on these matters as the hon. Gentleman has spent months. The hon. Gentleman knows full well that there is this complication of the year of assessment which the Government obstinately refuse to alter. In spite of the recommendations of the Institute of Chartered Accountants, to which the hon. Gentleman and I both belong, in spite of the recommendations of the Royal Commission, in spite of the common sense of the matter, and in spite of the fact that, if it were altered, all sorts of unpleasant and unsatisfactory dodges for tax avoidance would be avoided, the Chancellor, in his judgment, has hitherto obstinately refused to alter that basis of computation and, as a result, we have, apart from anything else, many Clauses in this Finance Bill to cope with it in terms of taxation overseas. We have put down a new Clause to deal with it. No doubt the hon. Member for Brighouse and Spenborough, with his knowledge, logic, professional understanding, and loyalty to his profession, will support that Amendment in argument and in the Division Lobby when the time comes.

It is recognised that the present year of assessment basis lends a certain technical complication to this matter, but that does not alter the argument one iota. The Chancellor was not right in saying that this relief would be an encouragement or incentive to effort and he could not possibly have thought that it was. With all the advice available to him, the right hon. and learned Gentleman must have known that there is an enormous body of taxpayers for whom there is a settled case provided in respect of whom it just could not possibly be suggested that his proposal would be an incentive because the past effort had occurred so far back as almost to have been forgotten.

This is why we are determined to continue our opposition. We do so not only because, as my hon. Friend the Member for Sowerby has said, our Amendment shows the illogicality of the Chancellor's position, but because—I say this for my part, at any rate—it shows the insincerity of his position. It shows that he is determined to help the Surtax payer in this obnoxious way and is determined to do so at a time when all manner of burdens have been put on the backs of the poorer sections of the community. This is the occasion the Chancellor chooses to give to the richest section the remission of about half of their Surtax burden. It is utter nonsense. It is utterly unjust. It should be shown to be so by every hon and right hon. Member.

4.15 p.m.

Mr. Bruce Millan (Glasgow, Craigton)

I have very little to add to what my hon. Friends have said. The point is very clear. It is a simple point of principle. The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) asked my hon. Friend the Member for Sowerby (Mr. Houghton) what would happen in reverse if there were a question of putting up the Surtax rate at some future date. It is not very easy to draw an analogy with that sort of circumstance because we are not here discussing just any sort of remission of Income Tax. We are dealing here precisely with the argument which the Chancellor advanced for introducing the remission of Surtax at this time.

The Chancellor might have said, for instance, that there was a need to stimulate demand in the economy, that we ought to reduce taxation and allow a certain amount more money to go to consumers to circulate in order to increase demand. If he had said that, the argument that the remission of tax should be deferred for a year would not have applied. Then, I think the argument of the right hon. and learned Gentleman about the reverse process might have had some substance. But that is not this case.

The argument here is whether the provisions of the Clause meet the considerations which the Chancellor himself enunciated. The primary consideration, in the Chancellor's view, was the need to give incentives. He himself said, very succinctly, that It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] The simple point is that that is what he is doing. He is giving an incentive based on past effort. By the very premises on which he bases his case for the remission, that cannot be a reasonable proposal.

As my hon. Friend the Member for Gloucester (Mr. Diamond) said, we by no means accept the Clause as a whole. We are violently opposed to it in principle. But, even accepting the Clause in principle, it would still be possible for the Chancellor to accept the Amendment which does no more than bring the Clause more into line with his own declared intentions.

Another point arises in answer to the hon. Member for Brighouse and Spenborough (Mr. Shaw). My hon. Friend the Member for Gloucester spoke about the number of people whose basis of assessment under Schedule D raises difficulties. There is an even simpler answer than that. If the hon. Gentleman turns to the terms of the Amendment, he will see that it does not speak of the year of assessment at all. The Amendment to page 8, line 5, refers to "income arising in", not the year of assessment, but at a particular period. There is not any question of it being based on the year of assessment.

Under the Amendment to page 8, line 6, the words "of assessment are specifically excluded. Even the technical point of the hon. Member for Brighouse and Spenborough—that is all that it was—about commencing years, and so on, is not valid in relation to these Amendments. It is a pity to have to labour the point at considerable length, but it seems that we are not to have any other speeches from hon. Members opposite. Therefore, since the two interjections which have been made by hon. Members opposite are to represent the total contribution from that side of the Committee, they have to be answered in detail.

As I have said, the point is a simple one of principle. We are not by these Amendments frustrating in any way the intentions of the Chancellor of the Exchequer as set out in his Budget statement. Therefore, I think that we have every right to expect the Chancellor to accept the Amendments.

Viscount Hinchingbrooke (Dorset, South)

I wonder when the Opposition's attack on Surtax is to develop. We were told in newspapers over the weekend that a broadly-based attack was to be instigated by the right hon. Member for Huyton (Mr. H. Wilson) which would last some hours and that after that we would get down to detail and would go through the night. When is the major question of Surtax to be discussed? Is it to be discussed under these Amendments?

Mr. Harold Wilson (Huyton)

May I remind the noble Lord that under the rules of order we cannot discuss the general principle of a Clause until we reach the Question, "That the Clause stand part of the Bill"? What we are permitted to do on these Amendments is to debate what is in them. They relate to the special exemption of Schedule D and the unfairness of it compared with Schedule E, a subject on which the noble Lord has tabled Amendments in past years. We did not criticise him when he was dealing with those Amendments for not talking about much wider issues.

Viscount Hinchingbrooke

The right hon. Gentleman is wrong and is inhibiting himself. The way to launch an attack on Schedule E—I should not have to tell the right hon. Gentleman this—is to table a wrecking Amendment, and then he can discuss the whole operation of Surtax. I realise that on the Question, "That the Clause stand part of the Bill" we cannot enlarge on what should have been done in previous years, or what should be done next year. All that we can discuss is what is in the Clause.

The right hon. Gentleman's attack has failed so far. I am curious about the technical means by which it will now develop. The party opposite has started in a very mild way on this point of postponing the operation of remissions of Surtax on Schedule D taxpayers. Then we are to get down to something equally jejeune. I wonder when the great attack is to develop.

The right hon. Gentleman is quite right in saying that in previous years I have done something to try to approximate the weight of taxation under Schedules E and D and will try to do so again. I have a slight contribution to make, although it has not come to your notice, Sir Gordon, and that is to bring the operation of Surtax forward one year, which is precisely the opposite to what right hon. and hon. Members opposite wish to do. My reason was that I was surprised and made a little unhappy by the words of the Chancellor of the Exchequer in his Budget statement which have already been quoted. He said: Of course, so far as Surtax is concerned, the amount due next January will be upon income already earned in the past. It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, cc. 819–20.] The argument that it is an incentive to earn well this year depends on what the Government do to the wretched taxpayer the year after next. This has a Communist ring about it, which surprises me when I recall that I used to sit at the feet of my right hon. and learned Friend when he was a Liberal, at Cambridge University.

Does the Chancellor really maintain that incentive is so much involved in this? Incentive depends on the status of a taxpayer and his circumstances in relation to the effort which he makes. If the effort does not produce a reward which will enhance the status, the effort is simply not made. Whether one is a profit-maker, salary-earner, or a man of independent means makes not the slightest difference. It is very surprising that my right hon. and learned Friend, having taken the plunge over Surtax, on which we all congratulate him, has not made it applicable to next year and has refined the matter by reference to incentive.

My right hon. and learned Friend's case is somewhat compromised by one or two speeches which have been made by hon. Members opposite. As the hon. Member for Sowerby (Mr. Houghton) said, the Chancellor has already conceded the principle of equity rather than of incentive in providing that Schedule D Surtax payers pay on an income already earned. We have not had his reply yet, but if he has conceded this for the Schedule D Surtax payer he has passed the point of no return on incentive. He is talking about justice. We want him to talk about justice and equity and not about this spurious method of incentive which does not operate in the Surtax racket—[Laughter.]—Surtax (range at all. I said "racket" and I repeat it advisedly, because I think that there are some rackets in the Surtax range.

My right hon. and learned Friend has conceded the principle of equity for the Schedule D Surtax payer. I should like him to be generous and even at this late stage to bring the whole operation forward by one year so that the principle of equity is equally conceded to Schedule E taxpayers.

Mr. Douglas Jay (Battersea, North)

Will the noble Lord clearly tell us his view? Does he consider that the changes in the rate of Surtax have an effect on incentive or not?

Viscount Hinchingbrooke

It is a question not of incentive, but of doing justice to the Surtax payer, who is still called upon to pay enormous sums of his saved income or earned income long after the sociological need for it has passed.

I have made this point in previous debates. Surtax was justifiable in the 1920s and 1930s as a means of redistributing income when we had serious unemployment and very great poverty. It is not defensible in modern times. I should like it done away with and consolidated in a graduated Income Tax with a maximum rate of 10s. on the upper range of income.

Mr. Jay

May we take it that the noble Lord considers that this change will have no effect on the incentive to work?

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

I will not, at this early stage, follow my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) with any provocative remarks concerning the Opposition. The hon. Member for Sowerby (Mr. Houghton) explained that the purport of these Amendments was to prevent the new Surtax reliefs in respect of earnings from applying to any income which, although it might be reflected in the Surtax assessment for this year of assessment, 1961–62, actually arose before 6th April this year.

That being the purpose of the Amendments, I could not follow the reasoning of the hon. Member for Gloucester (Mr. Diamond), who said that he thought that incentives were all poppycock. As the sole purpose of the Amendments is, as I understand, to limit the Surtax reduction to income which arises in the future, I cannot see how he can have any alternative but to vote against the Amendments.

Reference has been made, I think by the hon. Member for Gloucester, to two interjections from this side of the Committee. I thought that my hon. Friends were "on the ball" in each case. I should like later to deal with the two points which they raised.

Reference has also been made to what my right hon. and learned Friend the Chancellor of the Exchequer said in his Budget speech. He did not say that the Surtax payable as the result of past earnings would be unaffected in every case. He used the words which have been quoted as an explanation of why he was not proposing any Surtax relief which would be a burden on the Exchequer during the current financial year.

4.30 p.m.

My right hon. and learned Friend went on to describe his actual proposals. The hon. Member for Sowerby fairly quoted the following words from my right hon. and learned Friend: The changes I propose will be applicable to incomes earned—I repeat earned—during this new financial year and thereafter. My right hon. and learned Friend then went on, however, with some words which the hon. Member for Sowerby quoted rather sotto voce, but which, I would have thought, were of particular importance in connection with this debate. My right hon. and leaned Friend went on to say: In other words, the changes will affect what is payable on and after 1st January, 1963."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] So far as I know, until these Amendments appeared, and, indeed, certain suggestions were made by the Opposition, it had never occurred to me, nor, I would have thought, to anybody else with whom I have been in contact, that these proposals of my right hon. and learned Friend would not apply to Schedule D taxpayers in the same way as they apply to Schedule E taxpayers.

Mr. G. R. Mitchison (Kettering)

Since the two sentences that the hon. Gentleman has quoted are obviously inconsistent, will he tell us which of them his right hon. and learned Friend meant?

Mr. Barber

What my right hon. and learned Friend was saying in his Budget speech, and what he said subsequently, was that the purpose of his proposals was to provide incentives. Before I come on to the differences between the method of assessment under Schedule D and Schedule E, perhaps I might deal with the point raised by the hon. Member for Sowerby, which is relevant in the context of what has just been said by the hon. and learned Member for Kettering (Mr. Mitchison).

The hon. Member for Sowerby referred to the large number—he was quite right in saying that it was a large number—of Schedule D taxpayers. What is important is that but for the Budget changes the number of Schedule E taxpayers paying Surtax in January, 1963, would have been nearly double the number of those who had earned income from Schedule D. My right hon. and learned Friend said again and again that he thought that these proposals were desirable to give an immediate incentive to salaried Surtax payers—that is, to those assessed under Schedule E. Therefore, in dealing with these Amendments, what we have to consider is whether, bearing in mind that the bulk of this relief will go to the Schedule E taxpayers, it would be reasonable to apply different and novel rules to those who are assessed under Schedule D.

The hon. Member for Sowerby said that he did not think it would be too hard on those people. As a matter of equity—and in a matter like this one cannot ignore equity—I would have thought that to deny the same concession to the taxpayers with earned in come under Schedule D would be most unfair and inequitable.

Mr. H. Wilson

How does the hon. Gentleman come to argue that this is the same concession? Even though we oppose the whole proposal, in the first Amendment we are trying to put Schedule D people on the same basis as those on Schedule E so that they do not get any tax concession until the income has been earned. Surely the Economic Secretary realises that the Chancellor is giving more to the Schedule D than to the Schedule E people, because the concession is retrospective, but not for the Schedule E people. How can he say, therefore, that we must treat Schedule D and Schedule E people the same when that is what we are trying to do by the Amendment?

Mr. Barber

I do not accept what the right hon. Gentleman has said. My hon. Friend the Member for Brighouse and Spenborough (Mr. Shaw) referred, in passing, to the commencement and cessation provisions. I shall refer to them presently, because I hope to show to the right hon. Gentlemen satisfaction that over the years there would be no advantage whatever to the Schedule E taxpayers. The right hon. Gentleman has misunderstood the position.

The effect of the Amendments in that salaries earned in 1961–62 and tax for that year under P.A.Y.E. would lead to a reduced Surtax bill on 1st January, 1963, but that business and professional profits earned in 1961–62 would lead to a reduced Surtax bill on 1st January, 1964. For those assessed under Schedule D, there would be no Surtax reduction on 1st January, 1963.

Such a result overlooks the fact that under the law as it has existed for many years the profits of 1960–61—that is, the year of assessment, which is past—are taken to represent the income of 1961–62 for the purposes of assessment. The hon. Member for Sowerby describes this as being incidental to the method of assessment, and he is right. This is a pure technicality. I suggest that it would be an abuse of that technicality to hold it against the business man and to say, in effect, "We are giving a new relief on earned incomes as from 1961–62, but because the law assumes, as a result of a technicality, that your earned income for that year is measured by your earnings for the year before, you will get nothing until January, 1964."

Mr. Jay

Surely the Economic Secretary must agree that if the whole change is being made on the ground of incentive, what is not a technicality is the year in which the earnings are actually received.

Mr. Barber

The right hon. Gentleman is ignoring the effect over a period of years of doing what he wants to do, which would operate to the disadvantage of the Schedule D taxpayer. I repeat again that my right hon. and learned Friend throughout has been perfectly consistent in saying that the object of his proposals was to provide incentive. But there has never been the slightest suggestion that in doing what he considers best in the interests of the country the Schedule D taxpayer should be treated differently from the Schedule E taxpayer, in a way which has never been done before.

Mr. Mitchison

Will the hon. Gentleman explain, in plain English, how an incentive is given to anybody who has already earned the money?

Mr. Barber

I am sorry that if the hon. and learned Gentleman has not followed what I have said, I cannot help him much further. I have already read out what was quoted fairly by the hon. Member for Sowerby, who read out the words of my right hon. and learned Friend, that the changes will affect what is payable on and after 1st January, 1963. The hon. and learned Member, and, I am sure, all his colleagues on Che Opposition Front Bench, knew perfectly well that that was to apply to Schedule D earnings as well as to Schedule E earnings.

My hon. Friend the Member for Brig-house and Spenborough mentioned, in passing, the cessation provisions of those who are engaged in Schedule D occupations. He asked a question of the hon. Member for Sowerby, who was rather coy in his reply. Perhaps I can put a suggestion to the hon. Member for Sowerby. The assessment made on the trader or the professional man for this year of assessment, 1961–62, is intended to be a charge on the income he makes through carrying on business during that year, notwithstanding that there is the statutory rule under which the income is measured by reference to the profits of a previous accounting period. This principle applies to the years which follow.

Whatever the period for which such a man continues in business after 6th April this year up to his retirement, his business profits will be exposed to Income Tax assessments and, consequently, to Surtax assessments for precisely the number of years and months contained in that period. In this respect, his position cannot be distinguished from that of the Schedule E employee who is paying his tax currently in respect of a salary and paying his tax under P.A.Y.E., who will be similarly exposed to Income Tax and Surtax liability for the precise period from 6th April this year to the date of his retirement.

It seems to follow that common fairness would demand that Surtax reliefs in respect of earnings should operate from the same year of assessment whatever Schedule applies.

Mr. Leslie Hale (Oldham, West)

Does that mean that it should apply to professional men, who have retired, in respect of fees payment of which they have postponed until after they have retired, and with particular reference to former practising barristers?

Mr. Barber

I think that it was recognised that we were dealing with the overwhelming majority of those assessed under Schedule D on a preceding-year basis, and not the very few people assessed on a cash basis.

The Committee should be under no illusion at all about the consequence of the Amendments. The result would be that the overwhelming majority of tax payers under Schedule D would receive no relief in the Surtax payable until 1964.

Mr. Diamond

Hear, hear.

Mr. Barber

The hon. Member says "Hear, hear", but I would remind him of what his right hon. Friend the Member for Huyton said on Second Reading when, in referring to Schedule D, he said that it was …a field which embraces a multitude of sins…". I would ask the right hon. Gentleman and the hon. Member for Gloucester who these sinful people are whom the Opposition wish to penalise.

Do they include the provincial shopkeeper who has built up his business until he is earning £2,500 a year? Do they include the tenant farmer who, by enterprise, has brought himself into the Surtax paying group; the owner of a filling station who ignores the eight-hour day, the accountant, the solicitor, the doctor and the dentist? All these people, according to the right hon. Member for Huyton, come within the field of the sinful and must be penalised. Because of a technicality they are to be told that they will receive no reduction until 1964, not through any fault of their own but simply because it has been laid down by law for thirty-five years that they are to be assessed on a preceding-year basis.

The right hon. Member for Huyton let the cat out of the bag when he imported this question of morality into his speech on Second Reading concerning Schedule D taxpayers, and it was quite apparent that what he said was motivated by pure political prejudice. The hon. Member for Glasgow, Craigton (Mr. Millan) said that the matter with which the Amendments deal was a point of principle. I have made inquiries and I have found no cases—

Mr. H. Wilson

Would the hon. Gentleman quote the sentence which I used about a multitude of sins? He has made a lot of play about it and, as I thought, childish references to it.

Mr. Barber

Perhaps it was a rather childish passage to make a childish comment upon, but this is what the right hon. Gentleman said: The argument that he used is true for Schedule E, for which it is the 1961–62 income that is relevant, but it is not true for the very large field of surtaxable income earned under Schedule D, a field which embraces a multitude of sins in terms of tax avoidance, business expenses and the rest."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1649.] What the right hon. Gentleman is saying, of course, is that his observations concerning tax avoidance and business expenses apply to the field of Schedule D, which includes people like shopkeepers, doctors, dentists and farmers.

I was making it clear to the Committee that I can find no case, and I have asked the Inland Revenue to look back, where, under any Government, a change in basic rates of taxation has not been applied uniformly in respect of the year of assessment to taxpayers regardless of whether they were assessed under Schedule E or Schedule D. My right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) was absolutely right to raise the question of what the Opposition would do if it were to increase the rates of taxation. The hon. Member for Sowerby, quite understandably, gave a somewhat guarded reply, but the identical principle that my right hon. Friend is applying has been applied in the past when the basic rate has been increased.

The last increase in Income Tax or Surtax was made in 1951 by the right hon. Gentleman the present Leader of the Opposition. That related to the year of assessment 1951–52 and hon. Members opposite should know how it was applied to Schedule E and Schedule D. Those assessed under Schedule E paid the increase in respect of their earnings after 5th April, that is to say, actual earnings, but Schedule D payers paid the increase in respect of money earned in the accounting period which ended prior to the Budget. If the Labour Government thought that they should bear the increase on that universally accepted basis of assessment, I cannot see why these people should not have the benefit of a reduction on the same basis.

4.45 p.m.

Mr. Jay

That change in taxation was not made on the ground of incentive. It was made to restrain expenditure by taxpayers. The whole basis of this argument is the Chancellor's statement that he is making this change wholly on a quite different ground of incentive.

Mr. Barber

I have been over all that ground before and I would only add, for the benefit of right hon. Gentlemen opposite, that my right hon. and learned Friend has again and again explained the object of the change, but it does not follow on the ground of equity that we should treat Schedule D taxpayers, who are in the minority of taxpayers, differently from those who pay under Schedule E.

I can see no reason in equity why the sort of people to whom I have been referring, the tradesmen, the farmers, the professional people, the doctors and the dentists, should be penalised merely because taxation is being reduced. They bore the burden when it was increased and they should now receive the benefit when it is decreased. To defer until 1964 the reduction in Schedule D liability for Surtax would be inequitable in the extreme and I would ask the Committee to reject the Amendment.

Mr. H. Wilson

I am surprised not only at the very inadequate answer from the Economic Secretary to the Treasury, but also at the fact that he was put up to reply. I am surprised that the Chancellor, who is so much involved in the Surtax proposals, did not see fit to reply to the Amendment. I hope that before it passes from the Committee the right hon. and learned Gentleman will explain himself. Some of my hon. Friends have said that the Chancellor's sincerity is in question. I think that is rather too strong, but his logical consistency is in question as a result of the Government's attitude to the Amendment.

Before coming to the general argument, I should like to refer to one or two points made in passing by the Economic Secretary. The hon. Gentleman did not deal with the main points about incentive at all. When he was asked about it he said that he had been over the point, but he did not go over it. He passed it. He never attempted to answer the point made by my hon. Friend the Member for Sowerby (Mr. Houghton). The second point is the hon. Gentleman's psychological Freudian attitude in always going back to 1951 when he possibly can.

Mr. Barber

The only reason why I went back to 1951 was that I had to go back to that year to find the last increase in basic Income Tax or Surtax.

Mr. Wilson

The year 1951 is to the hon. Gentleman like the Freudian psychologist's reference to the child's desire to go back to the womb. Almost every Speech he has made has been on that basis. I think that he gets this from the Prime Minister, who cannot make an economic speech without going back to 1951. The hon. Gentleman thought that 1951 was in some way relevant, but, as my right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out to him, what happened then was a change in rates. The Clause which we seek to amend makes no reference to change. It is a relief on earned income, and what we are saying is that even within the Chancellor's argument, which we do not accept, it would be logical for Schedule E and Schedule D to be treated in the same way. All the hon. Gentleman can tell us is that in 1951 Schedule E and Schedule D were treated in terms of time, of years, in the same way as the Government are treating Schedule E and Schedule D today.

Quite apart from the question that that, as I have said, was a change of rate and this is a change of relief, there is another point. In 1951, the Royal Commission was sitting. The then Chancellor of the Exchequer, now the Leader of the Opposition, had appointed the Royal Commission to go into this and many other questions. One of the questions that it went into was the timing of the Schedule D and Schedule E taxation. One of its recommendations was that Schedule E should be put on a current year basis. I will not say that that was sub judice but it had been considered by Lord Radcliffe and his colleagues, and it is obvious that when my right hon. Friend made that change in 1951 he applied the rules in terms of time as they already stood, but he had thrown this question and other questions for consideration by the Royal Commission.

It is six years since the Royal Commission reported, and this recommendation has not been accepted. To judge from the logic of the hon. Gentleman's reply—if I may use such a word in connection with his speech—it would appear that the Government have no intention of accepting that recommendation by the Royal Commission for very many years to come.

There was the rather silly point about a multitude of sins. We shall have to be careful with the phrases we use if hon. Gentlemen are to base whole speeches on them. The hon. Gentleman spoke of my reference to a multitude of sins and referred to provincial shopkeepers—I do not know why he goes only for the provincial ones—farmers, petrol station proprietors, solicitors, and so on. He suggested that I thought all those people were sinful people and that I was trying to bring some moral connotation into play. I was not, and the hon. Gentleman knows it.

I hope that the hon. Gentleman knows—at all events, the Inland Revenue knows—that there is far more tax avoidance with Schedule D than with Schedule E. We all know it. I do not think the Chancellor would deny it. Many of us have had regard to the sins of tax avoidance and to the abuse of business expenses, on which the Chancellor produced a highly moral sermon in the middle of his Budget speech. We all welcomed the sermon, but we should have liked action as well. The subject of business expenses is always within the Schedule D and not the Schedule E field. It is appropriate for one to say when referring to these things that they are found much more in connection with Schedule D. Therefore, for the hon. Gentleman to argue that I was suggesting that the Scottish doctor, the provincial shopkeeper and the Welsh petrol station proprietor were sinful was a childish use of words.

We must now come to the main question, because the hon. Gentleman, I thought, entirely failed to deal with the arguments of my hon. Friends. First, we have the question of the motive behind the Clause. We have made it plain—I thought that my hon. Friend started the debate off very usefully by pointing this out—that we oppose Clause 11 as a whole and that we intend to vote against it. That does not, however, prevent us—I am sure that the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) takes this point—from moving a series of Amendments to deal with particular points.

The first Amendment is designed to show the complete illogicality of the Chancellor's position in that some things which are supposed to be incentives, which, by their very nature, can only be prospectives, are being handed out on the system of retrospective incentive. Our second Amendment is to deal with the unfairness of the expenses point, and to bring that into the Surtax computation. Another Amendment deals with the problem of unearned income so far as that is concerned.

To move these Amendments does not mean that we in any way concur with the Chancellor's proposals in the Clause, but we felt that these matters should be debated. When we have passed the stage of the Clause standing part of the Bill and have then been defeated, we cannot say that we should like to go back and try to move some Amendments. Once Clause 11 stands part of the Bill we can move Amendments only to Clause 12 and later Clauses. That is why we are moving these Amendments at this stage, but that is only a subsidiary to our main intention of voting against, and, we trust, defeating, Clause 11 later.

I am sorry once again to inflict on the Chancellor the words that he actually used, but he has related this to incentives. This is Clause 11, and the only justification that he has attempted to put forward for it is the question of incentives. This upsets the noble Lord the Member for Dorset, South. The noble Lord does not think that it should be related to incentives. He thinks that it is almost Communist in its approach. He thinks that the matter should be judged in terms of social justice. We all have our different ideas of social justice, and I think that the noble Lord's conception of it is, on the whole, unique—and it is probably all the better that it should be. However, no one on this side of the Committee has heard any argument at any stage during the Budget debate, the Finance Bill or at any other time to suggest that the Chancellor really pretends that there is any social justice in this Clause.

The Chancellor has not put the Clause forward on this basis. Many of us warned the Chancellor in speeches in the country before 2nd February that we were afraid that the Government were contemplating increasing the charges on the Health Service, increasing the poll tax contribution, to find a little financial manoeuvring power for the right hon. and learned Gentleman to use in Surtax concessions. The Chancellor will remember that there were a great many inspired statements in the Press about his intentions on Surtax. The President of the Board of Trade—we are glad to see him here this afternoon; he and I were in foreign parts at the weekend—created a precedent by the freeness with which he spoke before the Budget about the likelihood of Surtax concessions.

Whether that speech was just a careless indication of what the right hon. Gentleman knew that the Chancellor of the Exchequer intended—actually, he never does anything in a careless manner, or tries publicly to put pressure on the Chancellor—I do not know. It is difficult to speculate about his motives. However, certainly from, roughly speaking, Christmas onwards there was a good deal of inspiration of the Press from Government sources that something was going to be done about Surtax. That was one reason why we felt it necessary then to warn particularly against probable changes affecting the National Health Service.

Mr. Ellis Smith

Does that kind of thing really go on in Government circles?

Mr. Wilson

We know that a great deal was said in the Press about what was intended. It might not have had a lot to do with the Chancellor of the Exchequer, because he was discreet in this matter. In fact, he said nothing at all. It had much more to do with the Chancellor of the Duchy of Lancaster, for it comes under his Department. But no one except the noble Lord has pretended that this has anything to do with social justice, and he thinks it is unjust at that.

But we feel that this is characterised by social injustice. The social injustice is in increasing taxation on the poorest people in the country while giving tax concessions to the richest people. It cannot be described as anything but social injustice. Every hon. Member in the Committee except the noble Lord sees that point.

Nevertheless, the Chancellor—to do him justice, if I may use that word again—has not really tried to make much of any question of fairness or equity in this matter. He is quite cynical about it. It is true that he got a little lyrical one night while winding up the Budget debate and started telling us about the terrible time that the £5,000 a year people have. But he has never addressed himself to the rather simple point, put to him by my right hon. and hon. Frends, that if it is so difficult to live on £5,000 a year how can one live on £500 a year, or the old-age pension? As I say, the right hon. and learned Gentleman has never addressed himself to that question, but, obviously, if his argument is right about the £5,000 a year people, we must be right about some of the others.

I see that the Chancellor is getting excited now. The very mention of that lyrical passage at five minutes to ten o'clock at the end of the Budget debate, the Chancellor's "finest hour", is enough to get him in a state of subdued cancellarian excitement. It is, however, fair to say that the right hon. and learned Gentleman has never made this point about justice. The President of the Board of Trade, in the Budget debate, described it as a belated act of social justice, but the Chancellor did not go as far as that.

The Chancellor has been quite straight about this. He said that this is a question of incentives. He said it clearly on television on Budget night. He said it clearly on the radio on Budget night, in an obviously prepared speech. He said it in the House, and I apologise for again reading these words, but the Economic Secretary has not understood their full import. The Chancellor said: I do not, however, feel able to provide for any relief of direct taxation to take effect in the year 1961–62. That is what upset the noble Lord. That will be a disappointment to many. Of course, so far as Surtax is concerned, the amount due next January will be upon income already earned in the past. It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 819–20.] 5.0 p.m.

If those words have any meaning, the Chancellor should accept the Amendment. The Economic Secretary gets up and tries to explain this away. He says that that is why he was explaining that he could not do anything about Schedule E Tax for this year. But the hon. Gentleman used an extraordinary argument. He said that, of course, this is mainly to help the Schedule E taxpayer, and, since it is mainly to help him, we must not do anything beastly to the Schedule D taxpayer. His argument was that there are more Schedule E taxpayers than Schedule D taxpayers. He has never given us the figures. I wish that he would produce figures of the number of people affected, and the number of people who will pay tax under Schedule E and Schedule D when the Bill becomes law.

The hon. Gentleman said that because this was designed to help Schedule E tax payers we must be particularly generous to Schedule D taxpayers and give them a fine bonus concession on money they have earned where incentive cannot possibly operate.

Mr. J. T. Price (West Houghton)

Retrospective legislation.

Mr. Wilson

This is retrospective incentive. I have never heard anyone say that an incentive can be retrospective in its effect. I want to hear either the Chancellor or the Economic Secretary defend this argument that an incentive can apply retrospectively.

Those are our main arguments. My hon. Friend the Member for Gloucester (Mr. Diamond) went a bit further than my hon. Friend the Member for Sowerby, but I am entirely at one with my hon. Friend the Member for Gloucester. I do not accept the Chancellor's incentive argument, nor do any of my hon. Friends. If he justifies the Clause on the incentive argument, the logic of that is that he must accept the Amendment. The Economic Secretary tried to deal with my hon. Friend the Member for Gloucester by putting forward the feeble argument that if he felt there was something in the incentive argument to make him support the Amendment, he should support the whole Clause.

Our argument is simple. The Chancellor bases this on incentive. We shall give reasons later for disagreeing with the points about incentive which the Chancellor has made on many occasions. When the Question "That the Clause stand part of the Bill" is put we shall produce an unanswerable case showing why hon. Members should vote against it. But if, by some mischance, the Clause should go through, to provide a logical meaning to what the Chancellor has said it is right that it should contain this Amendment.

Mr. Diamond

Before you occupied the Chair, Sir Norman, I permitted myself the use of a word which was inelegant but nevertheless in order. I described the argument of the Government that Surtax relief was an incentive to harder work as poppycock. I was not ruled out of order, but the Economic Secretary challenged me and asked how I could say that it was poppycock and yet speak to the Amendment. I am speaking to the Amendment to demonstrate that it is poppycock, and the Economic Secretary's reply has proved that it is, because, if it were dealt with on the basis of logicality, he would be compelled to accept the Amendment, but he has rejected it.

I want to detain the Committee for a few minutes to go through the argument he put forward for rejecting the Amendment. The Economic Secretary had in front of him a copy of HANSARD containing the Chancellor's Budget speech. As usual when dealing with a difficult section of the Chancellor's speech, as usual when dealing with one sentence which was unfortunate from his point of view, he chose to allay our fears, as he thought, by referring to a later sentence.

It is a simple matter to find two sentences within the same paragraph of the Chancellor's Budget speech which mean precisely opposite things, but I invite the Economic Secretary to come back to the sentence to which I referred, and to which my right hon. Friend referred, but which he carefully avoided, namely, the one which allegedly demonstrates that this is an incentive, and that it would be illogical, therefore, to use it in respect of past income.

The Chancellor went on to refer to this change being applicable to incomes earned—I repeat earned—during this new financial year and thereafter. That was also wrong, as we shall see in a later Amendment. There is a reference to incomes earned and to a certain extent incomes unearned, as we shall see in later Amendments. The Chancellor then said: In other words, the changes will affect what is payable on and after 1st January, 1963."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] It is a very appropriate phrase. It is a very different phrase, a complete non sequitur, because if the hon. Gentleman thinks about it, what his noble Friend the Member for Dorset, South said was right. This problem can be dealt with either on the basis of incentive, or on the basis of equity, and the noble Lord dealt with it on the basis of equity. The noble Lord is right. If we deal with it on the basis of equity—equity as he sees it and not as I see it—it is equitable to deal with all classes of taxpayers at the same time.

If one deals with it on the basis of equity, one does not base the incentive on relief arising in January 1963. That is not an incentive. An incentive is what one gets now. A bonus is what one gets at the end of the week. That is an incentive. Those of my hon. Friends who are well versed in trade union activities will bear me out on this. They would not consider an incentive which was addressed to the worker saying, "The harder you work this week the more you will get by way of a bonus in eighteen months". They would tell the person who offered that type of bonus where to place it.

That is not an incentive. As the noble Lord said, if one is dealing with incentive on the basis of equity, it must be something which one can obtain in the near future. An incentive would have to be something which one obtained in 1962, not in 1963. On the basis of equity which the Economic Secretary was adducing the incentive would have to apply in 1962.

The Economic Secretary said several times that on the basis of equity we have to deal with the Schedule D man in the same way as the Schedule E man. I am saying that they should be dealt with either on the basis of equity or we should stick to the Chancellor's words and assume that he meant what he said and deal with them on the basis of incentive.

If this were dealt with on the basis of equity, the relief would be granted next January, but the Chancellor cannot do that because he cannot afford it. One has only to look at the total out-turn for the year to see that this means about £83 million in a full year, and the basis of the Chancellor's Budget speech was that he had to have a certain net surplus at the end and he could not possibly afford £83 million out of the current year.

The Chancellor wanted to get the best of both worlds. He wanted to balance his Budget reasonably this year and get the credit for Surtax relief next year, and skilfully and shrewdly bring in an unusual Clause in the Finance Bill to prevent the House of Commons next year from deciding whether the 1963 Surtax relief should apply, and prevent us discussing it in a year's time. He wanted to get it all in in one fell swoop. On the basis of equity there is nothing whatsoever to support the Chancellor's argument. On the basis of equity this step should have been taken a year earlier, and should apply to both Schedule D and Schedule E.

But the Chancellor has referred to it on the basis of incentive, and it is no use the Economic Secretary avoiding the issue. We are discussing a tax Bill, and the Economic Secretary should not try to avoid the fact that the Chancellor said specifically that we cannot logically give tax relief without doing so as an incentive, in respect of income which has already been earned and effort already made. All this demonstrates that the incentice is utter poppycock.

The Economic Secretary has used the argument of equity, which is a different one entirely. There is nothing to substantiate it. The fact that the Government insist on sticking to the terms of the Bill as drawn in this respect, and to give Surtax relief to people who earned their incomes and put in their efforts months and months ago, demonstrates this absolutely. The effort put in as early as the end of April and the beginning of May, 1959, is the effort which the Chancellor, by this Surtax relief, purports to encourage. And I am expected to mince my words and not describe that as poppycock!

Mr. Charles Loughlin (Gloucestershire, West)

Is it not possible that the Chancellor originally intended to ensure that this Surtax relief was given as an incentive, and had no intentions of introducing it retrospectively? Is it possible that he has changed his mind for some reason?

Mr. Diamond

The suggestion that the Chancellor has changed his mind involves the assumption that he made up his mind in the first place, and, also, that he had a mind to make up and had given some thought to the matter—and I do not accept that. I repeat: this cannot be argued on the ground of incentive or equity. Back-bench speeches from both sides have been directed to the argument, first, that it is invalid on equity grounds, as the hon. Member for Dorset, South (Viscount Hinchingbrooke) demonstrated; and, secondly, that it is invalid on incentive grounds, as all the rest of us have demonstrated.

That is why I referred to the question of sincerity. The Chancellor's sentiments are those of a man who has sincerity, and who sincerely believes that a person earning £5,000 a year, with the present rates of Surtax, finds it difficult to make ends meet. None of those who listened to his speech can doubt that that is what he feels, deep down. I argue that the £5,000-a-year man finds himself on a soft spot, and wants to make it softer. He wants to pay less Surtax, so that he can more easily afford the things which the Chancellor referred to. All this talk about incentive is utter poppycock.

5.15 p.m.

Mr. John McKay (Wallsend)

I am anxious to see the real fight started. To my mind all this talk about incentive and equity is a side issue. When the Government instituted the main provisions of the Bill they were not thinking in terms of equity and incentive; they wanted to give some free gifts to the supporters of the Tory Party, regardless of the question whether it was equitable or otherwise. I suggest that the Amendment is a useful educational effort to ventilate this matter and to indicate the inconsistency shown by the Government, but I believe that the large majority of the Labour Party wants to get down to the main battle. It is wise to try to make these provisions more consistent, but I hope that the Labour Party will not prolong the agony. Let us get down to battle.

The Temporary Chairman (Sir Norman Hulbert)

I hope that the hon. Member will soon come to the terms of the Amendment.

Mr. McKay

If the hon. Member for Dorset, South (Viscount Hinchingbrooke) can enter into a discussion about getting down to the battleground, I cannot see why I should not be allowed to do so. I want to get down to the battleground, and so do all my hon. Friends, including those on the Front Bench. We all want to get down to the battleground. Let us not prolong the agony on small Amendments. Let us get them through and get down to a debate on the Question, "That the Clause stand part of the Bill." Then we will all be free to battle.

Mr. Loughlin

I hope the Committee will forgive me if I do not follow my hon. Friend the Member for Wallsend (Mr. McKay) on to his battlefield. Like him I want to debate the question "That the Clause stand part of the Bill", but I feel sure that I should be ruled out of order if I pursued the matter at too great a length now

I agree with the two statements so far made by my hon. Friend the Member for Gloucester (Mr. Diamond), but I have a feeling that when the Chancellor of the Exchequer originally said that it would be wrong to provide a retrospective incentive—whether or not my hon. Friend is correct in saying that it is also questionable whether the Chancellor has a mind—he was reflecting his true point of view on this issue. I wonder what has ensued which has caused him to change his mind and to cause us to have inflicted upon us this afternoon the type of argument advanced by the Economic Secretary. If ever there was an attempt completely to avoid the issues it was the speech made by the hon. Gentleman a few moments ago. It is not unusual for him to try to do this. I have listened to him trying to do so more often than not when he has been replying to debates.

If the Chancellor of the Exchequer originally intended that this tax relief was to be an incentive, he and the Economic Secretary cannot very well claim that there should be a retrospective incentive. I have for a long time been responsible for negotiating wages in industry. We always had the greatest difficulty in getting any retrospective increases. I can well imagine what those who represent industry would have said to me if I had said, "If you give us a retrospective payment as from a year ago that will constitute an incentive to the people I represent". I think that the best way out of this dilemma—of course, I do not challenge for one moment the sincerity of the Chancellor, although I sometimes challenge his ability—would be for the right hon. and learned Gentleman now to explain either why he made the original statement in error, that the Surtax relief was intended to be an incentive—if, in fact, he made the statement in error—or why there has been this subsequent shift from the position which he established at that time.

By coming to the Dispatch Box and explaining the matter the right hon. and learned Gentleman might satisfy some hon. Members a little more than the Economic Secretary to the Treasury has so far done. If the right hon. and learned Gentleman only explains away the statement which he made in his Budget speech, then I think he will be doing justice to the Committee and to himself. I, like most of my hon. Friends on this side of the Committee, will when the occasion arises later in the debate—perhaps in the early hours of tomorrow morning—have a lot to say about the whole issue of Surtax relief.

The reason why I am pursuing the matter at this stage is that I think that it is correct that if one proposes something on principle one can still put down Amendments of this kind to mitigate as far as possible the evils of it. I hope that the Chancellor will make a statement, because I think that he has a responsibility to the Committee to explain what he said in his Budget speech.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

As the hon. Gentleman has very courteously asked me to make a statement, I will do so. However, I do not propose to get involved in the wider arguments about incentive and the suggestion that all incentives are poppycock. That was the argument put forward. I am going to deal with the Amendment.

I at once give the Opposition the point about Schedule D Surtax payers not paying until January 1964 on their earnings during the financial year 1961–62. I say quite frankly straight away that my points about incentive and future efforts apply to about two-thirds of the people in this category, in other words, to those assessed under Schedule E. I accept the logic of what is said that, including Schedule D, this is giving a retrospective benefit. Therefore, the question I had to decide was whether it was desirable or feasible to exclude the Schedule D payers from this Clause.

I came to the conclusion, for the reasons very clearly put by my hon. Friend the Economic Secretary, that relief should operate from the same year of assessment as earnings that were assessed under it. It is neither feasible nor desirable to have things operating in different years. I had to decide either to postpone the whole thing so that there was no relief until January 1964, or to proceed on the basis that the relief should come into effect in January 1963. The remarks about incentives and future efforts apply only to about two-thirds of the people concerned. I ask the Committee to reject the Amendment.

Mr. Mitchison

That, I am afraid, is a most unsatisfactory explanation. The right hon. and learned Gentleman made a Budget speech which, presumably, had been carefully prepared. He said not one word in that speech about the dilemma which he now tells us confronted him and which he resolved in the way he did. On the contrary, the right hon. and learned Gentleman defended the proposals that now appear in the Finance Bill on lines which were perfectly clear but which contained quite obvious inconsistencies.

I make no apology to the Committee for referring again to exactly what the right hon. and learned Gentleman said. I hope he will see that what he says now is quite inconsistent with what is proposed in the Finance Bill and quite consistent with what is proposed in the Amendment. In saying that, I take the view—I have always taken it—that the idea that reductions in Surtax are useful as incentives is nonsense. The Royal Commission on Taxation thought so and said so many years ago, and I have never heard any sound reason to the contrary.

What I am concerned with is the state of the right hon. and learned Gentleman's mind and, what is even more important, the state of the minds of hon. Members opposite who wish to support him on this matter. They ought to consider exactly what they are doing and why they are doing it. The right hon. and learned Gentleman said: Of course, so far as Surtax is concerned, the amount due next January will be upon income already earned in the past. That statement is quite correct. It would be illogical to reduce what is already payable on past effort on the ground of giving an incentive to future effort. That statement is perfectly correct, and it is absolute nonsense to defend as an incentive something which relates to past earnings. The right hon. and learned Gentleman went on: Nevertheless, I consider that there is force in the arguments against the present level of Surtax. In the modern world, the work of the manager"— that is Schedule E— the scientist"— who may be Schedule E or Schedule D— the technologist"— exactly the same applies— is of increasing importance, not only to himself but to the community. In other countries there are much higher rewards for individual effort and skill. All these words apply equally to Schedule D and Schedule E and I should have thought that the sound foundation for any incentive argument lay much more in the Schedule D than in the Schedule E cases. I can hardly conceive that a manager will be goaded into immediately higher efforts by an increase in his net income, but I can see a case, with which I disagree, for saying that those who are practising privately in some profession or other or who are earning their income under Schedule D methods might be induced to work harder on those lines. I repeat, so that there may be no misunderstanding, that I do not believe that to be the case. I accept on that the view of the Royal Commission.

What I am concerned with is what the right hon. and learned Gentleman thought. He went on to say in his Budget speech: Therefore,"— that is, purely on grounds of incentive— I want to do what I can to ensure that the present incidence of Surtax does not act as a disincentive to those who have positions of responsibility in our industries and elsewhere in our national life. Accordingly, I think it right to take action to modify, as far as earned incomes are concerned the present rules. This was no general change in the rate of Surtax. That had been rejected earlier in the same speech. The changes I propose will be applicable to incomes earned—I repeat 'earned'—during this new financial year and thereafter. That is a very good argument if one really believes in incentives of this character but clearly does not include incomes which had been earned before this financial year. However, in the very next sentence the right hon. and learned Gentleman said: In other words, the changes will affect what is payable on and after 1st January, 1963."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 819–20.] 5.30 p.m.

We must assume that the Chancellor of the Exchequer has some elementary idea of our tax system, and, making that assumption, those two statements are wholly inconsistent and we have not heard from anybody which of them the right hon. and learned Gentleman meant at the time. Is it the fact of the matter that his mind and motives were in such a state of confusion that he himself had no idea which alternative he was to adopt and that it required the actual drafting of the Finance Bill to confront him with the dilemma which he put before us today?

I take an entirely different view of what happened. I believe that the right hon. and learned Gentleman wanted to make a Surtax concession which he thought he could justify on grounds other than those of broad equity. I understand his difficulty. The prescription charges had just been increased and a poll tax had been levied on contributors to National Insurance, and in those circumstances it would have been very difficult, even for the most confirmed and embittered Tory, to defend on grounds

of equity a concession to Surtax payers at that moment.

Accordingly, what the right hon. and learned Gentleman did was to defend on grounds of incentive something which could not be put forward on those grounds, for if it was incentive that he meant and if it is incentive that he still means he has no conceivable ground for resisting the Amendments. The only argument against them was that they would tell differently in one case or the other, but that is not the question. The only proposal here is that we desire to encourage those who make these valuable contributions to our national life to do more and whether we should make certain tax changes for that purpose.

Are we in Bedlam in this place? Do we really suppose that we will give any encouragement to anybody by giving him tax relief in respect of that which he has already earned? One would have thought at times that we were in a lunatic asylum, or at a meeting of the Primrose League. Are we really trying to give this incentive? If we are, clearly the Amendments should be accepted.

The right hon. and learned Gentleman's defence indicated the choice he has finally made, but that is no defence of the proposals put forward in these terms and on these grounds in his Budget speech.

Question put, That those words be there inserted:—

The Committee divided: Ayes 175, Noes 235.

Division No. 191.] AYES [5.33 p.m.
Abse, Leo Davies, S. O. (Merthyr) Hale, Leslie (Oldham, W.)
Ainsley, William de Freitae, Geoffrey Hall, Rt. Hn. Glenvil (Colne Valley)
Albu, Austen Delargy, Hugh Hamilton, William (West Fife)
Allaun, Frank (Salford, E.) Diamond, John Hannan, William
Allen, Scholefield (Crewe) Dodds, Norman Hart, Mrs. Judith
Awbery, Stan Dugdale, Rt. Hon. John Healey, Denis
Benson, Sir George Ede, Rt. Hon. C. Henderson, Rt. Hn. Arthur (Rwly Regis)
Blyton, William Edwards, Rt. Hon. New (Caerphilly) Herbison, Miss Margaret
Bowden, Herbert W, (Leics, S. W.) Edward, Robert (Bilston) Hill, J. (Midlothian)
Bowles, Frank Edwards, Walter (Stepney) Hilton, A. V.
Boyden, James Evans, Albert Holman, Percy
Braddock, Mrs. E. M. Fitch, Alan Holt, Arthur
Brockway, A. Fenner Fletcher, Eric Houghton, Douglas
Broughton, Dr. A. D. D. Foot, Michael (Ebbw Vale) Howell, Denis (Small Heath)
Butler, Mrs. Joyce (Wood Green) Forman, J. C. Hughes, Cledwyn (Anglesey)
Castle, Mrs. Barbara Fraser, Thomas (Hamilton) Hughes, Emrys (S. Ayrshire)
Chapman, Donald George, Lady Megan Lloyd (Crmrthn) Hughes, Hector (Aberdeen, N.)
Corbet, Mrs. Freda Ginsburg, David Hunter, A. E.
Craddock, George (Bradford, S.) Gordon Walker, Rt. Hon. P. C. Hynd, John (Attercliffe)
Cronin, John Greenwood, Anthony Irvine, A. J. (Edge Hill)
Crosland, Anthony Grey, Charles Irving, Sydney (Dartford)
Darling, George Griffiths, Rt. Hon. James (Llanelly) Jay, Rt. Hon. Douglas
Davies, G. Elfed (Rhondda, E.) Griffiths, W. (Exchange) Jenkins, Roy (Stechford)
Davies, Harold (Leek) Grimond, J. Jones, Rt. Hn. A. Creech (Wakefield)
Davies, Ifor (Gower) Gunter, Ray Jones, Dan (Burnley)
Jones, J. Idwal (Wrexham) Owen, Will Steele, Thomas
Jones, T. W. (Merioneth) Padley, W. E. Stewart, Michael (Fulham)
Kenyon, Clifford Paget, R. T. Stones, William
Key, Rt. Hon. C. W. Pannell, Charles (Leeds, W.) Strauss, Rt. Hn. G. R. (Vauxhall)
Lee, Frederick (Newton) Parker, John Stross, Dr. Barnett (Stoke-on-Trent, C.)
Lee, Miss Jennie (Cannook) Pavitt, Laurence Swingler, Stephen
Lever, L. M. (Ardwick) Pearson, A. (Pontypridd) Sylvester, George
Lewis, Arthur (West Ham, N.) Peart, Frederick Taylor, Bernard (Mansfield)
Loughlin, Charles Pentland, Norman Taylor, John (West Lothian)
McCann, John Plummer, Sir Leslie Thomas, Iorwerth (Rhondda, W.)
MacColl, James Price, J. T. (Westhoughton) Thompson, Dr. Alan (Dunfermline)
McInnes, James Probert, Arthur Thomson, G. M. (Dundee, E.)
McKay, John (Wallsend) Randall, Harry Thornton, Ernest
Mackie, John (Enfield, East) Rankin, John Timmons, John
MacMillan, Malcolm (Western Isles) Redhead, E. C. Ungoed-Thomas, Sir Lynn
MacPherson, Malcolm (Stirling) Reid, William Wade, Donald
Mallalieu, E. L. (Brigg) Rhodes, H. Wainwright, Edwin
Mallalieu, J. P. W. (Huddersfield, E.) Roberts, Albert (Normanton) Warbey, William
Manuel, A. C. Roberts, Goronwy (Caernarvon) Weitzman. David
Mapp, Charles Robertson, John (Paisley) Wells, Percy (Faversham)
Marsh, Richard Robinson, Kenneth (St. Pancras, N.) Wells William (Walsall, N.)
Mason, Roy Ross, William White, Mrs. Eirene
Mellish, R. J. Shinwell, Rt. Hon. E. Whitlock, William
Mendelson, J. J. Short, Edward Willey, Frederick
Millan, Bruce Silverman, Julius (Aston) Williams, D. J. (Neath)
Milne, Edward J. Silverman, Sydney (Nelson) Williams, W. R. (Openshaw)
Mitchison, G. R. Skeffington, Arthur Wilson, Rt. Hon. Harold (Huyton)
Monslow, Walter Slater, Mrs. Harriet (Stoke, N.) Woodburn, Rt. Hon. A.
Morris, John Slater, Joseph (Sedgefield) Woof, Robert
Moyle, Arthur Small, William Yates, Victor (Ladywood)
Neal, Harold Smith, Ellis (Stoke, S.)
Noel-Baker, Francis (Swindon) Snow, Julian TELLERS FOR THE AYES:
Oliver, G. H. Sorensen, R. W. Mr. Rogers and Mr. Lawson
Oram, A. E. Soskice, Rt. Hon. Sir Frank
Oswald, Thomas Spriggs, Leslie
Agnew, Sir Peter Crosthwaite-Eyre, Col. O. E. Hollingworth, John
Aitken, W. T. Cunningham, Knox Hopkins, Alan
Allason, James Dalkeith, Earl of Hornby, R. P.
Balniel, Lord Dance, James Hughes-Young, Michael
Barber, Anthony d'Avigdor-Goldsmid, Sir Henry Hurt), Sir Anthony
Barlow, Sir John de Ferranti, Basil Hutchison, Michael Clark
Barter, John Digby, Simon Wingfield Irvine, Bryant Godman (Rye)
Batsford, Brian Drayson, G. B. Jackson, John
Baxter, Sir Beverley (Southgate) du Cann, Edward James, David
Beamish, Col. Sir Tufton Duncan, Sir James Jenkins, Robert (Dulwich)
Bell, Ronald Elliott, R. W. (Nwcstle-upon-Tyne, N.) Johnson, Eric (Blackley)
Bennett, F. M. (Torquay) Emmet, Hon. Mrs. Evelyn Johnson Smith, Geoffrey
Bennett, Dr. Reginald (Gos & Fhm) Fell, Anthony Joseph, Sir Keith
Berkeley, Humphry Finlay, Graeme Kerby, Capt. Henry
Bevins, Rt. Hon. Reginald Foster, John Kerr, Sir Hamilton
Biggs-Davison, John Freeth, Denzil Kershaw, Anthony
Bingham, R. M. Galbraith, Hon. T. G. D. Kirk, Peter
Birch, Rt. Hon. Nigel Gammans, Lady Lambton, viscount
Bishop, F. P. Gardner, Edward Lancaster, Col. C. G.
Black, Sir Cyril Glyn, Dr. Alan (Clapham) Langford-Holt, J.
Bossom, Clive Glyn, Sir Richard (Dorset, N.) Leavey, J. A.
Bourne-Arton, A. Goodhart, Philip Leburn, Gilmour
Box, Donald Goodhew, Victor Legge-Bourke, Sir Harry
Boyle, Sir Edward Gower, Raymond Lewis, Kenneth (Rutland)
Brewts, John Grant, Rt. Hon. William Lindsay, Martin
Bromley-Davenport, Lt.-Col. Sir Walter Grant-Ferris, Wg. Cdr. R. Linstead, Sir Hugh
Brooke, Rt. Hon. Henry Green, Alan Lloyd, Rt. Hon. Selwyn (Wirral)
Brooman-White, R. Gresham Cooke, R. Longbottom, Charles
Browne, Percy (Torrington) Grimston, Sir Robert Longden, Gilbert
Bryan, Paul Grosvenor, Lt.-Col. R. G. Loveys, Walter H.
Buck, Antony Hamilton, Michael (Wellingborough) Low, Rt. Hon. Sir Toby
Bullard, Denys Harris, Frederic (Croydon, N. W.) Lucas, Sir Jocelyn
Bullus, wing Commander Eric Harris, Reader (Heston) Lucas-Tooth, Sir Hugh
Butcher, Sir Herbert Harrison, Brian (Maldon) MacArthur, Ian
Campbell, Sir David (Belfast, S.) Harrison, Col. J. H. (Eye) McLaren, Martin
Carr, Compton (Barons Court) Harvie Anderson, Miss McLaughlin, Mrs. Patricia
Carr, Robert (Mitcham) Hastings, Stephen McLean, Neil (Inverness)
Cary, Sir Robert Hay, John MacLeod, John (Ross & Cromarty)
Chataway, Christopher Heald, Rt. Hon. Sir Lionel McMaster, Stanley R.
Chichester-Clark, R. Henderson, John (Cathcart) Macmillan, Maurice (Halifax)
Clark, William (Nottingham, S.) Hiley, Joseph Maddan, Martin
Cleaver, Leonard Hill, J. E. B. (S. Norfolk) Maitland, Sir John
Cooke, Robert Hinchingbrooke, Viscount Manningham-Buller, Rt. Hn. Sir R.
Cordeaux, Lt.-Col. J. K. Hirst, Geoffrey Markham, Major Sir Frank
Corfield, F. V. Hobson, John Marples, Rt. Hon. Ernest
Costain, A. P. Hocking, Philip N. Marten, Neil
Critchley, Julian Holland, Philip Mathew, Robert (Honiton)
Matthews, Gordon (Meriden) Quennell, Miss J. M. Temple, John M.
Maudling, Rt. Hon. Reginald Rawlinson, Peter Thatcher, Mrs. Margaret
Mawby, Ray Redmayne, Rt. Hon. Martin Thomas, Leslie (Canterbury)
Maxwell-Hyslop, R. J. Ridley, Hon. Nicholas Thomas, Peter (Conway)
Mills, Stratton Ridsdale, Julian Thomton-Kemsley, Sir Colin
More, Jasper (Ludlow) Robinson, Sir Roland (Blackpool, S.) Tiley, Arthur (Bradford, W.)
Morrison, John Rodgers, John (Sevenoaks) Turner, Colin
Mott-Radclyffe, Sir Charles Roots, William Turton, Rt. Hon. R. H.
Nicholls, Sir Harmar Russell, Ronald Tweedemuir, Lady
Nicholson, Sir Godfrey Scott-Hopkins, James Vaughan-Morgan, Sir John
Noble, Michael Seymour, Leslie Vickers, Miss Joan
Nugent, Sir Richard Sharples, Richard Vosper, Rt. Hon. Dennis
Oakshott, Sir Hendrie Shaw, M. Wakefield, Edward (Derbyshire, W.)
Orr, Capt. L. P. S. Simon, Rt. Hon. Sir Jooelyn Wakefield, Sir Wavell (St. M'lebone)
Orr-Ewing, c. Ian Skeet, T. H. H. Walker, Peter
Osborn, John (Hallam) Smith, Dudley (Br'ntf'rd & Chiswick) Walker-Smith, Rt. Hon. Sir Derek
Osborne, Cyril (Louth) Smithers, Peter Wall, Patrick
Page, John (Harrow, West) Smyth, Brig. Sir John (Norwood) Ward, Dame Irene
Page, Craham (Crosby) Spearman, Sir Alexander Wells, John (Maidstone)
Partridge, E. Speir, Rupert Whitelaw, William
Pearson, Frank (Clitheroe) Stanley, Hon. Richard Williams, Dudley (Exeter)
Peel, John Stevens, Geoffrey Williams, Paul (Sunderland, S.)
Peyton, John Steward, Harold (Stockport, S.) Wills, Sir Gerald (Bridgwater)
Pickthorn, Sir Kenneth Stodart, J. A. Wilson, Geoffrey (Truro)
Pike, Miss Mervyn Stoddart-Scott, Col. Sir Malcolm Wise, A. R.
Pilkington, Sir Richard Storey, Sir Samuel Wolrige-Gordoo, Patrick
Pitman, I. J. Studholme, Sir Henry Woodhouse, C. M.
Pott, Percivall Sumner, Donald (Orpington) Yates, William (The Wrekin)
Powell, Rt. Hon. J. Enoch Talbot, John E.
Price, David (Eastleigh) Tapsell, Peter TELLERS FOR THE NOES:
Prior, J. M. L. Taylor, Edwin (Bolton, E.) Mr. Gibson-Watt and
Prior-Palmer, Brig. Sir Otho Taylor, W. J. (Bradford, N.) Mr. Gordon Campbell.
Pym, Francis Teeling, William
Mr. Houghton

I beg to move, in page 8, line 5, to leave out from "of" to the end of line 6 and to insert: calculating surtax to be charged under the next following subsection".

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

I think it would be convenient also to discuss the Amendments in page 8, line 19, at end insert: (c) to the total income, reduced by the amount of any deductions under the two foregoing paragraphs, there shall be added the amount of any surplus expenses as hereinafter defined. (2) For the purpose of charging surtax for the year 1961–62 or any subsequent year of assessment, the income of an individual shall be deemed to be his income as calculated under the foregoing subsections, if, and only if, the income so calculated and the charge on that income for surtax are less than the income and the charge for surtax would be, if this section had not been enacted. and in page 9, line 7, at end add: (4) In this section the phrase "surplus expenses" means—

  1. (a) any expenses incurred by way of entertainment; and
  2. (b) any other expenses of a personal character (being expenses in respect of travelling, subsistence or the like) allowed in relation to a source of income, and so allowed in excess of the amount of one quarter of the gross income (being the income before deduction of any such expenses) derived from that source.

Mr. Houghton

When I moved the first of the three groups of Amendments upon which the Committee has just divided I explained that they were designed to correct faults in the Chancellor's proposals on the basis of his own premises without prejudice to our own opposition to the Clause as a whole. What we have just dealt with has been described in the course of the discussion as retrospective incentives. I now come to the question of expenses deducted from the Income Tax assessment and, therefore, automatically reflected in the Surtax assessment.

5.45 p.m.

The Amendment proposes to exclude from any deduction from the Surtax assessment any allowance made against the Income Tax assessment in respect of expenses incurred by way of entertainment. Secondly, we propose to restrict the deduction from the Surtax assessment in respect of certain other expenses to one-quarter of the gross amount of income derived from that source.

The Amendment makes no difference to the business expenses which can be claimed or allowed against the relative Income Tax assessment. We can deal here only with what shall be deducted from the Surtax assessment. Hitherto, what has been allowable from the Income Tax assessment has been equally allowable from the Surtax assessment. The earned income as reduced by the set-off for expenses has been assessed to Surtax, the simple principle being that whatever the Income Tax assessment that is taken as the basis for Surtax.

We now propose a breach in the traditional basis of assessing income to Surtax. We consider that we have justification for this having regard to the liberal reliefs which the Clause proposes to give to Surtax payers. I know that the Financial Secretary or the Chancellor, whoever replies, will stress the traditional identity between the amount assessed for Income Tax as being also the amount assessed for Surtax.

Surtax is a superstructure on taxation of income and the same rules in determining what is chargeable have applied to both. We propose to break that traditional link in one respect. I agree that it is not very logical to have a different basis of assessment for Surtax from the basis of assessment of Income Tax on the same income, but there are numerous examples of differences of treatment for Surtax purposes based, not on logic, but on the judgment of the Chancellor of the Exchequer and of the House of Commons on what is right and proper in certain circumstances.

For example, the exemption of the first £15 of interest on Post Office or trustee savings applies to Income Tax only. That exemption is not carried into the field of Surtax. Personal allowances which are set-off against the Income Tax assessment are not fully set-off against the Surtax assessment. As the Committee knows, personal reliefs may be set off about the Surtax assessment only to the extent that there is an excess over the single person's allowance of £140. In the past, earned income relief given for Income Tax purposes has not been extended to Surtax. The Clause proposes for the first time to give earned income relief to Surtax. So I do not think that our Amendment can be opposed on the ground that it is an objectionable change in the traditional treatment of Surtax. I think that it is a flexible tax which we can adjust to the circumstances of the time.

We feel that the reliefs given in Clause 11 on earned income are so generous, one might even describe them as drastic, that now there is no case for allowing the Surtax payer to set off against his Surtax assessment certain expenses which, while allowable for Income Tax purposes, are objectionable as a deduction from Surtax. On this Clause or in this Bill we cannot deal with the rules applicable to deductible expenses either under Schedule E or Schedule D. We can deal only with those matters in relation to Surtax. That is why we have confined our proposals to Surtax. Had we been free to do so, I think we should certainly have wished to carry our proposals, and probably others too, into the sphere of Income Tax.

It is difficult to discuss this proposed restriction on expenses deductible from Surtax assessment without making some reference to the wider question of expenses and taxation. I think I can say that there was some encouragement for this Amendment in the references which the Chancellor himself made in his Budget statement. He said: I have been exercised in my mind about the tax treatment of expenses allowances and benefits in kind received by directors and other senior executives. The question of business entertainment is closely linked. The right hon. and learned Gentleman went on to say that many firms pursued a strict policy in these matters and nothing he had to say applied to them. He continued: I think, however, that there is something behind this strong feeling which undoubtedly exists that some so-called business entertaining goes further than purely business motives. This is an unhealthy feature both on business and social grounds. I ask those concerned most seriously to consider whether some curtailment in the extent and scale of entertainment can be achieved without affecting business efficiency. It is a matter very difficult to deal with by legislation, but I shall review this matter again next year and I do not reject altogether the possibility of legislative action then."—[OFFICTAL REPORT, 17th April, 1961; Vol. 638, c. 815.] In Clause 20 of this Bill the Chancellor is taking the positive step of proposing to reduce the amount of money spent on motor cars which might qualify for relief for capital expenditure. But, in general, this year the Chancellor has given some sort of warning that he has the matter in mind. He has not uttered any threat about retrospective legislation, which I can quite understand, having regard to the fate of other threats of a similar kind in recent years. What the right hon. and learned Gentleman is really doing, I suppose, is binding over the offenders to be of less extravagant behaviour during the next 12 months. If there are physical signs that they have not heeded this warning he may be moved to do something. We want him to go some little way towards checking this abuse at the same time as he gives these liberal reliefs to Surtax payers.

It has been suggested in some Press comments recently on this matter that now directors and business executives, and men in business on their own account, will get such liberal reliefs from Surtax that they will probably be able to afford to pay for their own lunch. I think that the message should go out from this Committee that that is what we expect them to do. In fact, we might go further and say that if they entertain a guest for business reasons they might keep an eye on the main chance and pay for his lunch too. But we do not think that the present liberal method of dealing with expense allowances should be carried into the Surtax field when the substantial reliefs are being given in this Bill.

On the general question of expenses, my own view is that it is not a tightening up of administration which is required so much as a tightening of the law. I do not believe that this abuse can be effectively checked by closer scrutiny and more exacting administration. This problem is full of emotional reactions of all sorts and kinds, and it is very disagreeable work to do. It may not be as disagreeable for accountants as it is for Income Tax inspectors, but it is disagreeable work to do. Very often it leads to heated arguments and distasteful personal interviews with taxpayers. There is a limit to what the taxpayer will stand in the scrutiny and examination of his claim, the implied suspicion of his motives and even of his honesty. I believe that the only solution to this problem is a limit to allowances by law.

If we had to go to inspectors of taxes and negotiate an allowance for a wife, or children, or for a housekeeper, what a time everybody would have. Those who have expensive wives; those who had economical wives—those who might even have two wives—would have to disclose to the inspector just what they spent on their womenfolk. We might be told about the children's taste in toys and what has to be done to keep them sweet. Keeping up with the Joneses is no longer only an adult occupation, it now includes the children as well, and we can all imagine the sort of chaotic conditions there would be in such discussions with the Income Tax authorities. So by law we have said that a married man's relief is so and so; a single person's relief is so and so; the allowances for children are such and such, and for a housekeeper similar. I think that the principle of carrying formal allowances for Income Tax and Surtax purposes into the range of expenses is very strong.

A great deal of mischief arises from the willingness of employers and employees to introduce a system of gross allowances for expenses. Instead of the employee claiming expenses necessarily incurred on some system of subsistence and travelling expenses or allowances for entertainment on specific and possibly vouched expenditure, an overall payment is made to cover all these things. That suits the employer because he has not to deal with individual claims. It suits the employee because he has not to render a detailed claim to the employer. The real substance behind this arrangement is that it leaves the employee free to contrive to get the maximum advantage personally from his expenses allowance. That, I think, is one of the big sources of difficulty and abuse in connection with expenses allowances. The taxpayer in those circumstances can overload his claim with items which his employer would disallow but which the Income Tax people must accept. It is a means of getting the maximum net benefit from a gross payment of salary inclusive of expenses.

6.0 p.m.

I think this is monstrously unfair on the Inland Revenue, because claims which should have been rendered against employers are rendered against them. In connection with tax reliefs for expenses, the Inland Revenue has no real means of deciding what is a fair standard of expenses and what is not. In many cases the employer does not come into it at all. The employee is left to tell his own story uncorroborated by the employer in a number of cases. If we had that system in the public sector there would soon be a public outcry against it.

We do not get this in the public sector because all allowances are scheduled and subject to rule. That applies to any hon. Member of this House travelling on House of Commons business, to every Minister travelling on official business, on every trip abroad of a Minister or permanent official. Local government officers and those in nationalised industries and in the public services are subject to a set of rules about their expenses claims and their maximum allowances are usually fixed. It is only in the private sector of industry and commerce that this problem arises.

I believe there is a very good case indeed for applying, as far as possible the principle now operating in the public service to private industry and commerce as well. I think it would end a great deal of abuse. I doubt whether it would restrict the legitimate activities of those concerned. For my part, I should have absolutely nothing to do with any entertaining claim whatever as a deduction from taxable income or taxable profits. I would be as drastic and sweeping as that, because nothing short of that would clean up the abuses of people entertaining themselves, their friends and colleagues and business associates on claims which they make either against the firm or against their taxable income and profits to the Inland Revenue.

In this Amendment we can make only a very small gesture towards that ultimate though drastic proposal. What we propose by this Amendment is that on Surtax—which is the only thing we can touch in this Amendment—we should exclude, as the Amendment suggested to page 9, line 7, says: any expenses incurred by way of entertainment. That is item No. 1. The other thing we propose to do is not wholly to exclude claims for certain other expenses but to restrict them. I think it a very modest restriction which we seek to impose. What we say is that: other expenses of a personal character (being expenses in respect of travelling, subsistence or the like) allowed in relation to a source of income, and so allowed in excess of the amount of one quarter of the gross income (being the income before deduction of any such expenses) derived from that source. That wording is in the associated Amendment, to page 9, line 7.

Is this proposal objectionable from the point of view of the Chancellor? It would, of course, fortify the Revenue to a comparatively small extent. It would check some of the abuses as they are extended into the Surtax field. It would be a tightening up of the law in one of the fields of taxation and would not be excessive at that. The Chancellor would probably welcome its general purpose and its financial benefit from the point of view of the Exchequer but might feel that this is rather jumping the gun which he is holding in his pocket for possible use next year. If he is to tell us that all that is wrong with our Amendment is that it is premature, that this is the sort of thing he has in mind to do next year, of course we might think again. However, we know that in this connection Chancellors tend to be willing to strike but are afraid to wound.

The difficulty the Chancellor has in doing more than throwing out the hint he did in his Budget Statement is that he is dealing with a large number of people who are very generous supporters of the Conservative Party. I am sorry to say that, but it is no good blinking the facts of life in the political world. We are constantly being accused of getting our money from the trade unions. We are not ashamed of it and never tried to hide it. We publish our accounts, but we are never able to get the truth out of hon. Members on the benches opposite about where they get their money from. We know that a lot of it comes from the sources which are now standing to benefit most from Clause 11 and all that it seeks to do. In that sense, our Amendment would be objectionable to them.

I know that also there are certain problems of administration. I am perhaps as sensitive as any hon. Member to problems of administration in the Inland Revenue, because I have been dealing with or listening to them for nearly forty years. There are some purposes in taxation for which one must exert every effort to overcome administrative difficulties and which have an overriding social or economic purpose. This is one. There would be no particular difficulty in disallowing from all expenses claims against Schedule E amounts allowed for entertaining and also to apply the restriction which is referred to in the Amendment to page 9, line 7, as regards other kinds of personal expenses.

I admit that it would be more difficult to make this provision in assessments under Schedule D where so much is hidden in the general expenses of the business. There is a whole reform to be done in the method of rendering accounts for assessment under Schedule D and an insistence by law on the revelation of items of charges against taxable profits which at present have to be dug out by diligent scrutiny by inspectors of taxes. That would not be insuperable as a matter of administration under this Amendment. I certainly concede that the Chancellor of the Exchequer has a difficult matter in hand on this. A less courageous and steadfast Chancellor might be frustrated and turned aside from it, but I have hopes that the Chancellor really meant that something should be done about it.

My final point is this. I know that it can be said that all this is marginal. I heard Mr. Paul Chambers giving an address to the Income Tax Society the other day. He made a speech in public and referred to the fuss there is about expenses of directors and others and suggested that on the whole it was marginal from the point of view of the national revenue. I do not dispute that.

What I do say, however, is that the manifestations of this expenditure are a grave offence to many people who are being compelled to lead economical and not very exciting lives because the Government have imposed upon them heavy contributions for insurance and the National Health Service. They are taxpayers as well, and feel that there is something wrong with the alleged equity of our system of taxation when some people can clearly be enjoying themselves quite extravagantly and others can afford an evening out only once in a blue moon.

It is socially disturbing. It arouses resentment. It casts the deepest suspicion on the effectiveness of the Revenue machine, and a lot of people think that these signs of extravagance must be due to a lot of tax dodging and evasion and a failure of the Inland Revenue to do its job properly. Some part of it is undoubtedly due to avoidance and evasion of tax, and to taking the fullest advantage of the expenses rules that there are, although I am sure that a lot of it flows from the enormous capital gains that some people are making at present, and on which they are paying no tax at all. I think that this is adding to the extravagance which we see around at present.

A good deal of this could be called commercial extravagance, in which firms treat their customers and salesmen think that they have to treat those with whom they wish to do business. I have said more than once that it is a great pity if our overseas buyers have to see British goods through the bottom of a wine glass, but that is apparently how they have to look at what we have to sell. Apparently, they are not in a fit state to examine the quality of British goods unless they have been dined and wined beforehand, or, if they look at the quality of the goods before being dined and wined, at least they have to be dined and wined so that they will give an order. These are conditions of doing trade which should not be encouraged, and our Amendment goes a little way to putting some check upon the level of expenses in these two directions at the present time.

I do not think that I ought to strain the patience of the Committee, or your own, Sir William, by going any further on these Amendments, because I might be tempted to hang a good deal on a comparatively small peg. I cannot deal adequately with this Amendment without sketching in the general background, which leads us to want to do something however small, about this matter.

Viscount Hinchingbrooke

Time after time we have heard the hon. Member for Sowerby (Mr. Houghton) on this theme. For years past he has been going at it. He is the most attractive, the most popular and the most agreeable spoilsport it has ever been my privilege to meet. He is a very much nicer man than Mr. Scrooge.

The effect of doing what the hon. Gentleman wants to do would be to turn this country into a meagre, impoverished, unexciting, boring, depressed, grey and distracted country, rather equivalent to Albania or that sort of country behind the Iron Curtain. If anyone wants to reorientate our society and put it effectively behind the Iron Curtain, from the sociological point of view, he would adopt this Amendment.

I can never quite understand the desire of the Opposition for this, because they are supposed to be deserting the theory of pure Socialism and are accepting more and more the advantages of a competitive commercial society. They are taking pride in being members of the Western world, but if the Western world is to win over Communism it has to show some results from capitalism, and the sort of results which capitalism best shows are a high standard of living, a ladder of opportunity, a chance that a man who works hard in his early life will rise to enjoy some the benefits which the hon. Gentleman is so anxious to repress by legislation. Therefore, I can see that if this Amendment were passed we should collapse the ladder of opportunity down to the first rung, and a lot of earnest people who are wondering whether they should join the Conservative Party or the Socialist Party will desert any kind of invitation which the hon. Gentleman and his hon. Friends put out.

6.15 p.m.

I cannot understand their attitude. They are introspective, psychotic and altogether not to be comprehended on this theme, and I very much trust that, as we return to this theme year after year relentlessly in what has now become, from the public point of view, I should say, a very boring way, in the end we shall win our point of view and put it across. The mischief today is not that there are these enjoyments, these opportunities and these excitements, this glitter and glamour in public life which even Socialist newspapers exemplify on their front, middle and back pages with great enjoyment, but that all this is experienced by a comparatively narrow band of people.

Time after time, we have suggested to successive Chancellors that the only way in which real justice can be done is to reduce Surtax on all persons to such a level that they can, out of their net retained income—all of them—enjoy some of these privileges and opportunities. Since the war, it is only the business world and a certain section of Schedule E taxpayers in the professional classes who have been allowed expenses and entertainment allowances and who have been able to opt out of the consequences of the drastic Surtax proposals which successive Governments in their un-wisdom have imposed.

The real answer, if we want to maintain an elevated standard of life, an exciting life, with a real ladder of opportunity for everybody, is that the rates of Surtax, as I suggested in a previous Amendment, should be consolidated with Income Tax, making it something like 10s. in the £ on the top range of income, so that these opportunities will be available to everybody, not only to successful and prosperous commercial classes. I wish we could convince the Socialist Party that that is the real answer, so that it would turn right about face, forget its out-of-date political beliefs and recognise that the country as a whole wants to see these things, provided that they are not grossly exaggerated, and that we do not live in the somewhat exaggerated and fantastic state of some Oriental empires of the past.

I quite agree that there are scandalous excrescences in all this, which must be avoided in any sober, Christian society like ours, but, at the same time, let the Opposition understand that the real mischief is this overall, crashing imposition of paying 17s. or 18s. in the £, from which only the business classes can escape. Until we correct that, we shall have a situation which they themselves continue to despise.

Mr. Sydney Silverman (Nelson and Colne)

Will the noble Lord answer one question for me? I am interested in his proposal to abolish Surtax, consolidate it with Income Tax and have a top rate on higher incomes of 10s. in the £. It is obvious that this would entail a severe loss of revenue. Does he make his proposal on the assumption that expenditure will continue at the present level? If so, how does he propose that the Chancellor of the Exchequer should raise the revenue which he would sacrifice if his proposal were adopted?

Viscount Hinchingbrooke

The hon. Member knows very well that private Members are constitutionally barred from suggesting proposals for increasing taxation.

Mr. Diamond

I support very strongly everything my hon. Friend the Member for Sowerby (Mr. Houghton) said in favour of the Amendment. I do so for a variety of reasons, including all those he mentioned. However, before getting down to the detail of the Amendment I want to put it in perspective. I have spoken on this subject before and have been, perhaps, a little misunderstood by some of my hon. Friends. I will repeat it now in order to get it properly and thoroughly understood, I hope.

I am almost in the position of regretting every minute we devote to the discussion of expenses and the prevention of tax avoidance on expenses, because I would far rather we devoted the time to the discussion of the real matter of preventing avoidance of proper tax liability on capital profits and things which are really material. Those are the material things. They are the methods whereby millions of pounds are saved. Expenses are the methods whereby pounds are saved. In terms of proportions I should be much happier if we could discuss the material things. However, we cannot. On the Amendment we are limited to expenses.

On expenses, I share my hon. Friend's view that this is not a matter to be dealt with by more severe administrative rules, by greater scrutiny on the part of the Revenue, or more lengthy scrutiny or tougher instructions by the Treasury. It has reached the stage, in many cases, at which the relationship between the taxpayer and the Revenue, which must exist, has to be based on understanding. It is our job to ensure that effective taxes are spread evenly. We on this side must not forget that the taxpayers are the people who pay the taxes. If there were a strike of taxpayers, we should be in very serious difficulty. We must try to bring about a relationship between the Inland Revenue and the taxpayer which is based on understanding of one another's positions. The Inland Revenue official has to do his duty. The taxpayer has to pay his taxes, but he is a human being and his human frailty of not wishing to pay over what he has earned must be understood.

I have said that to put the matter in perspective. I will now say why I strongly support the Amendment, which is not directed to administrative action but to an alteration in the law. I will deal, first, with the point made by the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). How right he was when he said that the Western world should win the battle. He did not follow that up by mentioning that the way in which one of the leaders of the Western world—the newest leader, namely, the President of the United States—is proposing to win this battle is by tackling, first and foremost, the great unpopularity and the great evil which affects the whole economic attitude of the American businessman, namely, the concentration on the expenses racket. Mr. Kennedy has sent a message to Congress to deal with this matter. He did this within three weeks of being elected the new President of that great capitalistic, private enterprise society, the United States of America.

Let me say how right the noble Lord was to draw attention to the need to remove this evil from our society if we are to win the battle. This is a vital matter, because there is an attitude of unrest on the part of many people who see this going on and cannot understand how it happens. They think that there is a lack of administrative effort, and so on. That is not so. This is an attitude which is being adopted more and more by the business community. Somehow or other it must be moderated. It has gone wild in the United States. It is going wild here. It becomes more and more exaggerated every year.

We have only to listen to the complaints of the businessman himself to know that this is true. For example, a London manufacturer of ladies' clothing would say that if he had to entertain a buyer from the Provinces who visited London once a year to make his purchases, it was sufficient, ten years ago, to take him out to lunch, buy him a sherry and a glass of wine, and perhaps one cigar.

Mr. Emrys Hughes (South Ayrshire) rose

Mr. Diamond

I hope that my hon. Friend will allow me to finish my illustration. Then I will give way.

Today, the manufacturer has to entertain the buyer to lunch and dinner. He has to take him out to a party at night. [An HON. MEMBER: "And his wife."] Very likely. I do not know these details—somebody's wife, anyway. When all this is over, and the manufacturer has incurred all this expense, the buyer goes back to his provincial city and presents his own boss with a chit for the expenses which have been paid by somebody who entertained him.

Sir Douglas Glover (Ormskirk)

I rise only because the hon. Member for Gloucester (Mr. Diamond) keeps looking at me. He knows that I am in that trade. All my trading life I have had a rule that I never allow a supplier even to buy me a drink.

Mr. Diamond

I am not relying on my imagination for this. I am quoting what a businessman told me in one instance. I have heard of other instances which show, as I am sure the whole Committee will accept, that the practice of entertaining and spending is increasing, not reducing. The general level is increasing. Indeed, the business community needs to be helped against itself, because they are in competition. The more one man goes in for this, the more another has to go in for it. We must set a standard.

It is a difficult matter to deal with. I shall now consider what is the best method to adopt. The Royal Commission examined this problem and came to the conclusion that expenses should be allowed on the basis of their being reasonable, as opposed to the present definition. It suggested that the criterion should be whether the expenses are reasonably incurred. The Government did not accept that, because to accept the view that the Inland Revenue had to decide what was reasonable would run counter to the whole basis on which the relationship between the Inland Revenue and the taxpayer exists. The relationship can continue only on the basis that the taxpayer runs his own business, decides his own affairs, and is the judge of what is or is not reasonable, and that the Inland Revenue accepts that view and taxes him on the results of his activities, be they wise or foolish, reasonable or unreasonable.

Therefore, the Government were not prepared to accept the recommendation of the Royal Commission. But the position has got worse and worse, and the Government are now driven to doing something. In this very Finance Bill, in the question of motor cars, which is closely related to this matter, they are saying for the first time that the Inland Revenue will take the decision as to what is reasonable. They are saying that a motor car of £2,000 is reasonable, but one of £5,000 or anything over £2,000 is not reasonable. For the first time the Government are being driven to make a breach into the previous continuing relationship between the Revenue and the taxpayer. They are right to be driven to do this, because there is no alternative. Expenditure of this kind is mounting and the business community needs helping against itself.

6.30 p.m.

The Amendment moves on precisely the same philosophical argument. It goes on the basis of what the Chancellor of the Exchequer has said. Indeed, he has said it on the Bill. I wish the noble Lord would read what his right hon. and learned Friend has said. This is what his own Chancellor said in his Budget speech about business expenses: I think…there is something behind this strong feeling which undoubtedly exists that some so-called business entertaining goes further than purely business motives…I ask those concerned most seriously to consider whether some curtailment… The Chancellor also said: It is a matter very difficult to deal with by legislation"— Indeed it is, as I have illustrated— …and I do not reject altogether the possibility of legislative action…"—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 815.] That is a very clear warning of what is in the Chancellor's mind. We are helping the Chancellor over expenses set against Surtax for the simple reason that we cannot do so in relation to Income Tax without being out of order. We are dealing with this purely on Surtax grounds for that reason alone, but what we say in this Amendment—which the Chancellor should view very sympathetically—is that the situation has got beyond the bounds where the discretion of the businessman can be relied on to decide what rate of entertaining, travelling and other expenses is reasonable. Now, the tax gatherers—the Inland Revenue—have to intervene, and say, "We think that a certain thing is reasonable."

As to entertainment expenses, nothing is reasonable. This is not a great departure from the present law and practice because, as can be confirmed by those hon. Members who are in the same profession as I am, under the existing law entertainment expenses are not allowed at all in many cases—not at all. I will not go into details, but there are very many cases in which they are not allowed. We say that entertainment expenditure should be disallowed completely for Surtax purposes.

We also say, echoing what the noble Lord has said, that inasmuch as all taxpayers with incomes of less than £5,000 a year have been relieved completely of Surtax—completely—and so get this large net income, they should themselves pay for their own lunches and entertainment. As this relief is being made, it is now reasonable that the very thing the noble Lord is suggesting should take place; these people should pay for their lunches from their own pockets—

Mr. Raymond Gower (Barry)

Would the hon. Gentleman explain what would happen, if this Amendment were incorporated into the Bill, in regard to such expenses as are occasioned by a limited company of which one of the directors is paying Surtax? Assuming that it is a one-man company and these expenses, in effect, were greater than the proportion specified in the Clause, what would be the effect on that man's Surtax?

Mr. Diamond

I shall come to that. The Amendment I have in mind is divided in paragraphs (a) and (b). I have dealt with (a), and will deal with the other. That is why we say that entertainment expenses should be disallowed completely for Surtax purposes.

We come to expenses of a personal character. These are defined, and nobody would argue whether or not this definition is completely right. Nobody can say for certain what is the best way of defining that point. One does the best one can. The whole difference in the approach here is that one is allowing for the first time, as in the motor car Clause appearing later in the Bill, the Inland Revenue to say what is reasonable or not, because the taxpayer is no longer able so to control expenses of this kind as to keep them within reasonable bounds.

I think that this approach is right. It is justified on motor cars, and now on entertaining and personal expenses. Some hon. Members may have a better formula for achieving this purpose, but our formula is a good one. It sets some relationship between expenses incurred and income earned. That is a normal business approach. One could justifiably incur expenditure up to a certain point, but beyond that it could only be incurred, not for business but for personal purposes.

To reply fully to the hon. Member for Barry (Mr. Gower) would take me into certain technicalities, but he will understand that there are certain circumstances in which the director of the public company is charged under Schedule E with expenses incurred by him on behalf of the company, and he is then left to argue with the Inland Revenue as to whether those expenses were wholly and necessarily incurred, and so on. Therefore, for certain purposes, that gentleman's expenses would be limited in this way. Entertainment expenses—no reduction for Surtax purposes; no allowance—and, in other circumstances, expenditure reduced in accordance with the formula laid down.

I say that this Amendment is wholly in line with the latest approach of the Government, as shown in the Clause dealing with motor cars. I say that this is wholly appropriate at this time, when Surtax is being considerably reduced in all cases, and extinguished in the case of all people with incomes under £5,000 a year so as to enable them to meet this expenditure from their own pockets. It is a proper approach, it is well timed, and it should be accepted by the Government.

Mr. I. J. Pitman (Bath)

I should like to take up one point—and it is not an unreasonable playing with words. The hon. Member for Gloucester (Mr. Diamond) spoke a great deal about "reasonable" expenses, and said that in terms of motor cars, as dealt with in a later Clause, it was the Government who were deciding what was reasonable. But what the Government are really doing is to decide what is legal. At no stage have we in this House ever wished, because it leads only to capricious government, to have such points as what is reasonable to be decided anywhere but in the law laid down.

The hon. Member should have used the word "necessary". Under the existing law, the taxpayer or the man incurring expenses has to justify those expenses as being necessary. It is open to the inspector—and, as we all know, it very frequently happens—to argue with very great cogency that such-and-such an expense is not necessary. This may appear to be a legal or quibbling point on words, but I think that that correction should be made in respect of what the hon. Gentleman has just said.

The Financial Secretary for the Treasury (Sir Edward Boyle)

I think that I can claim a reasonable degree of impartiality in this debate because I have not a wife—expensive or otherwise—but I am not sure that I would be an entirely conforming citizen either in the ideal State of the hon. Member for Sowerby (Mr. Houghton) or that of my hon. Friend the Member for Dorset, South (Viscount Hinchingbrooke). I start by saying in reply to the hon. Member for Gloucester (Mr. Diamond) that I think he was drawing too close an analogy between this Amendment and Clause 20. In Clause 20 we do not ask the Inland Revenue to decide what should be the maximum amount proper for a car; we are asking this Committee to decide that there should be some limit on the capital allowances, which is a rather different matter. That is a Clause where the Committee has to decide the maximum figure.

Those who heard the hon. Member for Sowerby speak on the last day of the Budget debate, in which he made a remarkable statement, as I thought at the time, that a Labour Government …would disallow all entertainment as a business expense charged against taxable profits"—[OFFICIAL REPORT, 20th April, 1960; Vol. 638, c. 1405.] will not, I think, have been surprised to see this group of Amendments on the Notice Paper. Their combined effect, as the hon. Member for Sowerby very clearly explained, would be to cut down the new Surtax reliefs on earned income by reference to a taxpayer's "surplus expenses". These expenses are defined in the Amendment as, first, any entertainment expenses; and, secondly, other personal expenses which have been allowed for Income Tax purposes in respect of travelling, subsistence and so on, provided that they exceed one-quarter of the gross earnings from the particular source of earned income.

Mr. Mitchison

To that extent.

Sir E. Boyle

Yes, to that extent.

Before coming to the wider issues raised by the Amendment there are two preliminary points which I must make. In the first place, this Amendment, as the hon. Member for Sowerby recognised in his speech, would introduce a new and, in my view, objectionable form of discrimination as between our treatment of Income Tax, on the one hand, and Surtax on the other; because the effect of this Amendment would be that a taxpayer would have to pay Surtax on expenses which had been proved to be legitimate and had been allowed for Income Tax purposes.

When a director or a company official puts in his claim for expenses, either these expenses should be allowed or they should not be allowed. I can see nothing that can be said for a system which allows them for Income Tax purposes but which brings them in again when considering the man's Surtax liability.

It seems to me that the comparison between expenses and personal allowances—although it appears a reasonable one at first sight—is really a fallacious one, because all expenses which are allowable under Schedule E are expenses of earning the income and they vary from case to case. But fairness demands that the actual expenses be allowed or disallowed, as the case may be, before getting down to the taxable income. Personal allowances—marriage allowances and child allowances and so on—reflect expenses not of earning but of spending income. We give these personal allowances because, naturally, it costs more to live if one has a family than if one has not.

Fairness here demands that account should not be taken of actual expenditure because actual expenditure in the case of allowances would surely benefit the wealthier families as against the poorer ones. This analogy drawn by the hon. Member for Sowerby, as between expenses, on the one hand, and personal allowances on the other, was not really very sound because, in the case of Income Tax allowances, we do not take into account the actual expenditure of individuals, whereas it is of the essence of the case in considering matters of business expenses that we take into account actual expenditure.

Mr. Diamond

The hon. Gentleman has pointed to the illogicality of deducting expenses for Income Tax purposes and not allowing them for Surtax purposes which is proposed in the Amendment. Could he tell us how we can put forward an Amendment which would be accepted by the Table which would provide for a reduction of expenses for Income Tax purposes? If not, will the hon. Gentleman make the illogicality complete by introducing an Amendment himself?

Sir E. Boyle

I hope that the hon. Gentleman will do me the courtesy of listening to what I have to say. Even if such an Amendment were put down, I could not advise the Committee to accept it. I thought it was reasonable to point out what seemed to me to be an objectionable feature of the Amendment as drafted, particularly as the hon. Member for Sowerby, in moving the Amendment, had drawn attention to this.

There is a second preliminary point concerning the drafting of the third Amendment. The definition of personal expenses in paragraph (b) of the Amendment refers to (b) any other expenses of a personal character (being expenses in respect of travelling, subsistence, or the like)… It is not very clear from those words just what "the like" expenses refer to. I should judge that this kind of phrase would cause a good deal of trouble to administer, especially remembering that the treatment of business expenses is one of the hardest tasks facing any tax inspector today.

6.45 p.m.

I want now to say a further word, in reply to the hon. Member for Sowerby, concerning each of the two main categories of expenses covered respectively by paragraphs (a) and (b) of the third Amendment. First, I will say a word about entertainment expenses. There is, I agree, a rather widespread feeling in Britain today that there is a good deal of unnecessary extravagance in the matter of business entertainment. The Chancellor, in his Budget speech, referred to this as an unhealthy feature both on business and social grounds, and said: It is a matter very difficult to deal with by legislation, but I shall review this matter again next year and I do not reject altogether the possibility of legislative action then."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 815.] The Chancellor certainly gave no encouragement in his Budget speech to that section of business opinion in this country which is inclined to talk as though this matter of expenses was something with which the Government and Parliament have no right to interfere. I certainly would not quarrel, and I know the Chancellor would not quarrel, with a great deal of what was said by the hon. Member for Sowerby about the social aspect of this matter, particularly when he said that it disturbs many people of all political parties, or of no political party, who have to live in rather straitened circumstances on fixed incomes.

But that is different from saying that all entertainment expenses should be disallowed for tax purposes. Indeed, as I said in the Budget debate, it would be very difficult to imagine a proposal which is less helpful from the point of view of our export trade. I noticed that during the Budget debate, in response to an interjection by the hon. Member for Wycombe (Mr. John Hall) the hon. Member for Sowerby admitted that there was a case for differentiating between expenses connected with exports and those connected with home sales.

Even as regards purely home entertainment not directly connected with the export trade, I do not believe that it would be wise or fair to go as far as the hon. Member for Sowerby proposes. I said in an earlier debate, and I repeat, that the strength of our balance of payments reflects our competitive economic performance over the economy as a whole".—[OFFICIAL REPORT, 20th April, 1961; Vol. 638, c. 1422.] I do not believe that our competitive economic performance would be improved if all business entertainment expenses were to be disallowed for tax purposes.

The fact that there is some unnecessary extravagance surely does not, as a matter of equity, justify a complete prohibition of any deduction for entertainment. Such a prohibition would penalise not only those who are extravagant but those many individuals and companies the cost of whose entertainment of business connections is strictly controlled.

Concerning the second proposal, that expenses for travelling and subsistence should be disallowed in so far as they exceed one-quarter of the gross earnings from any particular source of earned income, I suppose the idea behind this second half of the Opposition proposal is that some of the expenses which are at present allowed ought not to be, and that those who travel on business ought to be content with a lower standard of expenditure than they actually incur.

It is quite true that if a taxpayer makes a business trip the Revenue cannot, except in extreme cases, disallow part of that expenditure on the grounds, say, that he could have travelled more cheaply, or that he could have stayed in a less expensive hotel. In my view, any detailed inquisition of that kind would be wrong in principle and would prove impossible in practice. As the hon. Member for Sowerby said, there is a limit to the amount of questioning, verbally or through correspondence, which taxpayers will put up with.

Even if it could be shown that there is unnecessary extravagance in this kind of expenditure, the disallowance of anything incurred above an arbitrary fraction of income, which is what hon. Gentlemen opposite are proposing, would prove unfair. Such a rule would have no effect on the man who makes only a few business journeys, but it would hit hard at the man who has to be away from home for a considerable part of the year, and the total of whose perfectly legitimate expenses—measured by any ordinary standard—may considerably exceed one-quarter of his gross salary.

Such a rule would also work unfairly for the man whose duties do not generally include a great deal of business travel but who in one year has to spend a number of months overseas—perhaps in visiting subsidiary companies, or organising an export drive for his firm. If this proposal were accepted, that man might find, in that particular year when he felt himself contributing more directly to Britain's export trade than ever before, that his allowable expenses would be seriously cut down, however reasonable in scale they were. Such a state of affairs would obviously strike the average business man as singularly unjust, frustrating and unreasonable.

Mr. Diamond

Why would the business man feel so frustrated about this kind of allowance being determined in an arbitrary way, when he has got used to the position in which other allowances that he gets for his plant and machinery and so on are determined in an identically arbitrary way? He cannot argue about it. It is not his decision. It is the Inland Revenue's decision.

Sir E. Boyle

In the first place, the basic rates of some capital allowances—for example, the initial allowance and the investment allowance—are decided not by the Inland Revenue but by the House. The point that I was making was simply that we know very well that cases of grievance where expenses are incurred arise when people have (been busy on work in the export field. A man whose duties do not generally include a great deal of travel abroad but who in one particular year has to spend a number of months overseas, perhaps to help organise an export drive for his firm, would probably feel himself contributing more directly to Britain's export trade than ever before that year, and he would have an understandable grievance if his allowable expenses were seriously cut down in those circumstances.

I have tried to explain that my right hon. and learned Friend the Chancellor fully realises the importance of this subject of expenses, not only on business grounds but on social grounds as well. We fully realise on this side of the Committee that if we are to win the battle of ideas in the world at the moment it is extremely important that there should not be cynicism about the way in which the capitalist system works. I entirely agree. But I can only advise the Committee that these Amendments that we are now discussing are defective technically; they would introduce a new and, I believe, objectionable form of discrimination into our tax system; they would be harmful to our export trade; and, most important of all perhaps, because equity between individuals is the essence of our tax system, they would not work out fairly as between one businessman and another.

For those reasons, I hope that the Committee will reject these Amendments.

Mr. Millan

Since this is such a complicated question, and it is so difficult to get a really effective way of dealing with business expenses, naturally, quite a lot of what the Financial Secretary has said must be accepted by hon. Members on this side of the Committee. I would certainly accept right away a number of the things he said by way of technical objection to the Amendment, and I would not argue with him.

However, as the hon. Gentleman appreciates, this Amendment would not be taken on its own. From the point of view of consistency as between Income Tax and Surtax, if there were to be an amendment of principle of the kind adumbrated in this Amendment for Surtax, there would have to be an appropriate amendment in respect of Income Tax. As my hon. Friend the Member for Gloucester (Mr. Diamond) has pointed out, it is impossible for us to keep in order and, at the same time, to propose, in this Clause, Amendments relating to expense allowances for Income Tax purposes. We are perfectly aware of this point. But it is a technical objection and it does not get to the heart of what we are trying to do here.

The same applies to the question of drafting. The Financial Secretary said some disrespectful things about the wording of paragraph (b), but, again, I think that he will appreciate that it is extremely difficult to get definitions of expenses which are both comprehensive and precise enough to do exactly what one is trying to do; and, no doubt, if the will were there and the principle were accepted we could get a better form of words than we have in our proposed paragraph (b).

Sir E. Boyle

I drew attention to this point largely because I think that those words illustrate the great difficulty of legislating on this subject. I quite understand the desire of the hon. Member for Sowerby (Mr. Houghton) to be comprehensive in his drafting. On the other hand, I think that the hon. Member, with his precise mind, would agree that enormous difficulties will arise if we use words such as "or the like" in a Statute dealing with business expenses. The presence of these words in the Opposition Amendment reveals clearly the enormous difficulties of legislating on this subject.

Mr. Millan

I accept that. I am not blaming the Financial Secretary for taking advantage of the wording which we have used and saying that it might be impracticable. I do not say that the wording of this Amendment is absolutely the best wording that one could get, but the important point is the question of principle, and that is what we are really concerned with having discussed.

With respect to the Financial Secretary, he said that the principle involved in this Amendment is different from the one which the Government were introducing with regard to motor cars. If I followed him correctly, he said that in the case of this Amendment we were asking the Inland Revenue to decide something and that in the case of the Clause relating to motor cars we were asking the House to decide something. But there is nothing in the present Amendment which says anything about discretion being granted to the Inland Revenue. In fact, we lay down certain rules in the most precise terms; and, indeed, the Financial Secretary found fault with the Amendment precisely for that reason. We had laid down a particular percentage of the gross income as a maximum expense to be allowed for Surtax purposes. It seems to me that the basic principle behind this Amendment, whether or not the wording is effective and whether or not this Amendment could work in principle, is exactly the same as the principle behind the subsequent Clause dealing with motor cars.

I should like to say a word about the two different rules which are applied to expenses under Schedule D and Schedule E. I am willing to admit that this Amendment would not touch entertainment and other expenses which come under Schedule D, in the sense that they are charged directly to the companies or firms concerned and are not under present law attributable to individuals. I agree that one could not catch that sort of expenditure under this Amendment. This is, in fact, the kind of expenditure which many of us would like to see cut, because a great deal of expenditure on entertainment, and so on, is expenditure by the company concerned and never is placed to the account of any particular person.

When we come to the Schedule E rule, under which directors of companies and other senior officials with incomes of more than £2,000 a year have to make certain returns to the Revenue and argue their expenses, one of the difficulties about that Schedule E situation is that a great many of the expenses which directors may have incurred will never have to be accounted for by them, because the expenses will never be paid by them and refunded to them by the company. They will be paid direct by the company. A director may give an expensive lunch. The bill will be rendered by the hotel to the company and will be paid by the company. It will never come within the expenses of the director, so far as Schedule E is concerned, and he will never have to argue with the Inland Revenue about it. I confess at once that I think it is almost impossible to deal with that, and I do not pretend that the Amendment deals effectively with that kind of expenditure, assuming that it is extravagant, as in many cases it is.

7.0 p.m.

However, the fact that we cannot deal effectively with that kind of Schedule E expenditure or the particularly difficult cases does not justify inaction about other kinds of expenditure with which we can effectively deal. In his Budget speech the Chancellor admitted that a great many people were concerned about the expenses question. Many people felt that rackets were going on. Many people in business feel the same, and I dare say that a great many businessmen who are themselves guilty of extravagant expenditure would be only too glad if the Government were to prohibit it because they find it sometimes an embarrassment and something which they do not greatly like to do. But the Government have done nothing. They have introduced no proposals at all. They have suggested that they might do something next year. We want something done this year. The fact that we cannot deal with everything effectively in a Clause on Surtax does not mean that we should not try to do something in this case.

There is one thing which could be done under Schedule E quite easily. One of the most fruitful sources of extravagance and tax avoidance arises when companies pay individual employees not a refund of their expenses as they have incurred them and justified them to the company, but a lump sum payment by way of expenses regardless of what the individual may actually spend. It can be argued that the individual may spend rather more or rather less and the lump sum paid represents some sort of average of what he is likely to spend in the circumstances of his employment. That is the justification given for it, but we know very well that in many cases these lump sum payments are excessive and well beyond what an individual can be expected to spend in the normal course of his employment.

What happens in many cases is that the individual is put in the position of having to argue with the Inland Revenue about whether the expense allowances he has been paid are justified or whether an additional assessment should be made. Of course, it is very difficult for the Inland Revenue to carry on sustained argument in cases of that kind. There must be very many cases where the Inland Revenue feels that an individual is being paid an excessive amount and that his claims are not justified, but, because of the difficulties of the situation, the need to get evidence, the difficulty of disproving statements which the individual has made, the difficulty of getting back to the company which has washed its hands of the whole affair, and so on, the Inland Revenue, in the last analysis, simply gives up.

We could put a stop to that sort of thing by the simple prohibition of the practice of paying lump sum expenses. The payment of lump sum expenses really amounts to a device by which a company converts taxable salary into tax-free expenses. In other words, instead of giving a man £500 extra on his salary, it gives him an extra £500 on his lump sum expenses allowance, that is, £500 beyond what he can reasonably be expected to pay in his employment, and then it leaves him to persuade the Inland Revenue that that is all right and have the £500 tax free.

There is an important principle here. The Government ought to do something about it. It would not be difficult to do something effective by prohibiting lump sum payments. There would be no injustice to the individual who spends large sums of money quite legitimately in the course of his employment or business because the company concerned, instead of paying the lump sum, would have to pay him refunds based on his actual expenses and, presumably, the employee concerned would see that he did not suffer under that alternative arrangement. It is not, of course, a foolproof method of abolishing the practice of paying excessive expenses, but it is something which the Government ought to take up. The Government have done nothing this year in this or in any other direction. We are, therefore, entitled to ask them to consider the proposals we advance and answer them in detail.

I do not pretend that everything in the Amendment is practicable. Probably, a certain amount of it is not. I do not pretend that it provides a completely just and fair way of meeting the problem. If one lays down an arbitrary proportion of income as a maximum, certain people will be adversely and unfairly effected. But, despite those qualifications, I have no hesitation whatever in wholeheartedly supporting the Amendment. It represents an honest attempt to deal with the expenses problem. Since the Government have done absolutely nothing this year except make a vague threat about next year, a threat which I myself think that they have little or no intention of carrying out, I ask the Committee to support the Amendment.

Mr. A. E. Cooper (Ilford, South)

This Amendment is a nonsense. As accountants, the hon. Member for Gloucester (Mr. Diamond) and the hon. Member for Glasgow, Craigton (Mr. Millan) know that it is a nonsense.

Every chairman and managing director of every company would like to cut down the expenses of his co-directors and his representatives to the minimum so that, at the end of the financial year, he may show the best possible result. No one can deny that that is so.

Mr. Mitchison

I think that we are in danger of being confused here. The hon. Member is talking about the expenses of a company. All we are talking about is expenses in connection with Surtax, which companies, with certain irrelevant exceptions, do not pay.

Mr. Cooper

It would be rather nice if the hon. and learned Member allowed me at least to begin my speech. Then he might understand what I am talking about.

Mr. Mitchison

We will wait and see.

Mr. Cooper

If the Amendment were passed in its present form, evasion would be so easy that in subsequent years the hon. Member for Gloucester would come forward with Amendments to do away with what he is proposing today. Under the present regulations, anyone whose salary exceeds £2,000 has to justify his expenses to the Inland Revenue. If a company director wished to incur substantial expenses, all he would need to do would be one of two things, either to open an account with the hotel or restaurant where the entertainment took place, or take with him somebody on the staff whose salary was less than £2,000 a year. In consequence, the Amendment would be nullified. Nobody could deny that that is so. Therefore, this Amendment is nonsense, because it could be evaded so easily.

The question of expenses by company directors and executives is a bogy which has been built up over the years, and it is to an extent far greater than is justified on the facts. I said at the outset that every company chairman, every managing director and every sales director—I happen to be in that category-wishes to keep expenses down to the lowest possible level. We do not authorise expenses which are extravagent or greater than is necessitated by the circumstances.

Let us consider one or two things which might happen. In my own case, within the last fortnight we have had, unexpectedly, six visitors from the United States who are closely connected with my own business. They were in England for a week. Very substantial sums of money were expended in that week to look after them and to ensure that their creature comforts were attended to. Under the existing law of this country those expenses are allowable for tax. Some hon. Members may think that the expenditure involved was extravagant. On the face of it, it was, but when directors or executives of my own company go to the United States, as they often do, three, four or five times a year—

The Temporary Chairman (Mr. George Thomas)

Order. I hope that the hon. Gentleman will confine himself to the expenses of individuals rather than of firms. I believe that it has already been ruled that our discussion must be limited in that way. Indeed, the Amendment limits it in that way.

Mr. Cooper

Thank you, Mr. Thomas. At the end of the day someone has to sign the bill. If the director of a company signs the bill, then, at the end of the month or at the end of the year, the Inland Revenue comes to him—

The Temporary Chairman

Order. We must confine ourselves to a discussion on individual expenses. We are not discussing firm's expenses under this Amendment.

Mr. Cooper

Let me deal with my own case. If I went out this evening with a customer and signed the bill, at the end of the financial year the Inland Revenue would ask me to account for that matter notwithstanding the fact that the expenses which I had incurred were on behalf of my company. I am merely relating my own case to that of my company. Surely I am not at odds with the Chair on this matter.

The Temporary Chairman

If the hon. Gentleman is seeking a Ruing, I would say that he has been here long enough to know that, when we are dealing with individual expenses, we are dealing with individual expenses. I know that I can rely on his good judgment.

Mr. Cooper

That means that I have an amber rather than a red light.

All that I am saying is that, while we may as companies and individuals incur very substantial expenses in this country in looking after individuals from abroad, when we go to other countries they look after us in very much the same way. All of us would very much like to see companies' and individuals' expenses reduced to the minimum, but my honest opinion is that this Amendment is a nonsense and can be evaded without difficulty.

7.15 p.m.

Mr. Eric Fletcher (Islington, East)

On the whole, this has been a very well-tempered debate. Certain points have emerged from it upon which there is a good deal of agreement on both sides of the Committee.

First, it seems to be generally accepted that this matter arouses a great deal of public concern which is not limited to any one party. My experience is that the concern about expense allowances and the opportunities of abuse which arise from the present system is fairly general.

The second thing which has emerged is that this is a matter which it is very difficult to deal with by legislative action. I agree with some of what the hon. Member for Ilford, South (Mr. Cooper) has said. Like the Minister, some of my hon. Friends have pointed out the difficulty of dealing with this matter by legislative action. I appreciate the technical defect of the Amendment. The Minister said that one objection to the Amendment is that it would lead to inequality between one taxpayer and another. He said that it was the primary object of our fiscal legislation to avoid such inequality. I appreciate that, and would like to expand it a little.

It is obvious that some people have to travel much more than others. Some individuals' travelling expenses may, quite legitimately, exceed their income. Other people may not have to travel at all. It depends on an individual's job. Therefore, I can appreciate the technical criticisms which can be made about an Amendment which attempts to limit travelling allowances and similar allowances to a proportion of income.

A glaring case in which expenses exceed income is that of the British Ambassador to Washington who gets an expense allowance which is far larger than his salary. As far as I know, no one has criticised that. [Interruption.] I do not know whether the amount is reasonable or not, but one assumes that it is. Equally, in the business world there may be isolated examples of people who are continually travelling—

Mr. J. T. Price

Since my hon. Friend has raised the matter of ambassadorial expenses and expenses paid to the Foreign Service, this is a matter which was extensively examined by the Select Committee on Estimates in the years when I was a member of it. It heavily criticised the system. For some reason, the House has never agreed to debate the Select Committee's Report.

Mr. Fletcher

I am grateful for that intervention, because it leads to the conclusion that I was about to draw, which is this. Every individual case must be looked at on the facts and on its merits. It is obvious that if we try to lay down a hard and fast rule there is bound to be some injustice somewhere.

One of the reasons why the present system of expense allowances causes such deep public concern is that it creates inequality between one taxpayer and another. It is commonly said that taxpayers who pay tax under Schedule E have nothing like the same advantages, concessions and opportunities of deciding for themselves what a reasonable expense is as taxpayers who are charged under Schedule D. It is because of that basic inequality between the system of taxation under Schedule D and taxation under Schedule E that such great public concern is aroused.

I differ, I think, from my hon. Friend the Member for Sowerby (Mr. Houghton) in this respect. This is a matter which could be dealt with far more efficiently—perhaps not completely satisfactorily, but far more satisfactorily—administratively rather than by legislation.

I have not before me the text of the message which the President of the United States has recently sent to Congress, but the fact that this problem exists in the United States as well as in this country convinces me that it is something which must be dealt with, and dealt with fairly quickly, if we are to remove the great sense of injustice that prevails among the public because of the opportunities of abuse that the existing system permits.

If everybody dealt with this matter completely conscientiously, there would be no trouble. I have no doubt that a great many people have real scruples in deciding how much they would legitimately spend by way of entertaining other people when engaged on business enterprises, but different people apply different standards. On the other hand, there are notorious examples of abuse and it is commonly thought that there are cases of gross abuse. I should have thought that the remedy was tighter administrative control.

I was disappointed when the Minister said that there was a limit to the kind of inquisition to which the taxpayer would submit.

Sir E. Boyle

I was not saying that. I was echoing what had been said just before by the hon. Member for Sowerby (Mr. Houghton) with his considerable knowledge and experience of these matters. I take full responsibility for my own remarks, but I was struck by the emphasis which the hon. Member for Sowerby gave to the same point.

Mr. Jay

To be fair to my hon. Friend the Member for Sowerby (Mr. Houghton), what he said was that with the existing law there was often difficulty for the tax inspector, but that if the law were altered in the ways which he proposed the tax inspector's position would be strengthened.

Mr. Fletcher

I am in the position of having to deal with two interventions concurrently, and I will do my best.

My view is that without any alteration of the law much more could be done by inspectors of taxes. I was not sure whether the Minister accepted that view or dissented from it. I began by saying that I did not entirely agree with my hon. Friend the Member for Sowerby that this is a matter which could be dealt with only by legislative action. When the Minister echoed my hon. Friend's remarks, I thought he agreed that there was a limit to what the taxpayer could stand.

Is that really so? Surely, the ordinary, honest taxpayer has no objection to proper inquisition by an inspector of taxes concerning his Income Tax return. He has no objection to saying that he had to incur a certain amount of travelling expenses because his duties took him here, there or everywhere, or because he was engaged as a salesman for a firm involved in the export trade, or any other trade, and had to entertain people.

My view is that some of the existing abuses could be effectively cured if there were rather more investigation by inspectors of taxes with regard both to lump sum payments that are made to some employees and also with regard to some of the claims submitted by individuals for expenses.

Mr. Cooper

Has the hon. Member ever had to submit to interrogation by the Inland Revenue on the question of company expenses? I can tell him from experience that the interrogation which one receives at the hands of the Inland Revenue is very searching and one is a very lucky man in 1961 to get away with anything.

Mr. Fletcher

I am glad to hear that and I am glad that the hon. Member has not been able to get away with it. His intervention was salutary. If it were generally known that it is difficult to get away with improper expense claims, that would be all to the good.

The difficulty, and the reason why the Amendments are put down and the subject is being discussed, is that there is a general opinion among the public which the Chancellor of the Exchequer confirmed in his Budget statement when he said that there was a considerable amount of abuse. That is the basis of our argument. The public feel that there is a good deal of abuse. If the hon. Member for Ilford, South is right and there were a great deal of vigilant inquisition by inspectors of taxes, there would be no need for this argument. The hon. Member, however, is wrong. The Chancellor of the Exchequer is right, and public opinion is right, in thinking that a lot of people get away with improper claims for expenses and that there is a good deal of abuse. That could be corrected without legislative action if there were many more people like the hon. Member who were subjected to close, careful scrutiny and inquisition about their expense claims.

Therefore, the Chancellor and the Financial Secretary, having given technical reasons for resisting the Amendment, would be serving a purpose to the community if they were to indicate that all possible steps will be taken by inspectors of taxes to see that abuses in this regard are checked.

Mr. Loughlin

It is, perhaps, of singular importance that the hon. Member for Ilford, South (Mr. Cooper) should have made his statement about ability or inability to "get away with it". At the time the hon. Member made his interjection, I was looking at what the Chancellor himself said in the Budget debate. It might be for the benefit of the Committee if I quote from the Chancellor's remarks on this question of so-called business entertaining expenses.

The Chancellor said: I think, however, that there is something behind this strong feeling which undoubtedly exists that some so-called business entertaining goes further than purely business motives. This is an unhealthy feature both on business and social grounds. It is generally accepted throughout the whole community that there are gross abuses of the expense claims that are allowed. Whilst there may be technical reasons why the Government resist the Amendments, if one takes the Chancellor's statement at its face value it is incumbent upon the Government to face the position to which the right hon. and learned Gentleman referred.

There is no great difficulty in doing that. The Chancellor gave the clue to this, because in his Budget speech, from which I have quoted, he went on to say: It is a matter very difficult to deal with by legislation, but I shall review this matter again next year and I do not reject altogether the possibility of legisative action then."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 815.] Furthermore, while there may be technical difficulties in implementing the Amendments which we have submitted, it is apparently not outside the bounds of possibility, according to the Chancellor—not according to my right hon. and hon. Friends—that this matter might be dealt with by legislative action. Whilst I sympathise very much with the hon. Member for Ilford, South in not being able to "get away with it", as he termed it, if one examines the full implications of that statement one must conclude that it is of a despicable type. It amounts to saying that it is difficult to avoid one's responsibilities to society, and a person who holds that point of view is not fitted to be a member of society.

Mr. Mitchison

The Amendment relates to a particular Surtax concession. It is, therefore, confined to individuals and it is impossible within its terms to meet the objection that what is allowable on Income Tax ought also to be allowable on Surtax and vice versa. Whatever the merits of that may be, all that the Opposition can do in debating a Finance Bill is to seek to limit the conditions under which a particular Surtax concession is made. If we had been able to deal with other matters, such as the expenses of companies or expenses in connection with Income Tax, we should have put down a much more sweeping Amendment, that is sweeping in the sense that it would have been a good deal more complicated, and necessarily so.

7.30 p.m.

What we are considering is merely personal expenses and we are not seeking, as the Financial Secretary put it, to prohibit anything. We are merely considering to what extent this expenditure should be allowed against a Surtax concession which is being given at a moment when it has produced a great deal of social outcry, and not only on this side of the Committee. It is not unreasonable to say that when a concession of that sort is made at a moment when Health charges are being increased and a poll tax put on contributors to the National Health Service, it is right to look critically at expenses if they are to be allowed in connection with this Surtax concession. The purpose of the Amendment therefore is to write back for this purpose certain categories of expenditure.

It seems to me that the whole question of expenses has reached a stage when something must be done about it by way of legislation. I am applying that to what we are considering under the Amendment. Legislation is curiously sketchy on the subject. There is a strict rule under Schedule E and none at all under Schedule D, except that the expenses must have been incurred for the purposes of trade. What is to be deduced about expenses is the result of practice and Royal Commission Inquiries and so on. Matters have reached a stage which the Chancellor himself recognised in a passage in his Budget speech when he said that something really must be done, a passage which has been widely quoted since. There is public indignation, for good and sufficient reason, on a matter on which necessarily public information is rather limited.

The trouble about Schedule D expenses is that no doubt they have to be incurred for the purposes of trade, but it rests with those who conduct the trade to decide what is necessary for that purpose. The consequence is that the inspector of taxes is in a difficult position if he seeks to question Schedule D expenses on the ground that they are not necessary. He does question them from time to time and cases come before the courts. But we all know too well that too much is allowed to persons.

I agree broadly with my hon. Friend the Member for Sowerby (Mr. Houghton) that it is not really a question of administrative improvement, though there may be something in that, but that it has substantially reached the point where some changes of a legislative character ought to be made. Indeed, the Chancellor himself foreshadowed something of that sort unless there was marked repentance and improvement in the business world about it. This is the question that we have to consider.

The Financial Secretary's speech was, like all his speeches, most reasonable in substance and most interesting for what is omitted. I was waiting to hear from him what the Government had in mind, on what lines they thought to proceed, and whether they thought that the general lines of the Amendment were right or wrong. We had nothing of the kind from the hon. Gentleman. We had the sort of point which he made when he said that a line would be unfair in some cases. But, of course, when any line is drawn it is always unfair in certain cases. When we come to consider the £2,000 line drawn for motor cars, which is a similar case to this, no doubt it will be said that it is unfair. Either we are not going to draw a line at all in these cases or we must draw a line which is bound to have something of the arbitrary in it.

We take entertainment in the Amendment because that was a specific thing which the Chancellor himself mentioned as a matter which was causing public anxiety. This would be an unjustifiable Amendment if we sought to prohibit that. It might be less justifiable if we tried to deal with it from the point of view of the company employing the person. If the company pays it, well and good- It has nothing to do with the Amendment, but if the individual pays it he should not be allowed the benefit of that matter when it comes to this Surtax concession. That is the point we are discussing in connection with entertainment.

I turn from that to personal expenses. It is very easy to raise technical objections to any Opposition Amendment. I have hardly known of one to which there was not some technical objection or other. There might or might not be difficulty in defining personal expenses which were like those for subsistence and travel. I myself doubt whether there would be that practical difficulty, but if we are ever going to deal with expenses at all it is clear by now that some legislative provision is needed.

If the Government do not like what we propose, what is the alternative? Will they give up the whole business because, although there is public indignation about it, administrative improvements are insufficient and legislative improvements are impossible? I do not believe that any self-respecting Government would do anything of the sort. I should have wished to hear from the Financial Secretary some clear indication that the Government recognise, agreeing as they do with my hon. Friend the Member for Sowerby, that administrative improvements are not enough and that legislative changes would have to be made and some kind of line taken by this Committee as a legislative body on this question.

That was substantially what nobody

from the other side of the Committee, including the hon. Gentleman, mentioned. I was much touched by the speech of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). It reminded me of the poem of the Bishop of Norwich beginning "Farewell rewards and fairies". The noble Lord told us that if there were no expense accounts in this country we should be reduced to the condition of Albania, a country with which he is no doubt better acquainted that I am. It was a lovely, picturesque figure, but I really doubt whether contributions of that kind to a discussion of a serious social problem are more than the casual ornaments attaching to a rather difficult question.

We feel that something has to be done in this matter, that as regards this Surtax concession excessive expenses will be allowed in aid of it unless an Amendment of this kind is carried, and since no one can suggest to us a better way of doing it, and since I think it is generally agreed that our Amendment on these lines is not an unreasonable one, we propose to press it to a Division.

Question put, That the words proposed to be left out stand part of the Clause:—

The Committee divided: Ayes 240, Noes 165.

Division No. 192.] AYES [7.41 p.m.
Aitken, W. T. Campbell, Gordon (Moray & Nairn) Emery, Peter
Allason, James Carr, Compton (Barons Court) Emmet, Hon. Mrs. Evelyn
Balniel, Lord Carr, Robert (Mitcham) Fell, Anthony
Barlow, Sir John Cary, Sir Robert Finlay, Graeme
Barter, John Chataway, Christopher Freeth, Denzil
Batsford, Brian Chichester-Clark, R. Galbraith, Hon. T. G. D.
Baxter, Sir Beverley (Southgate) Clark, Henry (Antrim, N.) Glover, Sir Douglas
Beamish, Col. Sir Tufton Clark, William (Nottingham, S.) Glyn, Dr. Alan (Clapham)
Bennett, F. M. (Torquay) Cleaver, Leonard Glyn, Sir Richard (Dorset. N.)
Bennett, Dr. Reginald (Gos & Fhm) Cole, Norman Goodhart, Philip
Berkeley, Humphry Cooke, Robert Goodhew, Victor
Bevins, Rt. Hon. Reginald Cooper, A. E. Cower, Raymond
Biggs-Davison, John Cordeaux, Lt.-Col. J. K. Grant, Rt. Hon. William
Bingham, R. M. Cordle, John Grant-Ferris, Wg. Cdr. R.
Birch, Rt. Hon. Nigel Corfield, F. V. Green, Alan
Bishop, F. P. Costain, A. P. Gresham Cooke, R.
Black, Sir Cyril Critchley, Julian Grimond, J.
Bottom, Clive Crosthwaite-Eyre, Col. O. E. Grosvenor, Lt.-Col. R. G.
Bourne-Arton, A. Crowder, F. P. Gurden, Harold
Box, Donald Cunningham, Knox Hamilton, Michael (Wellingborough)
Boyle, Sir Edward Currie, G. B. H. Harris, Frederic (Croydon, N. W.)
Braine, Bernard Dalkeith, Earl of Harris, Reader (Heston)
Brewis, John Dance, James Harrison, Brian (Maldon)
Bromley-Davenport, Lt. Col. Sir Walter Davies, Rt. Hn. Clement (Montgomery) Harrison, Col. J. H. (Eye)
Brooman-White, R. d'Avigdor-Goldsmid, Sir Henry Harvey, John (Walthamstow, E.)
Brown, Alan (Tottenham) Deedes, W. F. Harvie Anderson, Miss
Browne, Percy (Torrington) Digby, Simon Wingfield Hastings, Stephen
Bryan, Paul Doughty, Charles Hay, John
Buck, Antony Drayson, G. B. Heald, Rt. Hon. Sir Lionel
Bullard, Denys du Cann, Edward Henderson, John (Cathcart)
Bullus, Wing Commander Eric Duncan, Sir James Hiley, Joseph
Butcher, Sir Herbert Eccles, Rt. Hon. Sir David Hill, Mrs. Eveline (Wythenshawe)
Campbell, Sir David (Belfast, S.) Elliott, R. W. (Nwcstle-upon-Tyne, N.) Hill, J. E. B. (S. Norfolk)
Hinchingbrooke, Viscount Matthews, Gordon (Meriden) Spearman, Sir Alexander
Hirst, Geoffrey Maudling, Rt. Hon. Reginald Speir, Rupert
Hobson, John Mawby, Ray Stanley, Hon. Richard
Hocking, Philip N. Maxwell-Hyslop, R. J. Stevens, Geoffrey
Holland, Philip Mills, Stratton Steward, Harold (Stockport, S.)
Hollingworth, John More, Jasper (Ludlow) Stodart, J. A.
Holt, Arthur Morrison, John Stoddart-Scott, Col. Sir Malcolm
Hopkins, Alan Nicholson, Sir Godfrey Storey, Sir Samuel
Hornby, R. P. Nugent, Sir Richard Studholme, Sir Henry
Hughes-Young, Michael Oakshott, Sir Hendrie Sumner, Donald (Orpington)
Hurd, Sir Anthony Orr, Capt. L. P. S. Talbot, John E.
Hutchison, Michael Clark Orr-Ewing. C. Ian Tapsell, Peter
Irvine, Bryant Godman (Rye) Osborn, John (Hallam) Taylor, Sir Charles (Eastbourne)
Jackson, John Osborne, Cyril (Louth) Taylor, Edwin (Bolton, E.)
James, David Page, Graham (Crosby) Taylor, W. J. (Bradford, N.)
Jenkins, Robert (Dulwich) Partridge, E. Temple, John M.
Johnson, Eric (Blackley) Pearson, Frank (Clitheroe) Thatcher, Mrs. Margaret
Johnson Smith, Geoffrey Peel, John Thomas, Leslie (Canterbury)
Joseph, Sir Keith Peyton, John Thomas, Peter (Conway)
Kerby, Capt. Henry Pickthorn. Sir Kenneth Thornton-Kemsley, Sir Colin
Kershaw, Anthony Pike, Miss Mervyn Tiley, Arthur (Bradford, W.)
Kirk, Peter Pilkington, Sir Richard Turner, Colin
Langford-Holt, J. Pitman, I. J. Turton, Rt. Hon. R. H.
Leavey, J. A. Pitt. Miss Edith Tweedsmuir, Lady
Leburn, Gilmour Pott, Percivall van Straubenzee, W. R.
Legge-Bourke, Sir Harry Powell, Rt. Hon. J. En[...]ch Vickers, Miss Joan
Lewis, Kenneth (Rutland) Price, David (Eastleigh) Vosper, Rt. Hon. Dennis
Lindsay, Martin Prior, J. M. L. Wade, Donald
Linstead, Sir Hugh Prior-Palmer, Brig. Sir Otho Wakefield, Edward (Derbyshire, W.)
Lloyd, Rt. Hon. Selwyn (Wirral) Pym, Francis Wakefield, Sir Wavell (St. M'lebone)
Longden, Gilbert Quennell, Miss J. M. Walker, Peter
Loveys, Walter H. Rawlinson, Peter Walker-Smith, Rt. Hon. Sir Derek
Low, Rt. Hon. Sir Toby Redmayne, Rt. Hon. Martin Wall, Patrick
Lucas-Tooth, Sir Hugh Rees-Davies, W. R. Ward, Dame Irene
MacArthur, Ian Ridsdale, Julian Webster, David
McLaren, Martin Robinson, Sir Roland (Blackpool, S.) Wells, John (Maidstone)
McLaughlin, Mrs. Patricia Rodgers, John (Sevenoaks) Whitelaw, William
MacLeod, John (Ross Cromarty) Roots, William Williams, Dudley (Exeter)
McMaster, Stanley R. Russell, Ronald Williams, Paul (Sunderland, S.)
Macmillan, Rt. Hn. Harold (Bromley) Scott-Hopkins, James Wills, Sir Gerald (Bridgwater)
Macmillan, Maurice (Halifax) Seymour, Leslie Wilson, Geoffrey (Truro)
Macpherson, Niall (Dumfries) Sharples, Richard Wise, A. R.
Maddan, Martin Shaw, M. Wolrige-Gordon, Patrick
Maginnis, John E. Simon, Rt. Hon. Sir Jocelyn Woodhouse, C. M.
Maitland, Sir John Skeet, T. H. H. Yates, William (The Wrekin)
Markham, Major Sir Frank Smith, Dudley (Br'ntf'rd & Chiswick)
Marples, Rt. Hon. Ernest Smithers, Peter TELLERS FOR THE AYES:
Mathew, Robert (Honiton) Smyth, Brig. Sir John (Norwood) Mr. Gibson-Watt and Mr. Noble.
Abse, Leo Evans, Albert Irving, Sydney (Dartford)
Alnsley, William Fitch, Alan Jay, Rt. Hon. Douglas
Albu, Austen Fletcher, Eric Jeger, George
Allaun, Frank (Salford, E.) Foot, Michael (Ebbw vale) Jones, Dan (Burnley)
Allen, Scholefleld (Crewe) Forman, J. C. Jones, Elwyn (West Ham, s.)
Awbery, Stan Fraser, Thomas (Hamilton) Jones, J. Idwal (Wrexham)
Baxter, William (Stirlingshire, W.) Gaitskell, Rt. Hon. Hugh Jones, T. W. (Merioneth)
Blyton, William Galpern, Sir Myer Kenyon, Clifford
Bowden, Herbert W. (Leics, S. W.) George, Lady Megan Lloyd (Crmrthn) Key, Rt. Hon. C. W.
Bowles, Frank Ginsburg, David Lawson, George
Boyden, James Gordon Walker, Rt. Hon. P. C. Lee, Frederick (Newton)
Braddock, Mrs. E. M. Greenwood, Anthony Lee, Miss Jennie (Cannock)
Brockway, A. Fenner Grey, Charles Lever, L. M- (Ardwick)
Broughton, Dr. A. D. D. Griffiths, W. (Exchange) Lewis, Arthur (West Ham, N.)
Castle, Mrs. Barbara Gunter, Ray Loughlin, Charles
Chapman, Donald Hate, Leslie (Oldham, W.) Mabon, Dr. J. Dickson
Cliffe, Michael Hall, Rt. Hn. Glenvll (Colne Valley) McCarm, John
Corbet, Mrs. Freda Hamilton, William (West Fife) McInnes, James
Craddock, George (Bradford, S.) Hannan, William McKay, John (Wallsend)
Cronin, John Hart, Mrs. Judith Mackie, John
Darling, George Henderson, Rt. Hn. Arthur (Rwly Regis) MacPherson, Malcolm (Stirling)
Davies, G. Elfed (Rhondda, E.) Herbison, Miss Margaret Mallalieu, E. L. (Brigg)
Davies, Harold (Leek) Hill, J. (Midlothian) Mallalieu, J. P. W. (Huddersfield, E.)
Davles, S. O. (Merthyr) Hilton, A. V. Manuel, A. C.
Deer, George Holman, Percy Mapp, Charles
Delargy, Hugh Houghton, Douglas Mason, Roy
Diamond, John Howell, Denis (B'ham, Small Heath) Mellish, R. J.
Dodds, Norman Hughes, Cledwyn (Anglesey) Mendelson, J. J.
Dugdale, Rt. Hon. John Hughes, Emrys (S. Ayrshire) Millan, Bruce
Ede, Rt. Hon. C. Hughes, Hector (Aberdeen, N.) Milne, Edward J.
Edwards, Rt. Hon. Ness (Caerphilly) Hunter, A. E. Mitchison, G. R.
Edwards, Robert (Bllston) Hynd, John (Attercliffe) Monslow, Walter
Edwards, Walter (Stepney) Irvine, A. J. (Edge Hill) Moody, A. S.
Moyle, Arthur Rhodes, H. Taylor, John (West Lothian)
Noel-Baker, Francis (Swindon) Roberts, Albert (Normarrton) Thomas, Iorwerth (Rhondda, W.)
Oliver, G. H. Roberts, Goronwy (Caernarvon) Thompson, Dr. Alan (Dunfermline)
Oram, A. E. Robertson, John (Paisley) Thomson, G. M. (Dundee, E.)
Oswald, Thomas Robinson, Kenneth (St. Pancrae, N.) Thornton, Ernest
Owen, will Ross, William Timmons, John
Padley, W. E. Shinwell, Rt. Hon. E. Wainwright, Edwin
Paget, R. T, Short, Edward Warbey, William
Pannell, Charles (Leeds, W.) Silverman, Julius (Aston) Wells, William (Walsall, N.)
Parker, John Skeffington, Arthur White, Mrs. Elrene
Pavitt, Laurence Slater, Mrs. Harriet (Stoke, N.) Whitlock, William
Pearson, Arthur (Pontypridd) Slater, Joseph (Sedgefleld) Wigg, George
Peart, Frederick Small, William Wilkins, W. A.
Pentland, Norman Smith, Ellis (Stoke, S.) Willey, Frederick
Plummer, Sir Leslie Sorensen, R. W. Williams, D. J. (Neath)
Price, J. T. (Westhoughton) Soskice, Rt. Hon. Sir Frank Williams, W. R. (Openshaw)
Probert, Arthur Spriggs, Leslie Wilson, Rt. Hon. Harold (Huyton)
Pursey, Cmdr. Harry Steele, Thomas Woodburn, Rt. Hon, A.
Randall, Harry Stewart, Michael (Fulham) Woof, Robert
Rankin, John Stones, William Yates, Victor (Ladywood)
Redhead, E. C. Swingler, Stephen
Reid, William Sylvester, George TELLERS FOR THE NOES
Reynolds, G. W. Taylor, Bernard (Mansfield) Mr. Charles A. Howell and
Mr. Ifor Davies.
Viscount Hinchingbrooke

I beg to move, in page 8, line 14, at the end to insert: under sixty years of age on the first day of April in the year of assessment and, in all other cases, the total income of the individual".

The Chairman

I think that it would be convenient for the Committee to discuss with this Amendment the following Amendments:

In line 19, at the end to insert: (2) For the purposes of this section the income of any person who is retired and was of the age of sixty-five or over on the seventeenth day of April nineteen hundred and sixty-one, and of any person under that age who was then retired from service overseas under the Crown, or shall since that date have so retired shall be deemed to be earned income. In line 19, at the end to insert: (2) For the purposes of this section the entire income of any person of the age of sixty-five years or over on the first day of the year of assessment shall be deemed to be earned income. In line 23, to leave out "subsection" and to insert "subsections".

In line 23, to leave out "it applies" and to insert "they apply".

In page 9, line 7, at the end to add: (4) For the purposes of this section the unearned income of a person aged sixty-five years or over at the beginning of a year of assessment shall be deemed to be earned income. In line 7, at the end to add: (4) For the purpose of this section the unearned income of a person aged sixty or over at the beginning of a year of assessment shall be deemed to be earned income.

Viscount Hinchingbrooke

This is one of a number of Amendments put down by my hon. Friends and I and dealing to some extent with the principle of the assessment of saved income as against earned income. We seek to introduce an Amendment this year which will pave the way—we hope the Chancellor will note—for consequential and further Amendments in subsequent years.

On this side of the Committee we are all grateful to my right hon. and learned Friend for having taken the plunge with Surtax for the first time that that has been attempted since the war. We all know from the temper of the Opposition that the water under which my right hon. and learned Friend has plunged is a good deal more tepid than some political commentators in past years have thought would be the case. It is quite apparent that the water is agreeable to bathe in. I hope that next year my right hon. and learned Friend will proceed on the path which we are now indicating to him.

I was surprised to see from the changes which have been made this year to what extent we have recovered the ground lost since the war. Indeed, the Surtax scales today compare very favourably—if one can use a word of that sort about Surtax—with the figures in 1937–38.

Mr. Diamond

Hear, hear.

Viscount Hinchingbrooke

I do not defend the figures for 1937–38, for reasons which I have given on previous Amendments.

The Chairman

The hon. Member must not go into that argument in too much detail, because that would be going too far from the Amendment.

Viscount Hinchingbrooke

I am well aware of that, Sir Gordon. I will observe what you have said.

However, the ground we have covered is not all the ground. In the higher ranges of Surtax we are still some way from the position of the period between the wars, but in the range covered by the Budget this year, £2,000–£5,000, we have got back nearly completely to it, with the exception of about £200 or £300 in each bracket, which is the extent to which, if my right hon. and learned Friend will accept our proposals, we will cover the ground completely.

On the whole, my right hon. and learned Friend has been hard on the saved income element of those whose incomes are between £2,000 and £5,000 a year. He has gone for the earned income element and, in doing so, he has widened the ground between the two elements. On this side of the Committee, we have always taken the view that saved income is earned income which should attract the same sort of general level of taxation and we have been disappointed to find that the discrimination against saved income has been carried a stage further than before.

Tables 77 and 78 of the Report of the Commissioners of Inland Revenue show the extent of saved income which there is in the incomes of the groups earning between £2,000 and £5,000 a year. It shows that at a figure of £27—million the investment income of those with a total income of £5,000 is nearly half that of the earned income, while for those with an income of £2,000 the fraction is not even as low as one-third. One always tends to think that moderately salaried individuals have relatively little in the way of savings or investments, but that is not so, as the tables clearly show.

Mr. Jay

When the noble Lord uses the rather unusual term "saved income", does he mean the same as the Inland Revenue does when it uses the term "investment income", which includes inherited income? When he speaks of saved income, does he mean that to include inherited income?

Viscount Hinchingbrooke

Yes, I do. I use the term "saved income" because there are some forms of property-owning which are not strictly investments, whereas income earned and saved can be invested in any sort of property. I take the right hon. Gentleman's point, but it would be out of order to pursue it further.

We think that those who have saved income are just as important to the community as those who are earning it. So as to point up the case conclusively, we have put down an Amendment suggesting that at a time when income is no longer earned but is saved, we should apply a correction. One hopes that in subsequent years my right hon. and learned Friend will bring the age group which we here define down to the point when taxation begins to apply to the individual.

There is a fashion today to say that it is only enterprising young men of commerce or science who ought to be considered in taxation matters. Those who are mad keen about production and production alone for its own sake will take that view, but society as a whole consists of a whole range of individuals. Looking at it objectively, nobody can say that one sort of person is more important than another. Society consists of an enormous range, from the artist to the scientist, from the poet to the practical man of business, and from the yogi to the commissar, as has been pointed out in a distinguished work by Mr. Arthur Koestler. I defy anybody to say that the scientist, technologist, successful motor car salesman, or the practical man of affairs should be any more an object for State benefit than anybody else.

8.0 p.m.

Perhaps the right hon. Gentleman will make clear, in his subsequent speech, the cause of his intense amusement. He must have parents who are retired, and who are no longer earning. Is he telling the Committee that he does not take pride in them, and think that they are making a contribution, in their retired state, to the society in which they live?

Mr. Jay

I will not follow the noble Lord in his personal arguments, but he appears to be saying that we should make no distinction between one member of the community and another for the purposes of taxation. If we accepted that principle all our debates would be pointless.

Viscount Hinchingbrooke

I am not saying that. My hon. Friends, who have similar Amendments on the Notice Paper, can speak for themselves, but I think that what they want, as I do, is the total abolition of discrimination between earned and unearned income. We cannot extend State patronage to those who happen to be generating money at a particular moment and say that they are more worthy individuals than those who have generated it in the past—

Mr. Jay

Or inherited it.

Viscount Hinchingbrooke

—or, by reason of their aptitudes or knowledge, have contributed to the success of society without very great earning power. I am talking of artists, philosophers, priests, judges and people in the lower ranges of income who are quite worthy members of society and are not in the dynamic earning classes.

I have set the age limit at 60 because women retire at that age and, since they are independent Income Tax payers in their own right, if we are to put in a retiring age it is best to put it in at the lower end. My hon. Friends have Amendments which would introduce the principle at the age of 65. It may be that an important money differential is involved here, and that the cost of agreeing to a limit of 60 years of age would be too great for the Chancellor to bear this year. But whatever it is—60 or 65—the principle is the same, and we are all anxious to see the differential closed.

My right hon. and learned Friend the Chancellor has three years, at any rate, before the next General Election, in which to tackle the question of Surtax in relation to these age groups, if he accepts the principle of the matter. Many Press commentators are continually saying that this mid-year, between elections, is the only politically safe year in which to make any reductions of this kind, and that, having taken the plunge this year, my right hon. and learned Friend must resist any further changes next year.

My hon. Friends and I do not take that view. We do not want the Chancellor's sense of justice to be tempered by political fears that right hon. and hon. Members opposite will sweep into power at the next election. I am sure that he appreciates that under the leadership of this Government the country is sufficiently radical at the moment not to want any further steepening of these prejudices towards the views of hon. Members opposite, and that if there is to be any change it will be to the Right rather than to the Left.

Therefore, my right hon. and learned Friend has plenty of time and opportunity in the coming years to make the sort of taxation changes that we want.

Mr. Mitchison

Can the noble Lord tell us what the effect of any of the Amendments to which he has been speaking would be?

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I lend my full support to the case which my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) has put forward in his Amendment. My hon. Friends and I have put down other Amendments which differ in two details from that of my noble Friend, one of those differences being rather important. The small detail is the question of date; my noble Friend's Amendment refers to 1st April and mine to the beginning of the year of assessment. I will not go into that point too closely. My noble Friend has selected the age of 60, and I have selected the age of 65. I will not quarrel with my hon. Friend about that, and if my right hon. and learned Friend is prepared to accept an age limit of 60 I shall be very satisfied.

The hon. and learned Member for Kettering (Mr. Mitchison) asked what was the purpose of these Amendments. I can only assume that he has not read the Notice Paper, which I would have thought made their purpose abundantly plain. If there is any other hon. Member who is not clear as to their meaning I shall be very happy during the next twenty minutes to indicate what they intend to do.

Mr. Mitchison

I can assure the hon. Member that I really want to know.

Mr. Stevens

I should think that the hon. and learned Gentleman is the only Member of the Committee who is not aware of the intention of these Amendments.

My noble Friend put forward one argument which strongly appeals to me, and which I mentioned in my speech in the Budget debate. In recent years there has been too much differentiation between the tax treatment of earned incomes and so-called unearned incomes. The term "unearned", especially from a taxation point of view, is singularly unfortunate. For a number of years I have been trying to persuade successive Chancellors that the name should be changed. The difficulty has bean to find any other nomenclature which would meet the situation. Perhaps it should be called "savings income", or "investment income", or something of that kind. But a large proportion of incomes which are now classified as unearned incomes have been earned by the sweat of the brow. They represent dividends and interest, and they have been derived from the self-denial of men who have worked extremely hard for a great many years. [Laughter.] I sometimes wonder how serious discussion can take place in this Committee, when statements such as that which I have just made are greeted with laughter. The truth of my statement is abundantly clear to anyone who has studied the industrial history of this country. Perhaps hon. Members opposite have not done so.

The right hon. Member for Battersea, North (Mr. Jay) made a justifiable interjection during my noble Friend's speech. He said that if, instead of referring to these incomes as unearned incomes, we called them savings incomes or investment incomes, we should be including incomes which did not derive from the sweat of the brows of the people concerned. That may be true in some cases, but in a large proportion of cases they have arisen in that way, and for that reason I support my noble Friend.

I have two other strong reasons for doing so. For many years prior to 1956 it was possible for directors and employees to have provided for them by their employers pensions on the date when they retired. The annual premiums for these pension benefits were not assessed as part of the incomes of the directors or employees for Income Tax or Surtax purposes. Until 1956 that was not possible for a self-employed person. In that year my right hon. Friend the Prime Minister, who was then Chancellor of the Exchequer, was seized of the point, and in his Budget he remedied that situation in some degree. Retirement pension provisions were incorporated in the Finance Act of that year which, although to a lesser extent than was competent for employees, none the less made it possible for self-employed people to set aside out of their gross incomes rather than their net incomes money to provide pensions on their retirement. But, quite obviously, there were a large number of self-employed people in 1956, who had reached such an age—I suppose I ought to declare an interest; I was one of them—that the cost of the premiums to provide a reasonable pension on retirement was quite prohibitive at that date. Furthermore, they had during their working life up to 1956, saved out of their net income—not gross income—so that these people, who either retired between 1956 and now, or who are going to retire in the near future, will be denied the advantage which my right hon. and learned Friend is conferring on other people by the provisions in Clause 6 of this Bill. That seems to me manifestly unfair and in great contradistinction to the action of my right hon. Friend the Prime Minister in 1956, when he tried to put self-employed persons on the same basis as employed persons.

The third reason why I support this group of Amendments is that there is a most respectable precedent for them. Section 221 of the Income Act, 1952, as amended by Section 14 of the Finance Act, 1958, provides that the unearned income of elderly persons up to a certain limit shall for Income Tax purposes be deemed to be earned income, and that earned income allowances for Income Tax purposes shall apply. So I say that for the reasons given by my noble Friend, for reasons of equity and justice, bearing in mind the 1956 provisions, and for reasons of precedent, this group of Amendments should commend itself warmly to the Committee. I hope that my right hon. and learned Friend will find himself able to accept them.

Mr. Pitman

I wish to support my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) and my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens). I join with them in thinking that the general principle of equity is absolutely valid for the concession to Surtax which has been granted in this year's Budget. Equally I claim that there is great expediency on the earned income side in the sense that I know of nothing which stops mobility of hired staff more than high Surtax. If an employer has an employee in the higher Surtax bracket or even paying Surtax at all, he knows that nobody else will tempt away that employee by an offer of increased salary because so little would reach the employee's pocket. The effect of this will be to make for mobility and stop a great many of the expense rackets which hon. Members on both sides of the Committee are anxious to stop, because they rise out of high rates of Surtax. Here there is equally a general principle and expediency.

This arises from the fact that every hon. Member is satisfied that a return on capital, that is to say interest and dividends, is acceptable and good. The idea that it is something which is wrong has now vanished in this country. Today we have heard a lot about the war of ideas. In a capitalist, free enterprise Western world the war of ideas can be carried on only if there are savings and borrowings. Since, above all, Governments are great borrowers, I cannot imagine any person more than the Chancellor of the Exchequer who should be more out to encourage saving and, therefore, to put himself in the position of being able to borrow.

8.15 p.m.

There are four sources from which such savings—I propose to use the word "savings"—can arise. First, there are savings out of income. Hon. Members opposite may say that there is a difference of degree. From a small income that would be all right, but in respect of a big income it is not so good. I do not think that we can agree. But even if we did, from a big income is paid a big whack of Income Tax, Profits Tax and Surtax before there is any saving at all. So the class of savings that we are discussing has already borne its share of taxation. There is the possibility of inheritance. Equally, if it is small inheritance, hon. Members opposite have no objection and argue that the income from it should not pay Surtax because it is only a small inheritance, and so on. But in the case of a big inheritance the State takes up to 80 per cent. Why should the State take another whack out of it because of the magnitude of the income? By raising the figure to £5,000 we are not talking of a great increase in degree.

There is another source of saving, what a man has saved and built up by his enterprise. At some time Lord Nuffield must have saved to build up the great Morris Motor empire, and no doubt in the saving the value of his enterprise increased. I am sure hon. Members would say that they wished that sort of thing to be encouraged and would not dissent from money from such a source helping a man in his old age. Finally, there is the possibility of savings by gifts inter vivos. I ask hon. Members to be realistic about this and appreciate that it is not the age at which gifts inter vivos are received. Indeed, here there is an element of definite saving. If someone has had such a gift at an early age and has not spent it, they have obviously saved it. The whole purpose of this principle of equity to which I have referred is that for the elderly particularly, and indeed in general for people of any age, the application of the concession on Surtax, regardless of whether it is earned income or saved income, is a valid general principle.

When we come to the question of expediency, as was pointed out by my hon. Friend the Member for Langstone, we already have the precedent of Income Tax. If it is valid in principle for Income Tax, surely it is equally valid for Surtax. We then have the question of provision for old age and retirement. In our Amendment in line 19 we make the point that persons should not only be old but retired. That is linked with the point made by my hon. Friend about the way in which some people in this country have pensions. But at a date when we have so recently introduced a graduated pension scheme, the related injustice between them and the young is particularly hard.

I happen to be a member of a firm which was one of the pioneers of graduated pension schemes. We started our pension scheme in 1934 so that by this time the fund has accumulated quite nicely. But anybody in a firm which started later is dependent on his own savings, his own inheritance which he has not spent, his own enterprise, or whatever it may be, to provide for his old age. In that respect I think it important to realise the distinction that the professional man has not until very recently even had that opportunity. I have said that I have had the opportunity since 1934, but my hon. Friend the Member for Langstone has not had it at all because be is a self-employed man. Professional self-employed men have had to put money aside to provide a pension. Their pension would be regarded as earned income if it came from the savings income were our Amendment accepted, whereas my pension would do so in any case because it comes from the pension scheme. On retirement a man suffers a big drop in income. I should have thought that that was just the time when the Chancellor would be very glad to do something for him so that he could have something coming in by the transfer from earned to unearned income, making the drop less.

In the Amendment in my name there is raised the question of expatriate Crown servants. Those people have received a lump sum on retirement on the assumption that their career has been broken and that they have not had the same degree of income as they would have had had they been resident in England before that time. It seems that to treat their income accruing from that source as being unearned is a travesty of the facts. We have seen what has happened in the case of those serving in the Sudan. We have debated this kind of thing over and over again, and we have the greatest sympathy for people in that category. I suggest that we ought to include them with the elderly in this concession.

I do not know what the cost would be. I put a Question to the Minister, but he was unable to answer it. I can conceive that it could be negative, because it might be that it would put an end to gifts inter vivos. People would be inclined to keep their money and to enjoy the income from it, whereas under the present system of high taxation on unearned income at a late stage in life, there is no encouragement for that to happen.

Mr. Diamond

The fact that many of us on this side of the Committee have listened patiently during this debate should not be misunderstood as meaning that we have listened with sympathy to any of the arguments, or so-called arguments, from hon. Members opposite. I hope it will not be taken the wrong way by hon. Members opposite, with whom I am personally on the best possible terms, when I say (that I am astounded at the greed shown in the present attitude of back-bench Tories. It is right that that should be said, and said straight from the shoulder.

Here we have a situation in which the richest section of the community is getting the greatest tax benefit in one fell swoop—taking the plunge, the noble Lord the Member for Dorset, South (Viscount Hinchinghrooke) said—and this is the occasion they use for not being satisfied with that but for attempting to say that those who do the work and enable those with unearned income to enjoy the benefits of that work without doing a hand's turn should be treated in exactly the same way. It is an astounding and immoral attitude, and it is also wholly impracticable, I shall show how impracticable it is.

The fact of unearned income gives the person an extra claim on the total production of the community to which he makes at that point of time no contribution beyond his savings. We recognise that the savings are there.

Mr. Stevens rose

Mr. Diamond

I shall give way in a moment, but I shall say something which will be less welcome to hon. Members opposite than what I have already said. Unless the worker continued to do his work—and I mean work in its broadest sense—the person with £1 million unearned income today would starve.

An Hon. Member

And vice versa.

Mr. Diamond

It may be vice versa. There would be no one to produce the food or to carry it and no means for the continuing of activity which all people enjoy in one form or another. The whole thing would come to a standstill and the unearned income would be of no use at all. It would be merely a beautiful picture.

Mr. Stevens

In view of what the hon. Member has just said, is he taking any steps to bring about the removal of the earned income allowance for Income Tax purposes at present granted to the vast majority of pensions receivable by people in this country?

Mr. Diamond

I am coming to that. I shall come to the hon. Member's reference to the age allowance. He should not be impatient. We have sat quietly listening to speeches by hon. Members opposite hoping that some hon. Member would show some temperance in his view and some realisation of the fact that the people who do the work are the people on whom we all depend. We hoped that there would be some appreciation of the way in which unearned incomes arise.

Having explained that we all depend on the activities of people actively engaged in production, I should have thought it followed that we and the Chancellor should want to encourage those people. The whole purpose of the Surtax concession is to encourage people to greater work and greater productivity. We know that our export drive depends entirely on increased productivity. We are urging people all the time to do more work. Yet every speech made in favour of this Amendment has been in favour of our sitting on our respective backsides enjoying the product of the work of other people.

Let us be clear how unearned income arises. In the majority of cases, as the noble Lord knows only too well, it arises through what by a curious euphemism he called "saved income". He knows that it arises from being born in the right cradle. I congratulate him on the fact that he was. Good luck to him but it is useless to pretend that because he was born in the right cradle everyone should treat the efforts of the workers in the same way as we treat the efforts of the spenders. Normally, unearned income arises from substantial savings which have come as a result of being born in the right cradle and receiving the income of one's family.

The other major source of unearned income is untaxed capital gains. Having capital in the first place, the capital grows and increases by not being taxed. It is those two sources which provide the savings on which unearned income arises. It is nonsense for hon. Members opposite to say that the income is earned. Admittedly the amount saved in appropriate cases—not where it is inherited or is the result of capital gains—in the tiny minority of cases of capital saved out of earnings earned over the years is itself earned, but income from capital is not.

There are two stages. The capital has been earned and has been subject to tax, and the argument of hon. Members opposite is that Surtax and Income Tax have been so high that it was not possible to save. It is not possible to save; in the normal way, substantial sums out of earnings. Where the savings come from inheritance, as the noble Lord knows, or from capital profits, these are two major sources. As the hon. Member for Langstone claims, many professional men have not been able to save very much, because of the high rates of taxation. Do not let us pretend that that income is saved income and give it fancy titles to make the proposition more attractive to both sides of the Committee.

8.30 p.m.

The simple fact is that this group of Amendments is paraded under the impression that it is an attempt to deal with old people who, having retired and reached the age of 65, are no longer able to carry on with their earning capacity, and who should, up to a limited point, as we do for Income Tax purposes, have a maximum of £800 to be treated as being earned income on the general grounds of humanity; and, on the logical grounds that, having retired, they were unable to earn, and this is something to take the place of the earned income allowance that they would be given if they were young and capable of continuing to earn. This has nothing to do with this group of preposterous Amendments, which I hope the Government will reject completely.

Sir D. Walker-Smith

The hon. Member for Gloucester (Mr. Diamond) started his speech by saying that he was on personally good terms with so many of us on this side of the Committee that he hoped that we would not take amiss any of the strictures he made. Of course, we do not, because we appreciate the free play of keen debate between those taking part. As I entertain a high regard for the hon. Gentleman personally, I hope that he will not take it amiss if I animadvert on what he has just said to the Committee.

I think that the speech of the hon. Gentleman supplied abundant proof, if further proof were needed, of the fact that although he is no doubt a very good chartered accountant, he is a very bad economist. He is subjected to these stresses and strains which always afflict what I believe are known as the intelligentsia section of the party opposite when they come into conflict between what their experience and economic knowledge teaches them to be true, on the one hand, and what is the party dogma, on the other. I can only say, of his speech, that if he believes what he said it is a condemnation of his intelligence, and that if he said it without believing it it is a condemnation of his sincerity and the duty which he owes to the Committee.

Taken by and large, it was a remarkable speech, because it confused so many issues. In listening to the hon. Gentleman, one would imagine that Surtax today was purely an impost upon the rich. Of course, it started by being an impost upon the rich. When Supertax, as it was then known, was introduced, in 1910, it was a levy which began at £3,000, but only fell upon those with a total income, in the purchasing power of money in those days, of over £5,000. [Interruption.] If the hon. Member for Burnley (Mr. D. Jones) insists on making these sedentary interruptions, I cannot reply to them without following his bad example and getting out of order myself.

Mr. Dan Jones (Burnley)

The very fact that it was at that level at that time does not make it right.

Sir D. Walker-Smith

I now understand why the hon. Gentleman was so very reluctant to rise and make an intervention which would be recorded immortally in the OFFICIAL REPORT, to the wonderment of generations to come and to the great bewilderment of his constituents, if they ever do him the compliment of reading what he says.

At over £5,000, it was an impost upon the rich. Of course it was, but today it is not a levy solely upon the rich. It is a levy on ordinary members of the community at £2,000, which equated with the purchasing power and the value of money in those days, bears a very different aspect indeed to the incidence and purposes of the tax when it was first put on. Therefore, it really is quite unbecoming and wholly inaccurate and inappropriate for the hon. Gentleman to try to get away with that "poppycock" which was the word he used earlier, in relation to giving benefits and concessions to the rich.

Mr. Diamond

I want to follow, not to criticise. I do not follow the right hon. and learned Gentleman's argument. Is he talking about Surtax being levied only on those earning not less than £5,000?

Sir D. Walker-Smith

That was in 1910.

Mr. Diamond

The right hon. and learned Gentleman is talking about the previous position, which was £2,000. The present position is that Surtax is being levied on incomes of over £5,000. These Amendments seek that benefit over and above the concessions, which means that Surtax would not be payable on incomes less than £5,000.

Sir D. Walker-Smith

The value of the hon. Gentleman's interruption was in inverse ratio to its length, which was considerable.

The point I was on—I am sure that it was clear to every other hon. Member—was that it is wrong to talk in terms of an impost upon the rich. The pre-1961 Budget level of £2,000 must be contrasted with the 1910 level, with the then purchasing power of money, of £5,000 nominal value but probably about £20,000 contemporary value. It will now rise, as the hon. Gentleman said, in respect of earned income.

These Amendments, which are a relatively modest contribution, but an important one, for reasons I shall develop, are designed to extend that relief not over the whole range of so-called unearned income, but merely in respect of unearned income, so-called, over the age of 65. There are two reasons for this—reasons of equity and savings.

My next criticism of the hon. Gentleman's speech—I say this intending no personal offence, as he knows—is that he showed that he was a bad economist because of his total unawareness of the great importance of savings and investments in building up economic development, and thereby the standard of life of the people. Of course the contribution of the workers is necessary—but "workers" includes many people on the Surtax level. It is also necessary to have a high level of savings and investment.

Here hon. Members opposite are in a political difficulty, for this reason. We believe in a high level of savings not only because it gives dignity and stability to the individual citizen, which is an important thing in itself, but also because it is the best means of countering simultaneously the evils of inflation, on the one hand, and high taxation, on the other. Hon. Members opposite have a different philosophy. They really do not want to see private savings. They want to see what are euphemistically called compulsory savings by high taxation. They want to see that for a very obvious reason. They are logical.

All I criticise is their lack of candour in confessing it. They want to see compulsory savings in lieu of voluntary savings because it is a much better mechanism for a controlled economy. It is a much better basis for the control of the economy through the fiscal measures of taxation rather than through the traditional monetary method and methods of the market. That is why hon. Members opposite do not like savings. It was, therefore, quite frank of the hon. Gentleman to dismiss savings in the very perfunctory way in which he did.

It points to a great divide between the attitudes of the party opposite and us on these benches. We believe in a free society, on the basis of a high level of voluntary savings. They believe in a controlled economy, on the basis of a high Budget surplus year after year, contributed to by high taxation and so-called compulsory savings. Therefore, we say that the basis of an incentive to savings is most important both for the individual citizen and the community as a whole, and we say that it is a right and proper incentive to savings that there should be an extension to the over-65's of the earned income relief principle in respect of Surtax which now falls on such a wide and varied range of people.

That is the case, as I see it, in regard to savings. There is no question here of the retrospective incentive such as was criticised by the hon. Member for Sowerby (Mr. Houghton) earlier Obis afternoon, because this is an incentive that will apply to every young and middle-aged worker in the country, who will see that it will benefit him to save and invest because, at the end of the day, he will be allowed to get a better return on it than he does under the taxation of today.

I should like to add just a word on the other aspect—on which I shall be brief, but it is important; that of equity. As the hon. Member for Sowerby and other hon. Members who were present will remember, two strands ran through our discussions this afternoon—the strand of economic incentive and the strand of fiscal equity. Economic incentive is a relatively new consideration in our Income Tax affairs. It is a consideration which historically existed in the field of Customs and Excise but not in that of Income Tax. It has been drawn into that field for, perhaps, an unenviable reason—the rates of Income Tax have become so high.

On the other hand, fiscal equity is a basic, integral, traditional and continuing strand in our Income Tax affairs. It is, therefore, right that even though we now admit the principle of economic incentive, it should not erode or displace the primary principle of fical equity between taxpayers.

The case in equity in regard to the income of people over 65 arises in the sense that they will not be able to benefit from the concessions on earned income as the younger and middle-aged people will. There are further considerations that arise. Many of these people are enjoying now the incomes built up by the fruits of their labours but, owing to the inflation of modern times, at a much lower real or purchasing value. And there is a special point about those who have not been able to take advantage of the provisions of Section 22 of the 1956 Finance Act, referred to by my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens).

There is, therefore, a clear case in equity, just as there is a clear case on the economic and social grounds of savings. I think that it is a good case, and I should like to reinforce my hon. Friend's plea that the term "unearned income" is scarcely apposite. [Laughter.] The hon. and learned Member for Kettering (Mr. Mitchison), who laughs, knows far more about unearned income than I do—

Mr. Mitchison

As the right hon. and learned Gentleman is so kind as to select me for comment in this way, will he tell the Committee, since he has not yet done so, whether it is consonant with fiscal equity to increase the Health Service charges and, at the same time, to accept these Amendments?

Sir D. Walker-Smith

I am on record as saying that my enthusiasm for the Health Service charges was confined with, out difficulty within the bounds of decorum. But this is not within the Income Tax provisions and I am talking about equity within the ambit of the Income Tax law. On that, we say that there is a case, in equity, and I agree with my hon. Friends that the "unearned income" nomenclature is an unfortunate thing.

The hon. Gentleman the Member for Gloucester referred to inherited wealth, but the high level of Estate Duty is intended to take care of that; and the majority of unearned income today would more properly be called retirement income, savings income or even deferred earned income. Therefore, we say that, on these grounds of savings and on equity, there is a strong case to do this and I commend the principle to the Chancellor. If he cannot accept this Amendment in the context of this year's Finance Bill he will appreciate that both in the social and economic context there is a strong case for this, and I hope that he will bear it in mind in future years.

8.45 p.m.

Mr. Millan

We have had an interesting speech from the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith). I imagine, since he has now retired to the back benches, that that is the sort of speech we can expect from him often in the future. He has, however, spoken at a rather high level, a level which I would be tempted to try to follow, particularly concerning his remarks about the Opposition's attitude to personal savings, and so on, and also concerning his admonitions of my hon. Friend the Member for Gloucester (Mr. Diamond) as to his lack of ability as an economist.

But I will resist that temptation and come to the actual, practical Amendment which, after all, in theory, we are meant to be discussing. It is significant that the right hon. and learned Gentleman—and I say this without meaning any offence to him—has spoken with considerably more intelligence than have any of his right hon. Friends on this series of Amendments, but the high level of discussion which he injected into the debate is completely inappropriate to this subject.

Returning to the point of the Amendment, hon. Members are being asked to extend the principle of the concessions which have been given in Clause 11 to unearned incomes up to a level of £5,000 a year. Of course, the fact that there are unearned incomes postulates that somewhere there are capital sums from which those unearned incomes are derived. Even at the lowest level of Surtax, at £2,000, assuming that the unearned income is at about 5 per cent. on the capital sum, there must be a capital sum of £40,000 available to the taxpayer.

Rising to the £5,000 a year level—and the purpose of this Amendment is to treat all unearned income up to £5,000 as earned income—at a rate of interest of 5 per cent. there must be a capital sum of £100,000. Thus we have a plea made by hon. Gentlemen opposite for taxpayers all to have capital sums available to them ranging from £40,000 to £100,000.

Viscount Hinchingbrooke

Is the hon. Gentleman aware that the capital sum about which he is speaking may not be available to them? I urge him to consider the question of annuities or people working under a trust.

Mr. Millan

Nevertheless, a sum, in one form or another, is available. [HON. MEMBERS: "NO."] In the case of annuities, exactly the same position arises, with a sum being used to purchase an annuity. The analogy which the hon. Member for Portsmouth, Langstone (Mr. Stevens) drew with pensions is completely inappropriate, because a pension is a form of deferred earned income and is a legitimate subject for earned income relief. But an annuity is a legitimate device for using a capital sum in order to get a particular sum in unearned income per year. Even a person of 65 who has an annuity of £2,000 a year has basically a capital sum of a very considerable amount.

Quite apart from annuities there are many people involved in these categories with which we are dealing who will have no annuities and will be drawing up to £5,000 a year in unearned income, in the form of dividends and interest, and that fact postulates that there is a capital sum of anything up to £100,000 available to them. As my hon. Friend the Member for Gloucester said, all this tear shedding for people with unearned incomes ignores one of the most conspicuous sources of inequity in our present taxation system, and that is the lack of taxation of capital gains.

If the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) were to say to the Committee, "We ought to have a tax on capital gains and then you could give this sort of relief to the elderly taxpayer with large sums of unearned income" I could at least respect his sincerity, but I do not at the moment respect his sincerity at all.

I am particularly suspicious when the right hon. and learned Member for Hertfordshire, East tries to carry this argument on to a high level, talking about principles of saving and the effect on the economy, but does not explain the facts which I have explained to the Committee—facts which must be available and known to the right hon. and learned Gentleman. We are entitled to bring out these facts, and we are also entitled to criticise hon. Members opposite and ask why we have not been given the facts that I have just indicated.

I hope that there is absolutely no chance of the Government accepting these particularly misconceived Amendments. As my hon. Friend said, it is most extraordinary that when we have a Budget like the present one giving away large sums of money to the wealthier members of the community, their reaction is not one of grateful thanks but "What more can we get out of the Government?" I hope that the Committee will not be misguided enough to give any support to these Amendments.

Sir Richard Pilkington (Poole)

The attitude of the Opposition to these proposals is unfortunate, to some extent, from their own point of view, and I hope it will be noted throughout the country that those people who might benefit from the proposals made on this side of the Committee are treated by the Opposition to adjectives such as "greedy" and one hon. Member said derisively that his heart bled for them. I hope that the people whose situation would be improved by the proposals contained in these Amendments will note the attitude of the Opposition and will treat Members of the Opposition accordingly when the opportunity comes.

I am also a little surprised at the attitude of my right hon. and learned Friend the Chancellor of the Exchequer to these proposals. He recently made a speech which was reported in The Times on 29th May under the headline, "Absolutely Vital Need for Saving". It seems to me that his present attitude is a peculiar way to approach what apparently my right hon. and learned Friend thought—and, indeed, what I am sure he does think—would be very beneficial. The importance of saving has, after all, been a theme, and rightly so, of this Government for some considerable time, but the proposed incidence of this tax relief, with the distinctions between earned and unearned income, falls upon certain citizens in a very harsh way indeed.

I expect that many hon. Members have received many letters on this question. I have one from which I should like to quote because it puts the case in an effective way. This is from a man over 65 years of age who writes: It is to be hoped that simple justice will be done to those savers of the past who had to provide for their own pensions. Otherwise a deep sense of injustice will be felt by those similarly placed to myself. He adds—I hope the Opposition will note this— In conclusion, I have heard it said that even the Socialists might not have been so unfair". Little did he know of the speeches to be made by them this evening. I hope that he will realise the truth.

Mr. Loughlin

I hope the hon. and gallant Gentleman will forgive me for saying that what he quoted did not seem to relate to these Amendments or to the issue involved. Will he quote the letter in full?

Sir R. Pilkington

I will show the letter to the hon. Gentleman afterwards. I do not want to detain the Committee. I hope he will take it from me that the letter has in it no substance which would support his contention at all. The heart of the matter is in what I read.

I realise that the Opposition have pursued this line because, after all, they had to have something to oppose and, presumably, they thought that this was a suitable subject. I will give one more quotation. Let the Opposition see whether they can square this with what they have been saying. It comes from their own newspaper, the Daily Herald, of 16th January last: Surtax was meant to be a tax on the rich. Rut £2,000 now equals £700 pre-war. Even if (he starting level were raised to £5,000, the tax would still be discouraging people whom it was never meant to reach. People to whom £2,000 still seems a lot should not be jealous; for the present state of affairs is harming the interests of the whole country. The Opposition are prepared to deny many things, but surely they will not deny the mouthpiece of their own party in saying that. I suggest that hon. and right hon. Members opposite should withdraw all opposition to these proposals and join with us on this side in urging the Chancellor to accept our suggestions.

Mr. H. Wilson

Will the hon. and gallant Gentleman read the part of the article dealing with the capital gains tax which the Daily Herald suggested should be adopted? Also, having regard to what he said and read about hardship to individual correspondents of his, will he say how many letters he and other hon. Members have received about the far greater hardships—I am still talking in terms of savings and past savings—of those who invested in gilt-edged and have seen their gilt-edged savings sharply reduced in value as a result of the Government's high interest rate policy?

Sir R. Pilkington

I hope that this Government will deal with all hardships which are suffered today. I have not the article with me because it is not relevant to the point I was making. What I did read was the relevant part.

Mr. Loughlin

The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) conducted himself as an intellectual comic. I do not think that he satisfied many members of the Committee that his strictures on my hon. and right hon. Friends were as good as they may have appeared on the surface to be. I do not want to follow him in his wise-cracking fashion.

We recognise that, apart from the efforts of those who work, there are other factors which go towards the good state of the economy, but that is not the issue involved in these Amendments. Hon. Members opposite have talked about the difficulties faced by the people for whom they are concerned. We are talking about those who receive a substantial income from capital gains.

9.0 p.m.

One hon. Member opposite referred to the sweat of the brow of the landlords, of the speculators on the Stock Exchange and of the land speculators, the boys who are earning fabulous golden hand-outs of one kind or another. It is nonsense for hon. Members opposite to talk about working people being able to save and to invest money. If it had not been for the imposition of charges of one kind or another by the Government, some of which are hitting many old-age pensioners, there would not have been any chance for the Surtax payer to get earned income, let alone unearned income, relief of the kind which the party opposite want for those who seek to get it on unearned income as well.

If the Government entertain for one moment the Amendments of hon. Members opposite, there ought to be the greatest possible agitation at least in the trade union movement. When the right hon. and learned Member spoke about the worker who can see the possibility of future investment of his savings, the thought flashed across by mind of the number of industrial workers who are excluded, because of their rate of wages, from the Government's graduated pension scheme. It is sheer hypocrisy for right hon. Members opposite, like the right hon. and learned Member who was so clever with hon. Members on this side of the Committee, to talk about workers being able to save money as though all workers were able to do so.

We have an affluent society only because of the plurality of the wage packet in the household. That is something which the right hon. and learned Member has to learn. If an industrial worker is able to save, it is only because his wife is going out to work as well. These Amendments clearly indicate the greed of right hon. and hon. Members opposite.

Mr. Geoffrey Hirst (Shipley)

I have an Amendment down concerning this matter and also support another. I am grateful to my hon. Friends for the speeches which they have made, because they have covered many of the points which I otherwise would have made myself. Speeches like that of the hon. Member for Gloucestershire, West (Mr. Loughlin) make it only too clear why the Socialist Party is so completely unfit to govern. Hon. Members opposite cannot recognise the complete difference which there is in these subjects between the two sides of the Committee. No one has done more in this field than the Conservative Party. [Laughter.] Of course that is so.

At the moment we are discussing the question of taxation relating to certain classes of people. Those who provide investment and saved income, which was one of the terms my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith) used—he certainly invented a few new ones—are a third partner in industry. We cannot possibly have progress in a free society unless we provide the conditions and circumstances whereby investment will be encouraged to grow and to fructify to everybody's benefit. Where would the big businesses, employing a vast number of people and doing a great export trade, be if it were not for that principle running through the smaller industries from which they have grown? That is fundamental.

While I recognise, as I must do in realising the overall position, that my right hon. and learned Friend the Chancellor could not do all that I am sure he would have wished to do this year—and I am grateful for what he has done—I share the view of my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) that there is the danger that in doing what he has done in the way he has done it, we have opened a gulf rather wide in this context and have made it no easier for ourselves to bring about that element in equity which my right hon. and learned Friend the Member for Hertfordshire, East mentioned which is fundamental to our sound appreciation of economics—and it is a sound appreciation. That is the only thing of which I am frightened.

Therefore, while I readily lend my support to the Amendments as an opportunity to express in this Committee views in which I wholeheartedly believe, I do not expect them to be accepted by many hon. Members opposite for the very reasons given by my right hon. and learned Friend. There is no argument about it. This is a fundamental approach. It is different. It is one of the great fundamental issues that divide the Tory Party from the Socialist Party. We may quarrel about details, but this approach is fundamental.

I do not expect my remarks to be accepted with great glee on the benches opposite, but I trust that my right hon. Friends on the Front Bench, who will understand what I am talking about if hon. Members opposite do not, will take note of what has been said this evening. It is vitally important that however much good we have done in one sector, we should not make it more difficult for us to complete what is a sound policy based on practices which have been proved in the past.

I, too, have received a vast number of letters, dozens of them—

Mr. Loughlin

Read them in full.

Mr. Hirst

I shall make my speech in the way I wish and I do not need the hon. Member's assistance.

Several of the writers have expressed the feeling that there is injustice or hardship, that they are being treated differently from other people and they do not see why they should be. I do not think that they should be treated differently from other people.

My hon. Friends have mentioned that the Estate Duty takes large cuts out of inheritances. What is wrong with a man working to try to provide something for the future for his children? His savings should not be penalised. Hon. and right hon. Members opposite, through their love of the taxation system to get a controlled economy, adore killing that sort of source of vital life blood in our economy. I beg my hon. and right hon. Friends to take a serious view of this matter and to note what we have had to say, because I know that they believe it in their hearts and that they would like to do it if the situation of the economy permitted. I hope that if it does not permit it this year, it will do so in the very near future.

Sir E. Boyle

Let me make it quite clear, at the outset of my remarks, that my right hon. and learned Friend the Chancellor of the Exchequer fully realises the heavy impact of direct tax, both Surtax and the standard rate of Income Tax, on investment income. He also realises that this impact is felt in particular by many elderly and retired persons who have, in many cases, given a lifetime of service to the nation and, by the nature of things, cannot themselves gain from a great deal of the important social expenditure of today on matters such as education.

Even so, there are a number of reasons why my right hon. and learned Friend does not feel able to accept any of these Amendments which have been so interestingly moved, supported and discussed. I will mention in particular three reasons. First, any blurring of the distinction between earned income and investment income would be contrary to the basis deliberately adopted by my right hon. and learned Friend when framing his Budget this year.

Looking back over the past ten years, I do not think any one can say that the Government have neglected the personal tax problems of any section of the community. I gave a number of what seemed to me to be striking instances of how the Government have helped those with lower incomes when I wound up the debate on Second Reading. In the context of the Amendment, it is worth remembering that any elderly taxpayer dependent entirely on the proceeds of investment income and whose total income brings him within the ambit of Surtax must have gained substantially from the reduction of the standard rate of Income Tax by as much as 1s. 9d. since the present Government took office. My right hon. Friend made it quite clear both in his Budget speech and again when moving the Second Reading of the Finance Bill that he could not afford a major reduction of direct taxation this year. My right hon. and learned Friend was concerned to do what he could to give a dynamic boost to the economy, and he felt that one of the most effective ways of doing so would be to increase the incentives to people in managerial, scientific and other positions of responsibility by countering, so far as future earnings are concerned, the disincentive tendency of the Surtax structure.

It was therefore of the essence of my right hon. and learned Friend's Surtax proposals and his whole Budget judgment—and here I quote from his speech—that: …the relief will only flow from and be related to the amount earned."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 821.] I therefore must say frankly to my hon. Friends that as far as this year's Budget is concerned the Amendments which we have been discussing run counter to what was a fundamental aspect of my right hon. and learned Friend's Budget judgment.

The second point concerns savings, and I listened with great attention to what a great many of my hon. and right hon. Friends had to say about it. I do not want to take up all the points made on savings this evening, many of them of great interest. There is one point, however, which I might take up from the speech of the hon. Member for Gloucester (Mr. Diamond), and one from my right hon. and learned Friend the Member for Hertfordshire, East (Sir D. Walker-Smith). The hon. Member for Gloucester interested me when he said that although he recognised that if a man was earning during his working life and saved money, that money was, so to "speak, most properly his, he felt rather differently about income gained from the capital value of his savings. Surely the hon. Member would not dispute for a moment, and I would not have thought that any hon. Member opposite would dispute, that the raising of the standard of living of workers depends largely on the rate of capital investment. I should think, therefore, that no sensible worker could possibly grudge the inclusion of interest on money saved, because it is entirely in the interest of the nation and of the great mass of the people that a man should be saving income in the course of his working life.

Mr. Diamond

Nobody has said that they grudged that. We said that we drew a distinction in terms between earned income and income accruing from investment and not being earned.

Sir E. Boyle

Interesting as I found his speech, my chief criticism of the hon. Member would be that in many cases he drew much sharper distinctions than were really justified.

If I may say so to my right hon. and learned Friend the Member for Hertfordshire, East, one point in his speech where I could not go all the way with him was when he talked about the Budget surplus. Surely a very low overall borrowing requirement is really in the interest of a mainly free enterprise economy, because it means that more private saving becomes available for investment in the private sector. There are two sides to the Budget surplus, and I am sure that my right hon. and learned Friend will bear in mind the important bearing of budgetary policy on monetary policy as well.

I fully agree that the last thing we want to do is to discourage saving by the professional man or woman in the course of their working life. In this context it is worth remembering that my right hon. and learned Friend's proposals will affect total tax on mixed incomes comprising some earnings and some income from investments. This is a matter which we shall be debating on a subsequent Amendment and, therefore, I shall not pursue it now.

It is important also surely to remember that my hon. Friends' Amendments are not in any way limited to the income from investments which represent the accumulation of savings from past earnings. Indeed, I think it would be a practical impossibility to devise any form of words for precisely that purpose. Therefore, the reliefs which my hon. Friends suggest would be given equally to investment income arising from inherited wealth, or indeed from the reinvestment of the proceeds of capital appreciation that had no connection at all with earnings. Again, the pure rentier would get relief equally with the man for whose benefit these Amendments have been chiefly devised.

9.15 p.m.

Of course, it is perfectly true—I recognise this—that the existing Income Tax age relief is undiscriminating in the same way. But that, after all, is a relatively small relief designed to help elderly people with investment incomes of a very moderate size. I put it to the Committee that circumstances are very different when one is considering an Amendment that could give a Surtax benefit running up to as much as £1,775 in amount.

I would tell my hon. Friends that I make this point and draw attention to these figures because my right hon. and learned Friend felt that relief in this way on this scale of investment income would not be justified in the present year at a time when he frankly told the House that he was unable to afford any general reduction of direct taxation.

My third point is the most important of all, I think, and I ask my hon. Friends to consider it very carefully. I should have thought that it would be regarded as a quite intolerable anomaly if we were to retain the present age relief up to a limit of £800, with tapering provisions, and if the law were also to recognise a new hardship category consisting of elderly people with incomes of £2,000 and upwards. Surely such a state of affairs would be regarded—and with some reason—as extremely unfair by all those elderly taxpayers with incomes below £2,000 which are nevertheless too large to qualify for Income Tax age relief.

Having said that and put those three points before my hon. Friends, I want to say that of course my right hon. and learned Friend realises very clearly indeed the danger of having too large a discrimination between earned income and investment income. I share much of the dislike that many of my hon. Friends have expressed about the term "unearned income", but I must equally say that, frankly, I was rather surprised to hear my noble Friend, in his very interesting speech moving the Amendment, say—if I understood him aright—that we ought to work towards no discrimination between earned and unearned income at all. All I would say is that this may be orthodoxy on the back benches today, but it was not orthodoxy when we discussed this subject some years ago. I do not remember any one making that point.

I must tell my noble Friend that I certainly do not remember that point being made in, for example, the Budget of 1952 when the present Home Secretary raised the earned income allowance to 2/9ths, and I do not remember it being made during the Budget debates of 1957 when the present Minister of Aviation extended the earned income allowance into the Surtax field. While I absolutely agree that we want to be careful about too great a discrimination, it was my impression that there was a good deal of support not only in this House, on the Government benches, but in the country for the idea of some extension of the earned income allowance into the Surtax range.

Viscount Hinchingbrooke

I would not care to associate my hon. Friends with this statement, but I feel very strongly that one can differentiate entirely between the situation which obtained some years ago and the present situation. In the situation that obtained after a major war when the nation was completely impoverished, everything was done by State action to encourage the entrepreneur to industrial effort, but when we arrive at an affluent society all sorts of different considerations applied.

Sir E. Boyle

I greatly respect my noble Friend's convictions, as I hope he realises, but in view of what he said this evening I thought I was bound to raise this point, which seemed to me one of very considerable importance.

Mr. Hirst

My hon. Friend is making a very unfair point in relation to the Minister of Aviation and all that. At that time there was a limitation on what could be done. My hon. Friend must know—it would not be proper for me to say it—what has been said outside this Chamber.

Sir. E. Boyle

I do not profess by any means to know all that is said outside this Chamber. I would hesitate to say, and I think that in this I shall carry a large part of the Committee with me, that all the economic problems which we recognised in 1957 can now be said to have been solved once and for all by 1961.

I come to the Amendment of my hon. Friend the Member for Bath (Mr. Pitman). There are certain serious difficulties about this proposal. When one considers the difficulties which have arisen in devising and administering a retirement condition in connection with a man's title to draw retirement pension, one would think very hard before deciding to introduce that concept into our tax law. I agree that at first sight retirement from the service of the Crown seems straight-forward enough, but what about those who, in the past, left overseas Crown service to take up another occupation?

There is another point to be mentioned. Except in the case of persons retiring from Crown service overseas, by my hon. Friend's proposal anyone under 65 could never qualify for the relief, even though his Surtax liability came to be in question for a year of assessment falling wholly after the date when he became 65 and retired.

I quite understand that those in Crown service are more likely than most people in other occupations to find their employment suddenly terminated, for example, when a former Colonial Territory becomes self-governing. However, I say frankly to my hon. Friend that I doubt whether the grant of a special tax relief designed for quite another purpose is the best way to help those people. In case I should sound unsympathetic about those people, I assure my hon. Friends that I regard the cost of the Overseas Service Act, 1961, as money extremely well spent. I believe that that Act and the White Paper of October, 1960, which preceded it, pointed towards the correct way of dealing with this sort of problem.

Mr. A. P. Costain (Folkestone and Hythe)

Surely if those people who have served overseas come back to live in this country we shall get a tax gain, because they will come back only when we have a reasonable form of taxation? That is not making a sacrifice but helping the economy of the country and our sterling balances.

Sir E. Boyle

I was trying to deal with the interesting and specific suggestions made in the Amendment of my hon. Friend the Member for Bath and merely pointing out that I think that there are difficulties about trying to help these people by a grant of a special tax relief, although I agree that it is very important that we should keep their needs in mind.

For the reasons I have explained, I must invite my hon. Friends not to press their Amendment but to recognise that it is an essential element in my right hon. and learned Friend's Budget judgment this year that the Surtax reliefs should only flow from and be related to the amount earned. Of course, he recognises the danger of too great a discrimination between earned and investment income in our system of taxation, but he made his Budget judgment perfectly plain this year and, for that reason, I cannot advise the Committee to accept the Amendments.

Mr. Mitchison

Sorry as I am to have missed a minute or two of the beginning of the hon. Member's speech, I want to say that the Opposition agree with his conclusions, and I should like to add one or two further reasons. I listened to the speeches in support of the Amendments, and I hope that I may be forgiven for saying that I wondered how much those hon. Members meant those speeches wholeheartedly and to what extent they had their tongues in their cheeks. Some of the arguments seemed absolutely incomprehensible in the light of one or two things which have been happening lately.

The first is that hon. Gentlemen opposite, unanimously so far as I know, decided to increase the health charges, knowing perfectly well that that increase would apply especially to the old people towards a particular class of whom these Amendments are directed. What hon. Members opposite have been asking the Committee to do, having just imposed additional charges on the old the sick and the poor, is to give Surtax relief to those people who with some £40,000 of capital are getting an income of £2,000 a year or more from it. I find it difficult to conceive a more inconstant suggestion, at this time of day. I noticed that the first few hon. Members who spoke to the Amendments omitted to say what they were about. They talked about almost everything else, but not that.

I would remind them of one other thing. The party opposite is responsible for a pensions scheme the effect of which is to remove from the taxpayer a number of increases, which will be put on to the contributors. At the last election that party rejected the pensions scheme put forward by the Labour Party, which was intended to give considerable assistance to elderly people. Yet, for a special class of elderly people—those who have what is called "saved income" of over £2,000 a year—hon. Members opposite are asking the Chancellor to extend a concession which, on social grounds, I would already regard as quite indefensible, and which we shall oppose in due course.

What astonished me about the debate was to hear hon. Members—people whom I had hitherto regarded as tolerably sensible—talking about fiscal equity, and nonsense of that sort, in connection with this set of Amendments which deal with saved income, devised in the ingenious mind of the noble Lord to cover capital gains which might have been made after a lifetime of speculation on the Stock Exchange and to cover, again, a nice fruitful inheritance of the kind that many people will have received in their early years and contrived to cling to for the rest of their lives. We are being asked to support the socially desirable function of not spending an inheritance, and we are being asked to do so after what the Government have done in respect of Health Service charges, the poll tax and contributions. To get up and talk that sort of nonsense is an insult to the country.

Amendment negatived.

Mr. Diamond

I beg to move, in page 8, line 19, at the end to insert: and (c) any deductions made under the foregoing paragraphs shall be disregarded for the purpose of determining the rates of surtax applicable to the unearned income (being any income other than earned income) of the individual in question and that unearned income shall be assessed for surtax as if the earned income (without any such deductions as aforesaid) were first assessed and thereafter the unearned income were assessed at rates appropriate to a supplementary assessment of the unearned income made immediately after the assessment of the earned income". As we have had several discussions on the purpose of the Chancellor's Budget, we had better start afresh. I take as my text an extract from the Chancellor's Budget statement. He said: I want to do what I can to ensure that the present incidence of Surtax does not act as a disincentive to those who have positions of responsibility in our industries and elsewhere in our national life. Accordingly, I think it right to take action to modify, as far as earned incomes are concerned, the present rules. The changes I propose will be applicable to incomes earned—I repeat earned—during this new financial year and thereafter."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820.] It is clear, therefore, that what the Chancellor had in mind, whether rightly or wrongly, were changes in the Surtax rates and in the burden falling on those who had earned incomes, and that he was most anxious to restrict help to those who earned their incomes, and was not intending to give relief to those who were not earning their incomes. I will repeat what he said: The changes I propose will be applicable to incomes earned…during this new financial year and thereafter. That is what the Chancellor said, but when we refer to the tax tables it becomes immediately clear that what he said was not fully carried out by the provisions of the Finance Bill. In fact, instead of the Surtax provisions helping only those who earn their incomes they help those who have unearned incomes, by reducing Surtax liability.

9.30 p.m.

I do not know whether it is necessary for me to go into the figures again. They were put before hon. Members effectively by my right hon. Friend the Member for Battersea, North (Mr. Jay), during the debate on the Budget statement. My right horn. Friend said: …a man getting £1,500 a year on earned income gels 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. That makes it quite clear that a man who has, in addition to his earned income, unearned income of an equal amount, gets £42 reduction in Surtax relief because of his unearned income. If he received £2,000 a year all earned he gets nothing at all. That is clear because there is no Surtax payable and there remains no Surtax payable. If a single man earns £2,000 a year he gets no relief. 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."—[OFFICIAL REPORT, 19th April, 1961; Vol. 638, c. 1285–6.] I can give more figures at length, if any hon. Member requires it, showing the effect at different ranges. But the short point is that the Chancellor said that he wished to help those people with earned income. The effect of this Amendment is to enable the Chancellor to achieve what he set out to achieve. It is as simple as that.

We believed the Chancellor when he said that he did not want to help those with unearned incomes. We have put down this Amendment which would have the effect of making certain that those with unearned incomes did not benefit, while those with earned income continued to get the benefit. This Amendment seeks to give effect to the Chancellor's own wish that there shall not be Surtax relief on unearned income for people with a mixed income.

The way in which this works is simplicity itself. It asks one to imagine a person's income being built up into a series of blocks. The first block will represent the earned income and on top of that would be put a second block representing his unearned income. That block would attract a certain level of Surtax which he must pay and for which he would receive no relief. So the person would pay Surtax on the second block which would then be taken away, leaving the lower block representing the earned income on which he would receive Surtax relief as provided for by the Finance Bill.

I hope that I have made the provision clear. We are only helping the Chancellor to do what he wants to do and we are doing so in the simplest possible way. If accepted, this Amendment would have the effect of extinguishing the present Surtax relief under the Bill on unearned income, leaving the taxpayer with his full Surtax relief on earned income. I submit it very hopefully indeed to the Committee, as it is precisely what the Chancellor wants. It may be that the wording is not precise, and that the right hon. and learned Gentleman may have his own wording, in which case the Opposition, as ever, would be accommodating. At all events, it is an Amendment designed to do exactly what the Chancellor wants and I have no hesitation in believing that the right hon. and learned Gentleman will accept it.

Sir E. Boyle

The hon. Member for Gloucetser (Mr. Diamond) said four or five times in the course of quite a short speech on this Amendment that it would do exactly what the Chancellor said he wanted to do in his Budget statement. If the hon. Member had read through three further paragraphs and ejaculations by my hon. Friend the Member for Kidderminster (Mr. Nabarro) he would have found that that is not so, but that the Bill as drafted carries out exactly the intention of my right hon. and learned Friend. My right hon. and learned Friend said: These proposals will give no relief to incomes derived solely from investments. They will give maximum relief to incomes wholly earned. But because Surtax is a tax on total income they will affect the total burden of tax on mixed incomes comprising some earnings and some income from investments. But the relief will only flow from and be related to the amount earned. So, again, there will be an incentive to increase earnings."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 820–1.] The Bill, as drafted, carries out that intention exactly.

I agree on one point put by the hon. Member. We are here on a relatively narrow and confined point and I do not think that on this Amendment we could have quite such a wide-ranging debate as we had on the previous Amendment. I think that I can put the issue to the Committee most clearly by giving a concrete example, not exactly the same but very nearly the same as the example I quoted in the debate on the Budget Resolutions.

Take the case of a man with a mixed income of, say, £4,000 of earnings and £500 investment income. There is nothing between us, as the hon. Member for Gloucester fairly said, in that the man does not pay tax on the £4,000 of earnings. The sole question we have to consider is whether the £500 should be taxed as the Bill says, at 2s. in the £ or, as the hon. Member and his Friends say, the tax the £500 of investment income should be calculated at 4s. 6d. in the £.

The view that investment income should be regarded as the top slice of a mixed income is no doubt theoretically a tenable one, but I say quite frankly that I think as a basis for the working of this Clause it would be quite unfair and would in the view of the Government operate as a strong disincentive to the acquisition of further income from savings. Indeed, I think one could carry the argument a stage further and put the point even more strongly by considering the position in the case I have just quoted if the taxpayer earned an additional £1,000 more.

Under the Clause as drafted he would pay no further Surtax because the deduction for earned income relief and special earnings allowance would have increased by £1,000. Under the Amendment there would be no Surtax on the additional earnings as such, but the £500 of investment income, considered as the top slice of the total income, would be pushed up to a rate of 5s. 6d. in the £ solely because of the additional earnings. In the view of my right hon. and learned Friend this would be an extremely wrong feature in a scheme designed to encourage further earnings for effort and increased initiative. I think it would be quite indefensible to penalise and discourage saving by people during their working life in a way which would be certainly caused if we accepted the Amendment. I have no hesitation at all in advising the Committee to reject the Amendment.

Mr. Houghton

I do not wish to bring the debate to an end. My hon. Friends may wish to comment further on what the Financial Secretary has said, but when he sat down I almost automatically got up. It all depends on how far the Chancellor wants to go.

My hon. Friend the Member for Gloucester (Mr. Diamond), as the Financial Secretary said, kept saying that this Amendment sought to do what the Chancellor intended to do. This Amendment does what we thought the Chancellor intended to do. Now, we find that he intends, apparently, to do something more, and this Amendment seeks to check him from going too far. The Financial Secretary only a few moments ago, speaking to the previous Amendment, said that the proposals in Clause 11 were a dynamic boost to the economy. I have the greatest respect for the Financial Secretary, his choice of language and the sincerity with which he always addresses the Committee, but if he really believes that this is a dynamic boost to the economy, he will believe anything. One is inclined to ask, "Who and what is the economy, if this is a boost to it?"

Another thing that the hon. Gentleman said was that Surtax relief was directly related to the amount earned, so we see how misleading a phrase can become. Of course, in the initial stages of the application of the proposals in Clause 11 to Surtax, relief is directly related to the amount earned, but it is also indirectly related to the amount of unearned income. What I wish to stress is that when these reliefs in Clause 11 have been given, the total gross income remains the same. They do not reduce the income; they increase the reliefs for tax purposes to be given against that income, so that the gross income in the hands of the taxpayer is the same before the reliefs and after. At the initial stage, the income is the same.

What the Chancellor is doing is reducing the amount of Surtax payable on the same income as before, and to achieve that purpose he reduces the amount of chargeable income—not the amount of the income, but the amount of income to be chargeable to tax—so that he is free to vary the reliefs that he is giving on the gross income. It is a perfectly tenable argument to use against the Chancellor's proposals that, while giving the reliefs to earned income, he is consequentially giving quite substantial relief to unearned income as well.

I am not saying that we were in any real doubt about this at the earlier stages of the debates on the Bill, because it seemed to follow from some comments which the Chancellor made at the earlier stages, but we deplore it, nevertheless. The Financial Secretary, a few moments ago, after saying that Surtax reliefs will be directly related to the amount earned, went on to say that the reliefs will affect the burden on mixed income. Indeed, he was using this very fact as an argument against the Amendment of his hon. Friends for still further relief on unearned income, and was drawing their attention to the fact that they are to get quite noticeable reliefs in Surtax on unearned income as a consequence of the reliefs being given on earned income.

The example which the Financial Secretary quoted a moment ago was a a man on £4,000 a year. I take the case of a married man earning £4,000 a year with dividends of £500. If one takes the unearned income as the top slice of income for calculation purposes, the amount of Surtax on the £500 of dividends will be reduced from £107 10s. to £40. That is a very substantial reduction in the Surtax on unearned income for a man who, from the Chancellor's point of view, is on the rather modest salary of £4,000 a year, and other Surtax payers would stand to gain a greater benefit than that.

9.45 p.m.

This is a question of how far the Chancellor of the Exchequer wishes to go. There is no reason why, in giving these reliefs to earned income, he should not regard unearned income as taking its present place in the total computation of Surtax and at the same rate as it would be taxed at present before the reliefs to earned income are given. That seems to us to be the logical thing to do. There are no difficulties of administration. There is no justification, from the point of view of the Chancellor of the Exchequer's original intentions when proposing the Clause, why unearned income should share the benefit with earned income. We wish to differentiate between the two.

This is the third fault in the right hon. and learned Gentleman's own proposal which we think should be remedied, even looking at them from his point of view. We made it clear at the outset, and we have repeated, that we are against the Clause as a whole. We think that it is wrong to propose reliefs on this scale in the Bill when additional taxation is being levied by the Bill and when prior to it very substantial additional charges were imposed upon the great mass of the people. We are, therefore, trying to discuss the matter on the basis of the right hon. and learned Gentleman's own approach to the proposals in the Clause and to amend them as seems suitable from his own standpoint.

We certainly wish to press the Amendment. Whatever the Chancellor may think about giving a dynamic boost to the economy, whatever he may think about the justification for giving substantial reliefs to earned incomes in the Surtax brackets at present, we see no justification for giving consequential reliefs in respect of unearned incomes of better-off people only a few weeks after he levied several hundreds of millions of pounds by increased National Insurance contributions and Health Service charges. On that basis we shall press the Amendment.

Mr. J. T. Price

I want to press the right hon. and learned Gentleman one point further on the explanations we have been given. The case made out by my hon. Friend the Member for Gloucester (Mr. Diamond) and supported from the Front Bench by my hon. Friend the Member for Sowerby (Mr. Houghton) has not been answered properly. The Financial Secretary, with his usual bright, breezy and urbane manner, carefully chose an example to illustrate his defence of mixed income. I am not complaining about his manner but the substance of his argument.

As he spoke to us, I asked myself why he had chosen the example of a person with a mixed income of £4,500 a year. The first reflection produced the obvious answer, namely, that the ceiling for Surtax has been lifted to £5,000 a year from the original figure of £2,000. If the Financial Secretary had addressed his example and its effect on the tax to the reverse case, there would have been a much more spectacular result. He quoted the case of a taxpayer with an earned income from a profession or industry of £4,000 a year, to which must be added £500 a year received as unearned income from investment revenue.

What would be the position in the reverse case of a man doing only nominal work and receiving an income of £500 from employment or profession but being in the fortunate position of enjoying an unearned income of £4,000 a year? There must be many cases where an individual, either by inheritance or other circumstances, is fortunate enough to have an income of £4,000 a year while, perhaps, carrying out quite nominal duties bringing in an earned income of £500.

Where one has mixed income, the major part of which is unearned and the rest is earned, the person will get very much more than in the case quoted, unless the example is entirely wrong. Even in the case quoted by my hon. Friend the Member for Sowerby, a man with an unearned income of £500 a year stands to benefit by £60 from a transaction under this relief provision, so the man whose major income is from investments will be in an even better position. I should be very grateful to hear an explanation of what the position would be where the major portion of income is unearned, so long as it is under the ceiling of £5,000.

Mr. Millan

The Financial Secretary said that this was a very narrow point, but perhaps that is the wrong word. It is a very simple point, but not a narrow one. An important matter of principle is involved. By this Amendment we are trying to restrict the relief given under the Clause exclusively to earned income. When one has mixed income it all depends what particular part of the income one takes as marginal income—the "top slice" of income, I think, is the term used by the Inland Revenue.

What happens under the Chancellor's proposal is that the unearned income is taken as the top slice of the income, which means, whether or not one's relief flows, in the Chancellor's words, from the earned income that the actual relief is at the topmost marginal rate, which is a rate determined by the amount of unearned income as well as the amount of earned income. Because of the progressive rates of Surtax we are, in fact, treating the unearned income as the top slice of income, and by that means giving what we consider to be an unnecessary relief to people with unearned income, although the whole basic intention of the Clause is that the whole relief should go to those with earned income.

There might just be a case for the Government to say that we should take both earned and unearned income as being progressive proportionately, so that one has an even spread of income from the bottom to the top, increasingly proportionately. Had the Government said that, it would have been possible to provide for it in the Clause, and there would have been a certain restriction on the relief for unearned income. But it seems to me to be completely indefensible that the Government should have chosen this method—which is not the only technical method—which has the effect of making the unearned income the top slice of income.

What we are saying in this Amendment is that we should split the total income into the two categories of earned and unearned, and that they should be treated separately for the assessment of Surtax. We say that we should calculate the Surtax on the total, as it were, without the remissions under this Clause. One then gives not deductions from total income but remissions on tax calculated on total income, which has the effect, by the terms of the Amendment, of making absolutely sure that none of the relief flows to unearned income but is concentrated on earned income. As I have said, that meets far more consistently and logically what the Chancellor said were the basic purposes of the Surtax reliefs.

The Financial Secretary gave an interesting example of someone with £4,000 a year earned income, and £500 investment income, receiving a £1,000 a year increase in salary. He said that the effect of that, if the Amendment were accepted, would be that that man would pay Surtax at a higher rate although, in fact, he had had an increase in earned income and not in unearned income.

That is correct, but it is also true—and this is a reversal of the arguments used by the Chancellor and by the Financial Secretary about the reliefs flowing from earned income—that the increase in Surtax would have flowed from the unearned income and not from the earned. There would have been no increase in tax if he had had no unearned income. The fact that the increase in earned income meant that there was more Surtax payable does not derogate from the fact that it is still true that the increase in Surtax came from the unearned income. That is a reversal of the principle, as I have explained.

My hon. Friends and I consider that the proposals we are making more consistently and logically follow what were the Government's intentions. Although it is a simple point, it is one of principle. We hope that the Financial Secretary will have something further to say about the matter and, if he has not, I hope that my hon. Friends will divide the Committee.

Mr. Michael Foot (Ebbw Vale)

It has been said by hon. Gentlemen opposite that this is a narrow point, while my hon. Friends have said that it is a simple one. I hope that there will be one or two other hon. Members who, having listened to the debate, will dissent from the view that it is, indeed, a simple point.

Despite the powers of perspicacity and persuasion of my hon. Friend the Member for Gloucester (Mr. Diamond), some hon. Members may still not be able to grasp the whole of the argument. I was not enlightened on the subject by the reply of the Under-Secretary, particularly since he appeared to select an example which suited him. This is a matter of some considerable complexity in Income Tax law and operation and, therefore, it is pardonable if some hon. Members are not able exactly to understand the position. Nevertheless, it is the duty of hon. Members to try to understand what is going on, and the Financial Secretary has not done as much as he might have to enlighten us.

Although the issue may be complicated, two facts stand out clearly. The first is that the Government, in this proposal which my hon. Friends are seeking to remedy, intend, by their Surtax proposals, to give relief to certain forms of unearned income. Whatever the Chancellor may say, and whatever the Financial Secretary may say on his behalf by quoting some of the Chancellor's speeches—and I am not saying that he distorted them in any way—that was not the impression hon. Members got at the time of the Chancellor's Budget speech, and the impression given generally to the country. At that time the Government were intent on other impositions, saying that they would have to raise money in various other ways.

It was never understood that the Government were, by their Surtax proposals, going to give a certain amount of relief to people on unearned income. The Government are, therefore, doing something which they did not make fully clear at the time and, considering that, hon. Members should have today received some justification for that from the Financial Secretary.

10.0 p.m.

Another matter arises. Whenever on Finance Bills hon. Members make proposals which would involve increased burdens on the Chancellor and on the Treasury the Financial Secretary replies, "I have great sympathy with this point of view, but I have had to examine the extra burdens which would be placed on the Exchequer and I have to tell hon. Members that we cannot afford it because we have to scrutinise every million pounds. We have to know exactly what is being spent".

I think the Financial Secretary referred to an hon. Friend of mine using the same phrase on many occasions. The Financial Secretary used on many occasions the phrase "the Budget judgment of the Chancellor of the Exchequer". We are always told by Financial Secretaries that the Budget judgment of the Chancellor of the Exchequer is being worked out very carefully. But whatever may be the exact meaning of my hon. Friend's proposal, it surely means that if this Amendment were accepted it would be of some benefit to the Treasury.

Why did not the Financial Secretary tell us how much money is involved? Has he made any estimate of what would be the benefit to the Treasury if this Amendment were accepted? When proposals of this nature are made, which would be of assistance to the Chancellor in his conduct of his financial operations, at least the Treasury ought to make as careful inquiries as they would make on occasions when people are proposing extra burdens to be carried by the Treasury.

Perhaps the Financial Secretary would like me to continue speaking for a minute of two to enable him to make inquiries if he has not got the figure. If he has the figure, I am surprised that he did not give it to us in his earlier speech. I would be extremely surprised if the figure were not available in the House so that we could be told how much money the Treasury is prepared to lose rather than accept the Amendment. Will the hon. Gentleman tell me how much it is? Is it £2 million or £3 million? If it is, it would certainly cover all the extra charges which were imposed in respect of teeth and spectacles. Let us know exactly the figure which the Financial Secretary threw away without even attempting to inform the Committee of the amount involved. Let us be told exactly how much money the Chancellor, by rejecting this Amendment, is going to give to those with unearned incomes, what is the benefit he is giving to them which could have been used for other purposes.

Sir E. Boyle

I rise to answer the last three speakers. The hon. Member for Westhoughton (Mr. J. T. Price) asked me about the case of somebody with an earned income of £500 a year and an unearned income of £4,000 a year. As a matter of fact, here there would be very little difference. Under the Clause as drafted the Surtax payable is £375. Under the Amendment the Surtax payable would be £400. The total difference in tax liability in that case would be only £25.

In answer to the hon. Member for Glasgow, Craigton (Mr. Millan), who said that he felt this was an important point, I quite agree, and I am sorry if anything that I said suggested that this was not so. Obviously, this was a major point on which my right hon. and learned Friend had to decide, when framing his proposals this year, whether he should treat mixed incomes as they have been treated in the Clause or whether they should be treated as they are treated in the Amendment.

In answer to the hon. Member for Ebbw Vale (Mr. M. Foot), one reason why this is an important point is that a considerable amount of money is involved. The difference from the point of view of the Exchequer is, I think, £13 million for 1962–63, and £19 million for a full year. Therefore, my right hon. and learned Friend obviously had to take an important decision on this matter. I can only repeat what I said before. In my view, to treat mixed incomes in the way that hon. Members opposite propose in the Amendment would, although it would save money from the point of view of the Exchequer, be too great a deterrent and discouragement to saving

One point in the speech of the hon. Member for Craigton I could not accept. It is true, of course, that, if a man earns £4,000 and his earnings rise to £5,000, the additional Surtax under the conditions proposed in the Amendment arises on the £500. On the other hand, the increased rate—a fairly high increased rate—of 5s. 6d. in the £ arises from the additional earnings. I cannot help feeling that to say, "If you have been earning £4,000 and your earnings rise to £5,000, you must then pay at 5s. 6d. in the £ on even a quite modest amount of investment income derived from saving" would not be equitable. That was the reason, after considering the matter very carefully, both because of the point of principle and because of the amount of money involved, why my right hon. and learned Friend took the decision he did.

I quite agree that a great many Clauses in the Finance Bill are not easy to follow. I imagine that the hon. Member for Ebbw Vale will agree with the lady who said to G. K. Chesterton that if St. Thomas Aquinas' account of God in his simplicity was right then God in his complexity must be very difficult indeed. However, after reading again the paragraphs in my right hon. and learned Friend's Budget speech which occur at columns 820 and 821 of the OFFICIAL REPORT of 17th April, it does not seem to me that that is an obscure passage. However much we may disagree in this Committee about the proper way to treat mixed incomes, I do not think that there is any plausible case for saying that my right hon. and learned Friend has intentionally or unintentionally misled the Committee.

Mr. Jay

The Financial Secretary has made one of the most remarkable and revealing statements of this whole series of debates. He has now admitted that the Chancellor decided deliberately to give away £19 million not just on Surtaxed incomes, but on unearned Surtaxed incomes. We have now discovered that a very large proportion of the sums raised from National Insurance contributions and Health Service charges is to be given away to people paying Surtax on unearned incomes.

My hon. Friend the Member for Ebbw Vale (Mr. M. Foot) understated the case against the Government and against what they propose. He said, very rightly, that this was not a narrow issue. I quite agree, but I think it is a fairly simple issue. The issue is that, whereas the Chancellor justified the whole of his Surtax reliefs on the ground that they would give an incentive on earned incomes, one finds, on looking at the tax tables, that he is giving a very large proportion of them to unearned incomes, not what the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) called savings incomes but inherited incomes as well as investment incomes in the general sense.

What is actually happening can be easily explained by reference to the Chancellor's tax tables. Let us suppose that a single man has an earned income of £1,500. He has nothing from the Surtax reliefs. If he has also an unearned income of £1,500, he receives £40 a year in tax relief. In plain English and in common sense, that is a tax relief for unearned income. If he has an earned income of £3,000 a year, he receives from this Budget according to the tables a tax relief of £112. If he has also £3,000 unearned income, he receives a tax relief of £275. Again, in terms of common sense, that is an extra £150 or so by virtue of his unearned income.

Going to the £10,000-a-year taxpayer, to whom the Chancellor has been more kind than to any other, if his £10,000? income is all earned he receives £350 in relief. If he has £10,000 unearned income also, he receives £775 tax relief. That is an extra £400 by virtue of his unearned income. That is what the Chancellor is doing.

I am astonished that the Financial Secretary should lend himself to such a disingenuous and hypocritical proceeding as this. He read out the words which the Chancellor used in the Budget debate. I ask any hon. Member whether he would have thought from these words that the Chancellor was doing what I have been describing. The Chancellor said—and the Financial Secretary produced this as his trump card— But because Surtax is a tax on total income they will affect the total burden of tax on mixed incomes comprising some earnings and some income from investments. But the relief will only flow from and be related to the amount earned."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 821.] That did not imply to any of us what the Chancellor is, in fact, doing.

Sir E. Boyle

Those words apply directly to the example which the right hon. Gentleman has given. If in the case which he quoted a man's earned income fell, his tax liability would go up sharply.

Mr. Jay

I can well believe that the Financial Secretary, by some form of semantics or pedantry, may be able to reconcile these words with what the Chancellor is doing. I am certain that no one in this Committee or in the country understood that that is what is being done.

It is an exposure of the whole cynical, hypocritical nature of this Budget that we should have recommended to us and to the country these huge Surtax reliefs which amount to a reduction of nearly half in the total yield in Surtax on the ground that they are designed to increase incentive and to be a reward for earned income. Then when we look at what the Chancellor is actually doing we find that a very large part of the relief is going to unearned incomes.

Sir Alexander Spearman (Scarborough and Whitby)

Is the right hon. Gentleman bearing in mind that unearned income will be reduced under this Budget by an increase in Profits Tax?

Mr. Jay

That may or may not be so, but it was not what the Chancellor said when he was recommending these concessions.

The fact is that the Chancellor says—and the Financial Secretary does not deny it—"If you have a large unearned income, you get increased tax reliefs through the Surtax concessions in the Budget". This was not the impression conveyed to us. All that the Financial Secretary can do in an attempt to palliate or excuse this hypocritical proceeding is to read out an almost unintelligible form of words which convey no meaning of the kind suggested to us. This is one of the most cynical and hypocritical humbugging performances that we have had from any Government in recent years, and it exposes the selfish, shabby and anti-social nature of the Budget and the excuses that we have had made for it today.

Mr. Loughlin

The disclosure of the Financial Secretary that in practice this will mean the loss to the Chancellor of the Exchequer of £19 million is one of the most cynical things that we have heard. We do not know what hon. Members opposite think about this. It might be to the benefit of the Committee if they made some contribution to the debate instead of sitting on their backsides and interrupting.

The Chancellor clearly indicated in his Budget speech—and it has been repeated again and again—that Surtax reliefs should apply only to earned income. In col. 820 of the OFFICIAL REPORT for 17th April, he not only stated it clearly and categorically, but he even used the words which have been repeated today. If we wanted to use the £19 million which is involved for the benefit of society, we might consider giving it to the teachers for the work which they are doing. That is precisely the figure about which there is difficulty in the teaching profession.

10.15 p.m.

I am not content to see the use of the Budget in this way whereby we can throw away without any consideration £19 million to people who do not need Surtax relief, and who have not earned the money anyway, when there are so many reasonable things that we could do with the £19 million, and, in particular, because the Chancellor clearly indicated to the House and to the country that his intention was to ensure that the Surtax reliefs should apply solely to earned income and in that way be an incentive.

The Chancellor should reconsider the matter. He should understand that because he conveyed clearly to the House and to the country that any relief from Surtax should be specific to earned incomes, he will be failing in the responsibility of his office if he does not carry out the promise which he gave both to the House and to the nation.

Miss Jennie Lee (Cannock)

Earlier this week, I received a letter from the Ministry of Pensions and National Insurance and, to make doubly sure, I received a similar letter from the Ministry of Health. Both of them referred to a matter which I regard as being related strictly to what we are now discussing.

No one on this side of the Committee imagines that high taxation is desirable in itself. What we must always decide is what are the priorities in a civilised community. In those two letters, from different Departments, I was told that an old couple whose income was £8 a week, who were paying about 30s. a week for rent and who had reached an age when one or other or both of them were frequently ill and drawing prescriptions from their doctor, could not recover the 2s. per item for those prescriptions.

The priorities are such that the letters went on to say that if either of the old people had a disease of such a nature as to require constant prescriptions, it would be in order for the doctor to prescribe larger amounts of medicine each time a prescription was required. There was no indication that we could so organise our taxation system as to relieve them from the anxiety of those prescription charges, nad yet tonight we are faced with the uncivilised, savage attitude and the lies of hon. Members opposite who, before the Budget, created public opinion that Surtax had to be reduced as an incentive to the export trade. That was the talking line of the Government.

Now, it is clearly exposed that the export argument was simply a camouflage under which hon. Members opposite, in this disgraceful fashion, do not come to the rescue of the people who are doing a serious export job or to the rescue of anybody earning a living in any way for the benefit of the community. It is simply a bit more smash and grab of the kind by which hon. Members opposite still insist on charging 2s. per item for prescriptions, even from old couples who do not have enough

income to provide proper nourishment and far less to pay for bills.

Question put, That those words be there inserted:—

The Committee divided: Ayes 160, Noes 229.

Division No. 193.] AYES [10.20 p.m.
Ainsley, William Henderson, Rt. Hn. Arthur (Rwly Regis) Parkin, B. T.
Albu, Austen Herbison, Miss Margaret Pavitt, Laurence
Allaun, Frank (Salford, E.) Hill, J. (Midlothian) Pearson, Arthur (Pontypridd)
Allen, Scholefield (Crewe) Hilton, A. V. Peart, Frederick
Awbery, Stan Holman, Percy Pentland, Norman
Bacon, Miss Alice Holt, Arthur Price, J. T. (Westhoughton)
Baxter, William (Stirlingshire, W.) Houghton, Douglas Probert, Arthur
Blyton, William Howell, Charles A. (Perry Barr) Pursey, Cmdr. Harry
Bowden, Herbert W. (Leics, S. W.) Howell, Denis, (Small Heath) Randall, Harry
Bowen, Roderic (Cardigan) Hughes, Cledwyn (Anglesey) Rankin, John
Bowles, Frank Hughes, Emrys (S. Ayrshire) Redhead, E. C.
Boyden, James Hughes, Hector (Aberdeen, N.) Reid, William
Braddock, Mrs. E. M. Hunter, A. E. Reynolds, G. W.
Brockway, A. Fenner Hynd, John (Attercliffe) Rhodes, H.
Broughton, Dr. A. D. D. Irvine, A. J. (Edge Hill) Roberts, Albert (Normanton)
Castle, Mrs. Barbara Jay, Rt. Hon. Douglas Roberts, Goronwy (Caernarvon)
Chapman, Donald Jones, Rt. Hn. A. Creech (Wakefield) Robertson, John (Paisley)
Cliffe, Michael Jones, Dan (Burnley) Ross, William
Craddock, George (Bradford, S.) Jones, Elwyn (West Ham, S.) Silverman, Julius (Aston)
Cronin, John Jones, J. Idwal (Wrexham) Skeffington, Arthur
Crosland, Anthony Jones, T. W. (Merioneth) Slater, Mrs. Harriet (Stoke, N.)
Darling, George Kenyon, Clifford Slater, Joseph (Sedgefield)
Davies, C. Elfed (Rhondda, E.) Lawson, George Small, William
Davies, Ifor (Gower) Lee, Frederick (Newton) Smith, Ellis (Stoke, S.)
Davies, S. O. (Merthyr) Lee, Miss Jennie (Cannock) Snow, Julian
Deer, George Lever, L. M. (Ardwick) Sorensen, R. W.
Delargy, Hugh Lewis, Arthur (West Ham, N.) Soskice, Rt. Hon. Sir Frank
Diamond, John Loughlin, Charles Spriggs, Leslie
Dodds, Norman Mabon, Dr. J. Dickson Steele, Thomas
Dugdale, Rt. Hon. John McCann, John Stones, William
Edwards, Rt. Hon. Ness (Caerphilly) MacColl, James Sylvester, George
Edwards, Robert (Bilston) McInnes, James Taylor, Bernard (Mansfield)
Edwards, Walter (Stepney) McKay, John (Wallsend) Taylor, John (West Lothian)
Evans, Albert Mackie, John (Enfield, East) Thomas, Iorwerth (Rhondda, W.)
Fitch, Alan McMillan, Malcolm (Western Isles) Thompson, Dr. Alan (Dunfermline)
Fletcher, Eric Mallalieu, E. L. (Brigg) Thomson, G. M. (Dundee, E.)
Foot, Dingle (Ipswich) Manuel. A. C. Thornton, Ernest
Foot, Michael (Ebbw Vale) Mapp, Charles Timmons, John
Forman, J. C. Mason, Roy Ungoed-Thomas, Sir Lynn
Fraser, Thomas (Hamilton) Mellish, R. J. Wade, Donald
Gaitskell, Rt. Hon. Hugh Millan, Bruce Wainwright, Edwin
Galpern, Sir Myer Milne, Edward J. Warbey, William
George, Lady Megan Lloyd (Crmrthn) Mitchison, G. R. Weitzman, David
Ginsburg, David Monslow, Walter White, Mrs. Eirene
Gordon Walker, Rt. Hon. P. C. Morris, John Wilkins, W. A.
Grey, Charles Noel-Baker, Francis (Swindon) Willey, Frederick
Griffiths, W. (Exchange) Oliver, G. H. Williams, W. R. (Openshaw)
Grimond, J. Oram, A. E. Willis, E. G. (Edinburgh, E.)
Hale, Leslie (Oldham, W.) Oswald, Thomas Wilson, Rt. Hon. Harold (Huyton)
Hall, Rt. Hn. Glenvil (Colne Valley) Owen, Will Woodburn, Rt. Hon. A.
Hamilton, William (West Fife) Padley, W. E. Woof, Robert
Hannan, William Paget, R. T. Yates, Victor (Ladywood)
Hart, Mrs. Judith Pannell, Charles (Leeds, W.)
Hayman, F. H. Parker, John TELLERS FOR THE AYES:
Mr. Irving and Mr. Short.
Agnew, Sir Peter Bishop, F. P. Bullus, Wing Commander Eric
Aitken, W. T. Black, Sir Cyril Butcher, Sir Herbert
Allan, Robert (Paddington, S.) Bossom, Clive Campbell, Sir David (Belfast, S.)
Allason, James Bourne-Arton, A. Carr, Compton (Barons Court)
Atkins, Humphrey Box, Donald Carr, Robert (Mitcham)
Balniel, Lord Boyle, Sir Edward Cary, Sir Robert
Barlow, Sir John Braine, Bernard Chataway, Christopher
Barter, John Brewis, John Chichester-Clark, R.
Beamish, Col. Sir Tufton Brooman-White, R. Clark, Henry (Antrim, N.)
Bennett, F. M. (Torquay) Brown, Alan (Tottenham) Clark, William (Nottingham, S.)
Berkeley, Humphry Browne, Percy (Torrington) Cleaver, Leonard
Biggs-Davison, John Bryan, Paul Cooke, Robert
Bingham, R. M. Buck, Anthony Cooper, A. E.
Birch, Rt. Hon. Nigel Bullard, Denys Cordeaux, Lt.-Col. J. K.
Cordle, John Jackson, John Renton, David
Corfield, F. V. James, David Ridley, Hon. Nicholas
Costain, A. P. Jenkins, Robert (Dulwich) Ridsdale, Julian
Critchtey, Julian Johnson, Erie (Blackley) Robinson, Sir Roland (Blackpool, S.)
Crosthwaite-Eyre, Col. O. E. Kerby, Capt. Henry Rodgers, John (Sevenoaks)
Cunningham, Knox Kershaw, Anthony Roots, William
Curran, Charles Kirk, Peter Russell, Ronald
Currie, G. B. H. Lancaster, Col. C. G. Scott-Hopkins, James
Dalkeith, Earl of Langford-Holt, J. Seymour, Leslie
d'Avigdor-Goldsmid, Sir Henry Leavey, J. A. Sharpie, Richard
Deedes, W. F. Leburn, Gilmour Shaw, M.
de Ferranti, Basil Legge-Bourke, Sir Harry Shepherd, William
Digby, Simon Wingfield Lewis, Kenneth (Rutland) Simon, Rt. Hon. Sir Joceyln
Doughty, Charles Linstead, Sir Hugh Skeet, T. H. H.
Drayson, G. B. Litchfield, Capt. John Smith, Dudley (Br'ntf'rd & Chiswick)
du Cann, Edward Lloyd, Rt. Hon. Selwyn (Wirral) Smithers, Peter
Duncan, Sir James Loveys, Walter H. Smyth, Brig. Sir John (Norwood)
Elliot, Capt. Walter (Carshalton) Lucas-Tooth, Sir Hugh Speir, Rupert
Elliott, R. W. (Nwcstle-upon-Tyne, N.) MacArthur, Ian Stanley, Hon. Richard
Emery, Peter McLaren, Martin Stevens, Geoffrey
Emmet, Hon. Mrs. Evelyn McLoughlin, Mrs. Patricia Stewart, Michael (Fulham)
Farr, John MacLeod, John (Ross & Cromarty) Stodart, J. A.
Finlay, Graeme McMaster, Stanley R. Stoddart-Scott, Col. Sir Malcolm
Fraser, Ian (Plymouth, Sutton) Macmillan, Rt. Hn. Harold (Bromley) Storey, Sir Samuel
Freeth, Denzil Macmillan, Maurice (Halifax) Studholme, Sir Henry
Galbraith, Hon. T. G. D. Maddan, Martin Sumner, Donald (Orpington)
Gardner, Edward Maginnis, John E. Talbot, John E.
Gibson-Watt, David Maitland, Sir John Tapsell, Peter
Glover, Sir Douglas Manningham-Buller, Rt. Hn. Sir R. Taylor, Sir Charles (Eastbourne)
Glyn, Dr. Alan (Clapham) Markham, Major Sir Frank Taylor, Edwin (Bolton, E.)
Glyn, Sir Richard (Dorset, N.) Mathew, Robert (Honiton) Taylor, w. J. (Bradford, N.)
Goodhart, Philip Matthews, Gordon (Meriden) Teeling, William
Goodhew, Victor Maud ling, Rt. Hon. Reginald Temple, John M.
Cower, Raymond Mawby, Ray Thatcher, Mrs. Margaret
Grant, Rt. Hon. William Maxwelf-Hyelop, R. J. Thomas, Leslie (Canterbury)
Grant-Ferris, Wg. Cdr. R. Mills, Stratton Thomas, Peter (Conway)
Green, Alan Montgomery, Fergus Thornton-Kemsley, Sir Colin
Gresham Cooke, R. More, Jasper (Ludlow) Tiley, Arthur (Bradford, W.)
Grosvenor, Lt.-Col. R. C. Mott-Radclyffe, Sir Charles Turner, Colin
Gurden, Harold Noble, Michael Turton, Rt. Hon. R. H.
Hamilton, Michael (Wellingborough) Nugent, Sir Richard Tweedsmuir, Lady
Harris, Frederic (Croydon, N. W.) Oakshott, Sir Hendrie van Straubenzee. W. R.
Harris, Reader (Heston) Orr, Capt. L. P. S. Vickers, Miss Joan
Harrison, Brian (Maldon) Orr-Ewing, C. Ian Vosper, Rt. Hon. Dennis
Harrison, Col. J. H. (Eye) Osbom, John (Hallam) Wakefield, Edward (Derbyshire, W.)
Harvey, John (Walthamstow, E.) Osborne, Cyril (Louth) Wakefield, Sir Wavell (St. M'ebone)
Harvie Anderson, Miss Page, John (Harrow, West) Walker, Peter
Hastings, Stephen Page, Graham (Crosby) Walker-Smith, Rt. Hon. Sir Derek
Hay, John Partridge, E. Wall, Patrick
Heald, Rt. Hon. Sir Lionel Pearson, Frank (Clitheroe) Ward, Dame Irene
Henderson, John (Cathcart) Peel, John Webster, David
Hiley, Joseph Pervical, Ian Wells, John (Maidstone)
Hill, Mrs. Eveline (Wythenshawe) Pickthorn, Sir Kenneth Whltelaw, William
Hirst, Geoffrey Pike, Miss Mervyn Williams, Paul (Sunderland, S.)
Hobson, John Pilkington, Sir Richard Wills, Sir Gerald (Bridgwater)
Hocking, Philip N. Pitt, Miss Edith Wilson, Geoffrey (Truro)
Holland, Philip Pott, Percivall Wise, A. R.
Hollingworth, John Powell, Rt. Hon. J. Enoch Wolrige-Gordon, Patrick
Hopkins, Alan Price, David (Eastleigh) Woodhouse, C. M.
Hornby, R. P. Prior-Palmer, Brig. Sir Otho Yates, William (The Wrekin)
Hughes-Young, Michael Pym, Francis
Hurd, Sir Anthony Quennell, Miss J. M. TELLERS FOR THE NOES
Hutchison, Michael Clark Rawlinson, Peter Mr. J. E. B. Hill and
Irvine, Bryant Godman (Rye) Redmayne, Rt. Hon. Martin Mr. Gordon Campbell.

Motion made, and Question proposed, That the Clause stand part of the Bill.

10.30 p.m.

Mr. H. Wilson

The Amendments that we have been debating for the best pact of today have raised a number of important financial issues. Behind the financial issues there have been deep issues of political principle, and none more than in the Amendment that has, unfortunately, just been lost. We are now on the Question "That the Clause stand part", and this is a straight political debate between the two sides—there should be no mistake about that. This Question, in the circumstances of this year, both social and economic, raises the real difference between the two parties. I do not think that he Chancellor would deny that this is the central Clause of the Bill. This is what his Budget is about.

The first point I want to make, as my hon. Friends have already said on previous Amendments, is that the sweeping Surtax concessions for next year contained in Clause 11 must be taken together with the social charges imposed in the spring, and nobody should make up his mind about whether the Clause should stand part of the Bill without setting it against that first February "Budget" introduced by the Minister of Health.

Last winter, many of us warned the country that it was the Government's intention, first to impose health charges and then to use the revenue so gained for substantial Surtax concessions. From Christmas onwards it became clear that the Government were playing with this idea of Surtax concessions. I do not think that in all our fiscal history there has been such a succession of inspired statements put out by the Government that the Chancellor was to make these Surtax concessions. I have already said that I do not think that they emanated from the right hon. and learned Gentleman. We had the remarkable speech of the President of the Board of Trade in January, saying that the Surtax payers were badly treated and that something should be done for them. I have already asked today whether that was a little inspiration, a little kite flying on behalf of the Government, or whether it was the President of the Board of Trade using his own subtle form of pressure on the Chancellor. However that may be, it was clear from January onwards that this was in the Government's mind.

Then we got, in February, the statement of the Minister of Health. We were asked to believe—and we went through the Division Lobbies night after night, and listened to arguments from right hon. Gentlemen opposite—that the economic position of the country in February was so desperate that we could not maintain the National Health Service without putting new and burdensome charges on those who were the least able to meet them. We were told that the Government's financial revenue position was such that we could not manage without an additional £45 million of revenue, raised in the most inequitable manner by poll tax contributions.

That was the position in February. Two months later, the economic position of the country was such that the Chancellor could cheerfully hand out £85 million to the Surtax payer. Had there been such a remarkable recovery in the country's economic position between February and April? The gold position had got worse, the export-import position had got worse, the balance of payments position had got worse, production had not begun to increase at all. Yet, between February, when we had to put that burden on those least able to bear it, and April, when we handed out £85 million to the Surtax payers, had the economic position of the country changed so rapidly?

The Chancellor, of course, will tell us—I think that he is making the note already—that the £85 hand-out is not for the current financial year but is deferred for a year, and that he does not lose that revenue for a further financial year; that we are badly off this year, but next year we will be so well off—and he knows it already—that we will be able to make this £85 million concession to the Surtax payer. On this one item the Chancellor is anticipating his next year's Budget statement, though from now to next April any question we put to him about any other tax changes will be greeted with the statement that he cannot anticipate next year's Budget statement. On Surtax, however, he is most unusually asking the Committee to legislate on next year's Budget.

If he is confident that he will then have money—and he will tell us that he is raising it by Profits Tax—to hand out in next year's Budget, why does he not now say that a year hence he will remit the health charges and the poll tax? It is no answer to what I have been saying to say that the health charges were imposed this year and that the Surtax concession will be given next year.

Aneurin Bevan used to talk of the language of priorities. The Budget is above all an expression in the clearest language of social priorities. The priorities which the Government have laid down in this year's Budget are the Surtax concessions. Our priorities—and we make no apology for them—would have been some means to ease the lot of the old and the disabled, measures towards strengthening investment and the application of science to industry.

That is the difference between us, and that is what we are now debating. The Chancellor set the stage by imposing new burdens on the less well-to-do sections of the community. Many arguments were put forward by the Chancellor and the team of Treasury Ministers which he has been deploying during the course of the day in support of these Surtax proposals, and I will deal with them in a moment. The real reason why he has made these concessions is simple. I explained it in the debate on the Budget when I said that there was no mystery about it—it is what the Conservative Party is in business for. That is what it exists to do. I might have gone on to say that that is what business is in the Conservative Party for.

In the Budget debates and on other occasions, of course, we have made it clear that we feel that direct taxation at all levels is too high. I give that point to the right hon. and learned Gentleman right away. But we feel that reductions in direct taxation should be planned and should be fair and should follow a system of priorities, being granted first to those in greatest need—child allowances, personal allowances, earned income allowances and so on.

I have said before that the reason why taxation rates are so high in this country is that the tax base is so narrow. We have often used the analogy about building land and wanting to accommodate a certain number of homes when one has to build high if there is not much land—skyscrapers—whereas if the base is wider there is no need to go so high. It is similarly the case with the tax base. If the tax base is narrow, to raise a given amount of revenue there has to be a very high tax structure built on that narrow base.

Our tax base is unnaturally narrow and it has been Government policy to see that it is kept narrow. The economic base of the fiscal structure has not been widened, as in other countries, by a steady economic expansion over the past few years. If we had been expanding production for some years, we could have afforded quite sweeping reductions in direct taxation, but, of course, the revenue base as a whole is too narrow because so much spendable income in this country avoids any taxation. We have already today debated business expenses in which very large sums of money are spent without being involved in taxation.

There is a wide range of legal tax avoidance. I should be out of order if I dealt with that in detail, but the very fact that so many people are able to spend so much money without being accountable for taxation in respect of it means that the Chancellor has lost revenue which he would otherwise have had. That means that the ordinary taxpayer has to bear a higher rate of taxation than he otherwise would.

Then, of course, there is the peculiar and anomalous and indefensible exemption from taxation of capital gains which for their part make, of course, very large contributions to the spending power of a relatively small section of the community. If the Chancellor had brought them into the net this year, then I believe substantial reductions in taxation over a period would have been possible, but I hope those reductions would have been concentrated first on those in the greatest need of tax reductions, especially those at the lower end of the income scale who are paying Income Tax.

What are the arguments for this Clause? First it has been noticeable throughout all this debate and throughout the earlier debates on Second Reading and on the Budget that neither the Chancellor nor really any of his chief colleagues have attempted for one minute to defend their proposal on the grounds of social justice. At any rate, there is a limit to the amount of Treasury humbug on that. It is true that in the Budget debate the Chancellor described this as a belated act of social justice; he felt this was justified on the ground of social justice. The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) said in a moving speech earlier that this could be judged only in terms of social justice and not in terms of economic incentive, and said it did not go far enough, and he called the Chancellor a Communist because of the inadequacy of the tax concessions in this Clause. However, by and large, no one, today at any rate, has said anything to justify this in terms of equity and social fairness.

It is true that in one inspired moment at the end of the Budget debate the Chancellor did enter on that—for him—unusually moving passage when he drew attention to the hard lot and the great hardships suffered by the £5,000 a year man. And I think he believes it. I think he meant that. I think that was one of those occasions when the veil of a sort of cancellarian obscurantism was drawn aside and we saw the real man behind it. He bared his breast. He told us what really motivated his political actions. I think he believes it.

If he does believe it—I have asked him this twice, and I hope he will seek to answer—if the £5,000-a-year man is suffering great financial difficulties and strains, what does he think about the £1,000-a-year man? Would he not agree that the £1,000 a year man is suffering correspondingly even greater strains and difficulties? I hope he will tell us about it. Or what about the £500-a-year man? Or what about the old-age pensioner?

If the Chancellor really meant what he said about the £5,000-a-year man, then, of course, the logic is that those who are earning considerably less than £5,000-a-year, with no capital to draw on, with no business expenses, with no perks, with no capital gains, are obviously a great deal worse off. That, of course, should have motivated his Budget. If the £5,000-a-year man is so badly off, how does he justify the additional social charges imposed this year, and imposed under his direction, on the 20 million earning a great deal less than £5,000-a-year.

This question has, of course, to be judged against recent earnings figures published by the Ministry of Labour. Nearly one in five of the working population of this country, 18 per cent., in fact, of the manual workers of this country, earn less than £11 a week. That is just over £500 a year; not £5,000, but £500. Another 10 per cent. earn between £11 and £12 a week; another tenth earn between £12 and £13; yet another between £13 and £14. In other words, half of the manual workers earn less than £14 a week, £700 a year. Nothing is done for them at all in this Budget, and yet we are asked to vote for the proposition, that this Clause stand part of the Bill, a Clause which limits all its benefits to a very small section of the community. Half the manual workers earn less than £700 a year.

10.45 p.m.

Why is it that we have this Clause? I hope that the Chancellor will tear the veil aside once more. I hope that he will take us into his confidence. It will probably be a late hour when he does it, and that is usually the time when he feels inspired and tells us a little about his innermost thoughts. I hope that he will tell us how he justifies his argument about the £5,000-a-year man on the one hand and the 10 million workers who get less than £700 a year on the other. Up till now—perhaps this is an unworthy suspicion, in which case I shall be glad if the right hon. and learned Gentleman can dispel it—my impression is that the Chancellor and hon. Members opposite look upon the people of this country as first-class, second-class and third-class citizens, and they demonstrate their sympathy with the £5,000-a-year man, because he is a first-class citizen, and apply different standards to the second and third-class citizens. This Clause is the pay-off for the first-class citizens.

The attitude of hon. Members opposite reminds me of what happened in the old days when a stage coach was going uphill. The first-class passenger sat where he was and rode; the second-class passenger got out and walked, and the third-class passenger got out and pushed. That is the attitude which the Chancellor and his hon. Friends have displayed in this Bill.

One thing that will not have escaped the notice of my hon. Friends is that this year has seen a greater reallocation of income between rich and poor, to the benefit of the rich, than in all the years since the war. We are now reaching the stage where there are lavish and conspicuous differences developing and increasing all the time, between the wealthy and the less wealthy sections of the community. We can think of many examples. This is partly due to the extremely large capital gains in the last few months; partly due to land speculation, which has reached fantastic levels; partly due to continued tax avoidance, and partly due to expectations under this Clause.

We read of more and more examples of indefensible but lavish expenditure on the part of a very small section of the community. Only last week I read in the Daily Express social diary an account of a party, somewhere in Regents Park, which must have cost tens of thousands of pounds. All the details were given of the way in which the most expensive foods were flown in from all parts of the Continent and other parts of the world, and there was a full account of the way in which entertainers and bandsmen, and also chefs, were brought in from many other countries—all for one party for a small number of people to enjoy themselves. All that is being financed by the Surtax payers whom the Chancellor is helping, or it is coming out of capital gains.

I now turn to something that the Chancellor has not dealt with. This may appear amusing to hon. Member's opposite, but it is not amusing when we contrast it with the letters quoted by my hon. Friend the Member for Cannock (Miss Lee) a short while ago. If there is any social justice in the minds of hon. Members opposite, they will not seek to justify this lavish expenditure going on when the Minister of Health can say, month after month, that the Government cannot afford to provide cars for paraplegic ex-miners. The Chancellor is encouraging this great contrast in living standards in this Clause.

Since I have mentioned the question of social justice, perhaps I should refer to two aspects of the Clause which are particularly unworthy, in the application of a bad principle in an unjust way. It is not only that the Clause is basically unjust; its other unjust aspect is that the Chancellor has drawn it with no regard to need. The biggest benefits go to the single man. The Chancellor does not even draw a proper distinction between Surtax payers at any level, in the matter of social needs and commitments.

Secondly, although the rubric to this Clause reads: "Surtax: reliefs for earned income," it contains specific concessions to those who have unearned incomes. The simple point put by my right hon. Friend the Member for Battersea, North (Mr. Jay) illustrated this. He pointed out that the £1,500-a-year man whose income is all earned gains nothing from the Bill, but if that man has another £1,500 unearned income he gains a great deal—about £40 a year. I am sorry. One has, I think, to get up to £10,000 a year before getting something approaching £40 a week from this Budget.

But, of course, those who make the biggest gains as a result of the Chancellor's tenderness to the people with unearned income—despite all that was said by the noble Lord the Member for Dorset, South—are those who have large capital holdings. People with large capital holdings stand to make more capital gains, because it is true that over the past few years the wealth of this country has been distributed with more and greater inequality.

Recently we have had authoritative figures. This Clause refers to persons in the main earning £2,000 a year and upwards. For those with incomes of £2,000 a year the average holding of capital is probably as much as ten years' income. The assessments made suggest that the average person earning £2,000 a year and upwards owns £20,000 worth of capital. On top of what he gets from the Chancellor he has the possibility of drawing capital gains, and probably gets them.

At the top of the pyramid of this property-owning democracy there are about 20,000 people owning more than £100,000 of capital each and with an average holding of over £500,000. At the bottom of the pyramid we have 16,000 property-owning democrats who have less than £100 each and on average less than £50. It is to the top few that the Chancellor is making his tax concessions in this Clause. May I remind the Chancellor that 1 per cent. of the British adults own 43 per cent. of the total net capital of the country, with the top 10 per cent. of our people owning 79 per cent. of the total capital of the country. This shows a more unequal capital distribution even than in the United States. We can see that the Chancellor by the provisions of this Clause and by the people he is helping by tax concessions is not making concessions to those who should have been his first consideration.

We have also to judge the Clause against the question of capital holdings. I think I have said enough to show, and I do not think that any hon. Member will contest it, that there is no claim of social justice in Clause 11. So now I turn to the other big argument, the question of incentives.

As my hon. Friend the Member for Cannock said earlier, this is the great argument about which we heard so much and which was widely put around, that we should have a new look at our fiscal affairs and sweeping reductions in Surtax in order to help the exporters. What was it that the Financial Secretary said tonight—"to give the economy a boost."

Referring in his Budget broadcast to the people who would be helped, the Chancellor said: …they are a very important section of the community from the point of view of our productive effort…And I think this very high rate of tax, on people in that salary range, really has been a great disincentive to effort, and it is upon the effort of these people—the managers, the scientists, the technologists, the business men, the exporters, upon them that so very much depends—the well-being of us all. That was the argument of the right hon. and learned Gentleman, and we have had still more imaginative arguments put forward about how this was going to operate. I do not apologise for reminding the Committee again of the moving words of the hon. Member for Twickenham (Mr. Gresham Cooke) during the Budget debate, when he gave top executives a lecture on the hour at which they should rise. He said: 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 at Woking Station at 9 o'clock. I am glad that the hon. Member has just come in and is coming on to the night shift. I know he will not mind my quoting his words because they are imperishable. He said: However, I think the Surtax remission will encourage the younger executives to get on and get up earlier—". At which point my hon. Friend the Member for Gloucestershire, West (Mr. Loughlin) intervened, rather irreverently I thought, and said: Give them alarm clocks. It will be cheaper."—[OFFICIAL REPORT, 19th April, 1961; Vol. 638, c. 1217.] We have all had our bit of fun with the hon. Member's quotation. I did by drawing a picture of the knockers-up migrating from Lancashire to Surrey to knock up these people at 7 o'clock in the morning.

I hope the hon. Member will catch your eye, Mr. Thomas, tonight. I wonder if he could tell us what it is like on Woking Station these days. I wonder if he could tell us whether as a result of the Budget having gone through with a substantial majority and the prospects that Clause 11 might in due course also get a favourable vote in the Committee—although we shall do our best to stop it—that Woking Station is now a desert at 9 o'clock and the 7 o'clock Surtax specials are crowded with businessmen standing in the corridors. I hope that he will tell us about this, because he waxed very enthusiastic during the Budget debate.

The truth is, as we have often argued, that not all Surtax payers are production engineers, scientists or exporters. The Economic Secretary to the Treasury told us something about Schedule D Surtax payers. He went through a long list which included provincial shopkeepers. Are they working harder? Is that to increase our exports? They are estimable people. Some of our best friends are provincial shopkeepers, but will they increase exports because they will be paying less in Surtax? He mentioned doctors. It might be a very serious thing if doctors worked too hard to get money and were in any way to fail to treat their patients properly. He mentioned, most oddly, petrol station proprietors. Are they to work harder because of the Surtax concession? I do not want to be unfair to anyone, but I should think it a rather odd system of social priorities that the petrol station proprietor should be helped and the teachers should be so badly paid. The Chancellor is responsible for both these things. Are they the key men of the economy?

Even if we accept the argument that Surtax cuts provide an incentive, we cannot divorce the incentive from the social structure of the economy. We are building up a social structure which year by year is becoming more irresponsible and irrelevant; the problems we are faced with in giving more incentive to work harder and give the boost to the economy that the Financial Secretary was talking about.

11.0 p.m.

We read in the Press a week or two ago that skilled shipbuilding workers were leaving the Clyde to seek employment in Hamburg because our British shipbuilding industry—despite the injection of £18 million public money into it—cannot organise itself with sufficient intelligence and efficiency to provide work for those skilled men. We are losing them because there is no work for them here.

But we are bringing skilled men and skilled organisers into the country, because we read at the same time that the Ministry of Labour was granting labour permits to bring over distinguished Frenchmen, skilled in their trade—croupiers—for the establishment of gambling saloons in this country. That is our system of priorities. We are running down one of our industries providing employment for skilled men and building up another. If we provide by the Clause incentives to people to do more gambling—I am not referring to the Stock Exchange or anything like that; I am talking about the new gambling industry which has been set up, not the old—is the Chancellor really going to say that his proposal will increase our exports, production and investments, make the country more dynamic, and increase the application of scientific discovery to industry? Of course it will not. The whole thing is humbug.

While I am on incentives, I will mention the extraordinary thing unearthed in a debate earlier today, namely, the problem of the retrospective incentives under Schedule D. The right hon. and learned Gentleman told us in the Budget speech that he was sorry but he could not apply it this year. He said that it had to apply the following year because incentives must relate to the future and, therefore, income earned in 1961–62 will begin to qualify for the relief the following year.

We pointed out that the very substantial number of Surtax payers who are assessed under Schedule D, who include all those who make profits from a trade or profession—many professional men, traders and others, and many people who can already do very well out of tax avoidance—will be getting this enormous tax relief on income they earned last year. The right hon. and learned Gentleman has been trying to maintain the extraordinary proposition that incentives under Schedule D can be retrospective in character.

We therefore asked what the Chancellor thinks the Clause will do to increase investment in industry, to increase the use of science, to get the economy off the ground, and to overcome stagnation. If the Chancellor of the Exchequer really believes that the Clause will get Britain's economy off the ground and into the rhythm of steady expansion by an internal tax redistribution of this kind, it is rather like thinking that he can hoist himself into space by jacking up his own braces. That is the appropriate analogy.

We intend that the Clause shall be fully debated. We deliberately restricted the number of Amendments we tabled. It is obvious that we could have tabled 100 Amendments to the Clause. We could have attempted to temper its effects and make it a little more socially just. It is fundamentally an unjust Clause and an economic irrelevance. For that reason, we shall vote against it in the Lobby tonight. I hope that my hon. Friends will not be backward in expressing their views on the relevance of the Clause, not only to the present state of the economy, but to the social measures introduced by the Government earlier this year.

Mr. William Hamilton (Fife, West)

I can understand the reluctance of some of my hon. Friends. They are due to come on at twelve o'clock, or at one or two o'clock in the morning. Therefore, I want to step into the breach. Whatever case can be made out for the relief of Surtax payers, it cannot possibly be sustained in the context of our national economy at this time. The context which the right hon. and learned Gentleman outlined in his Budget speech was that of an economy with inflationary tendencies and one in which prices were likely to rise. We have had some indications of price rises in recent days, with rises in the price of tobacco and bread, and with increases in rents and rates. These are all tendencies which the right hon. and learned Gentleman said he feared. Our production is lagging behind that of our competitors. Our exports are likewise lagging behind those of our international competitors. The Chancellor's share, as the Daily Mail expressed in an editorial article on 18th April, was to cut spending, although without cutting too deeply into home prosperity. This article said he had cut spending already but had also put a nice bit back into the pockets and the bank accounts of the Surtax payers.

I want tonight to examine why this concession is possible, what are the reasons for it, and why it has been introduced at this particular time. It is possible, as my right hon. Friend has just said, by having taken cash from the blind man's hat. That is what has happened, because in recent months money has been taken from the sick, the old and the lower paid workers; and it is now being put into the hands of people who we think already have far too much.

When I think of the Financial Secretary to the Treasury—who gets far more compliments than he deserves—I recall what he said during the Second Reading of the National Health Service Contributions Bill last February. He then said: …I am sure that the Government have been right to show at the earliest possible moment that they were fully prepared, without delay, to take unpopular measures in order to leave room in our economy for those other demands on our national resources—exports, capital investment, and so on—which are so vital to our national well-being."—[OFFICIAL REPORT, 15th February, 1961; Vol. 634, c. 1423.] That was the quotation to which I think my right hon. Friend referred in that debate when he said we feared that those impositions on the lower-paid workers and the sick were the forerunner of the pay-off in this particular Clause. Later on we shall be discussing the pay-roll tax, but this is the pay-off tax. We say that the way was prepared in that earlier Bill, introduced by the Minister of Health, and let me in passing say that he will be one of those who will benefit from these Surtax proposals. Is his production going up as a result of these concessions? Is he going to bring in another Bill to justify the concessions he has got? God forbid. But it is in that sort of context that we are discussing this matter tonight.

The Guardian stated recently that it wondered what were the Government's motives in imposing these charges. If, as my right hon. Friend says, the objective was to make way for a direct cut in taxation, there would rapidly be a first class political row. How right that is. How right it is that we should have this all-night and, I hope, all-to-morrow morning debate.

An hon. Member

There is an Adjournment Motion.

Mr. Hamilton

There will be no Adjournment debate before to-morrow afternoon. I hope my hon. Friend has backed a loser.

Mr. R. J. Mellish (Bermondsey)

I am on a winner when I get to it.

Mr. Hamilton

When this proposition was put forward in the Budget debates that this concession to the Surtax payers was being paid for from money got previously through the National Health Service Contributions Bill, the Government spokesmen said that we were quite wrong. They said they were proposing a 2½ per cent. increase in Profits Tax and that that took account of the Surtax proposals. But, of course, it does nothing of the kind.

But it does nothing of the kind. The Profits Tax increase will bring in £70 million in a full year and this Surtax concession will cost £83 million in a full year, which means that there is a discrepancy of £13 million. But even if we accept that proposition, we should infinitely have preferred a capital gains tax. I admit that had there been a capital gains tax the attitude of many hon. Members on this side of the Committee might have been tempered somewhat towards the Surtax proposals—had the one been paid for by the other.

When he defended that charge the Financial Secretary to the Treasury commented on the fairness of the editorial of the Guardian and said that it was a sensible non-political approach to the problem. But the Guardian also said: This Budget will place Mr. Lloyd in the centre of political controversy. The big concessions that he has made to Surtax payers, unmatched by any reliefs to those at the lower end of the income scale, lay him wide open to attack from the left. For the first time since the Conservatives took office in 1951 a Chancellor of the Exchequer has chosen to move sharply against the strong current of opinion in favour of greater social equality. That is our complaint. One cannot divorce these concessions from the social context in which they are made. What are the purposes? I have read the reports of the debates both on the Budget and on the Second Reading of this Bill, and the variety of the reasons advanced by hon. Members opposite is astonishing. Some of them are quite blatantly contradictory. May I take the example of the Financial Secretary to the Treasury? He referred to a speech by my hon. Friend the Member for Jarrow (Mr. Ferneyhough) about the priorities to which a civilised community ought to have regard—maintaining minimum standards of social welfare, for example. The Financial Secretary said: …when I consider the rising curve, in real terms of expenditure on National Assistance in recent years, I cannot help thinking that Britain today comes off fairly well by this test."—[OFFICIAL REPORT, 20th April, 1961; Vol. 638, c. 1422.] In other words, he said that we are doing very well by the people who are drawing lavish amounts of National Assistance and therefore we should not begrudge £83 million in Surtax concessions to 300,000 people in the top income brackets. This seems to me to be an uncivilised argument for him to use, although no doubt he produced it in very civilised terms from the Front Bench. He is a great expert at that, and we have many similar experts on the Government Front Bench.

He, too, referred to the Guardian editorial in quite approving terms. But he should remember that that editorial said that it would have been far better—as I have said tonight—if this proposal had been coupled with a capital gains tax, and it also referred to the trend away from greater social equality.

On the other hand, the hon. Member for Scarborough and Whitby (Sir A. Spearman) did not attempt to defend the concessions on social grounds. He said: …my right hon. and learned Friend seems to be striking at poverty rather than at inequality. I do not believe that the nation as a whole minds very much.…"—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1693–94.] I am not sure what he meant by that, unless it was that the Surtax payers were poverty stricken and he was taking the Chancellor's words at their face value when he referred to the "pauper on £5,000 a year."

11.15 p.m.

The hon. Member for the Isle of Ely (Sir H. Legge-Bourke) was much franker. He did not defend the concession on social grounds at all. He said during the Second Reading debate of this Bill: I think that there is a genuine feeling among some hon. Gentlemen opposite that the principal object of a Budget is to do social justice, and therefore, because that is the principal object of a Budget, it must also be the object of a subsequent Finance Bill. There are other hon. Members—and I count myself as one of them—who believe that the purpose of a Budget and of the subsequent Finance Bill is totally different."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1706.] In other words, he was saying that the Budget has nothing to do with social justice at all.

But the President of the Board of Trade does not agree. He used the words quoted by my right hon. Friend, that this was an act of social justice that was, if anything, overdue. Does he still adhere to that view? Does he still think that this is an act of social justice? Does he also say that it was an act of social justice to charge 2s. an item for prescriptions and to increase the National Health contribution by 10d. a week to the man earning £8 a week? Does he say that they are acts of social justice? I should like him to say. Why does he not do so? He does not answer, and I am not surprised.

The Economic Secretary to the Treasury did not use this argument about social justice. He said: It is a Budget of resolute purpose…it is to contain inflation, to moderate the growth of home demand…."—[OFFICIAL REPORT, 19th April, 1961; Vol. 638, c. 1178.] —but not the home demand of the Surtax payers. It is the home demand of other people—people from whom the Government take £49 million in increased National Health contributions. These are the people who have got to restrict their demand. The Government take £53 million from them and give £83 million to the Surtax payers. That is why they are restricting home demand.

This argument of social justice has not been used today by any hon. Member, as far as I recollect. The great argument today, and one of the arguments of the Chancellor, was that of incentives. That is the thing—give these fellows something to work for. That was supported by the hon. Member for Louth (Mr. C. Osborne), one of the biggest droppers of bricks in this House—[HON. MEMBERS: "Oh."]—well, excluding the Government Front Bench. The hon. Member for Louth used these words, quoting from a Soviet document: 'Those who do more for society get more in return.' That is the best defence that I have found for what the Chancellor is doing in his Surtax proposals."—[OFFICIAL REPORT, 20th April, 1961; Vol. 63, c. 1474.] As he said that I looked at the benches opposite where a lot of the beneficiaries sit and I thought to myself, "If these are the fellows who are doing most for the country, then God help the country." I recall that one of them is the hon. Member for Wimbledon (Sir C. Black); he is one of the prime beneficiaries of this concession, and there are many more like him. He has never put in an appearance today. There has been no increased production from him as a result of these reliefs. Very few of them have been here. One would have expected the Chamber to be packed with the beneficiaries. Not a bit. They are on the trains back to Woking.

There are those who will benefit but whose production I do not want to increase. I include the lawyers among them. The Chancellor will appreciate that point. I want their production to be completely stultified. The multiple director will benefit. I have mentioned one, the hon. Member for Wimbledon, and there are many more on the benches opposite—most of them in their positions not by any test of intelligence but as a result of their social standing, by being born in the right bed. The test is not one of ability.

The idea of giving incentives to the people who matter was contradicted somewhat by a great expert on that side of the Committee, who also will benefit from these concessions, the hon. Member for Portsmouth, Langstone (Mr. Stevens). He has not put in an appearance today. The hon. Gentleman said, referring to the argument about disincentives, On this side, we are inclined to exaggerate the effect from time to time."—[OFFICIAL REPORT, 18th April, 1961; Vol. 638, c. 1045] Obviously, the hon. Gentleman had been reading the Report of the Royal Commission. That is precisely what the Royal Commission said. There is no evidence to suggest that high taxation is a disincentive to increased production. I go further and say that it is probably more true of professional people than of any others that they take a pride in their work out of all proportion to the material benefits they receive. I know of doctors, consultants and others working in our hospitals who seem to pay no regard to their earnings. I was talking to a consultant in a maternity home in my constituency a few months ago who had been working for eight weeks solidly without as much as a half-day off. I am certain that he is in the Surtax range. What regard has he for these Surtax reliefs? What regard have people like that for what is in this Clause?—none whatever. The argument about the materialistic approach of these professional people is an insult to them. In any case, assuming that we are all motivated by base calculations of material reward, why single out 300,000 for this huge concession?

The economic problems we face in production and exports are national problems to be solved by a united nation, by team work. In my view, the Government's Surtax concessions go a very long way to destroying that possibility. The Daily Sketch, a paper I do not usually read—no one on this side will blame me for that—in an editorial on 18th April said: Mr. Lloyd's Budget emphasises the division of our working population into two groups, not the old-fashioned landlords and peasants but a potentially more dangerous division. On the one hand, he sees the wage earners who have no direct responsibility for the development of the enterprises which employ them. They draw their weekly pay packets, accept the deductions of P.A.Y.E., and are untouched by Schedule D assessments, expense accounts and capital gains. On the other hand, he sees the policy makers of industry, the managers, the scientists, the salesmen. These are the only people, Mr. Lloyd implies, upon whom Britain's development entirely depends. It is not simply that surtax payers get an incentive bonus and the average wage-earner gets nothing from the Budget. On the evidence of his own pessimistic report, it is a wonder Mr. Lloyd gave anything to anyone. The disturbing feature is his obsession with manipulating and controlling business as if that were the only source of our power and effort. As if nobody else requires enlisting when there is a need to boost the national effort. That attitude is summed up in the never-to-be-forgotten remarks of the Chancellor himself—that this miserable fellow on £5,000 a year gross is not rich and cannot educate his children and save. On that assumption we are a more illiterate nation than Nicaragua. The Chancellor says, "You fellows have to come up to date. You do not know the problems of these people on £5,000 a year." Let him come and live with me for a week and I will show him how to live on a fraction of £5,000 a year. The right hon. and learned Gentleman does not know how the ordinary people live. He has not a clue.

In the same part of that immortal speech the right hon. and learned Gentleman asserted that we were out of touch and out of date—as out of date as he himself was in his rôle at Suez. Indeed, this is the mentality of Suez carried into the domestic economic front, a harking back to the gross inequalities and the imperialist jingoism of the nineteenth century. [Interruption.] If the hon. Gentleman has something to say, perhaps he would care to get to his feet and repeat it.

Mr. William Yates (The Wrekin)

I am sorry. I was asking the hon. Member to throw a double-six.

Mr. Hamilton

The hon. Gentleman had better go to sleep again. His contribution will be much more appreciated at the bar than it is here.

Having talked about incentives and hardship to the £5,000 a year man, the Chancellor has sought to defend his proposal on moral grounds. Recently we have had rumours that he has been converted to a movement called Moral Rearmament. It would be interesting to know whether his conversion occurred before or after his Surtax proposals. I see the Chancellor shaking his head, but some of his hon. Friends are very concerned about this—and they have a jolly good right to be. We should like to know when his conversion took place because it is certainly probable that his proposals will help the financiers of that dubious organisation and replenish its coffers somewhat. There is no doubt about that.

11.30 p.m.

The Chancellor went on to talk about the incentives to many people in the managerial and professional classes who are now suffering from a substantial disincentive. Did he ever consider this proposition before he formulated this Clause? There are in the United Kingdom roughly as many teachers as there are Surtax payers. Which is the more important section—the 300,000 Surtax payers or the 300,000 teachers? He knows as well as we do that the negotiations on teachers' salaries have reached ignition point. He knows that for the first time in the history of their profession the teachers are threatening strike action. Why? It is because the Treasury has imposed an upper limit of £50 million a year on their wage increase, or just over half of what is being given to the Surtax payers in a full year. Does he regard the disincentive to the teachers as being a more important and vital thing than the disincentive to the 300,000 Surtax payers?

What about the miners? There are about 650,000 of them. Of what use would be the managers and the scientists and all the people about whom the right hon. and learned Gentleman is so concerned if we did not have the coal? But if those miners had put in a wage claim for a flat-rate increase of about £2 a week, which would make a total wage demand of about £70 million a year, I can imagine the fury that would have been generated on that side of the Committee about the inflationary tendencies and the wicked irresponsibility of the claim.

One could mention innumerable classes of people whose case is infinitely more deserving, socially and economically, than that of the 300,000 Surtax payers who are now being helped—social welfare workers, nurses, firemen, old-age pensioners. One could go on almost endlessly, and the more one considers the possible alternative uses of this money the more one is appalled by the Government's criminal folly and callous effrontery.

There is, however, one possible explanation for this move that I have not yet heard advanced but which is probably more relevant than many people think. Part of the explanation lies in the internal politics of the Conservative Party. This is the pay-off, designed to satisfy the many and varied dissident elements in the Tory Party; the rebels who are howling for the blood, for instance, of the Colonial Secretary over Africa; the rebels who are screaming for more flogging, for more capital punishment, for more imprisonment; the rebels who have for years been bleating about Schedule A; who have been bleating for free drugs for private patients, for the shutting of doors to coloured immigrants from the Commonwealth.

These people have found themselves on the barren ground. Their bloodcurdling yells have, as yet, had no effect. Their thirst for blood has been slaked by gold. That is part of the explanation of the Clause—the buying-off of the dissident elements in the Tory Party. The Chancellor has put himself well into the running to qualify with the Home Secretary for the title of the best Prime Minister we never had. The Surtax proposals are relevant only in that context and understandable only in that context. From the point of view of the national economy they are a monstrous irrelevance. I find that the workers, certainly in my constituency, are angry and cynical about the whole affair.

In a short while we will have debates on the Floor of the House about Scottish affairs—a sign that the Ascot season is with us. We will see the top-hatted Surtax beneficiaries parading at Ascot, increasing their productivities, solving the nation's difficulties and the Chancellor saying, "You have to get your priorities right; you have to come up to modern thinking; you have to face the facts of life and realise that these poor top-hatted fellows at Ascot on their £5,000-a-year pittance have to get £83 million a year out of the old-age pensioners, out of the chronic sick, out of the £8-a-week and £10-a-week workers."

Those are the priorities, and they are worse than the priorities of darkest Africa. The right hon. and learned Gentleman should now seek to join Mau Mau. The priorities of Mau Mau are more civilised than these. The right hon. and learned Gentleman ought to be ashamed of himself and ought to go and bury his head—and this Bill with it.

Mr. Denis Howell (Birmingham, Small Heath)

I congratulate my hon. Friend the Member for Fife, West (Mr. W. Hamilton) on the eloquent way in which he has put the Opposition's social priorities on so many fronts.

One of the aspects of the economic state of the country which worries some of us is the continued desire to elevate the usurer, the wide boy, the spivs of our society to a position out of all proportion to their service to society and, conversely, at the same time to relegate the dedicated, those in the public service as compared with those with private interests. This is an extremely important piece of social philosophy, for the Budget carries this process one step further.

Many people in the public sector of our national life are dedicated—teachers, those in the hospital service, nurses, doctors, those in the local authority services, firemen, policemen, public health inspectors. But there is a growing resentment and cynicism among those people about the lack of priorities which the Government give to them and which is badly contrasted by the priorities given to the Surtax payers and others making considerable sums of money. I would draw the attention of the Committee at this stage in particular to the incentive argument and to the hon. Member for Carlton (Sir K. Pickthorn), who reposes on the back bench on the opposite side of the Committee. No doubt the Committee will note the added incentive the Surtax concession has for him. It does not make him add a much more intelligent part to our affairs.

Mr. H. Wilson

My hon. Friend must understand that that hon. Member has to be at a Woking Station at a very early hour of the morning.

Sir Kenneth Pickthorn (Carlton)

Would the right hon. Gentleman kindly repeat his words, which were the only ones I have not heard in this debate so far? Would he kindly tell me?

Mr. Howell

Would the hon. Member kindly repeat his words?

Sir K. Pickthorn

I always do my best to keep my eyes, if not my ears, from the hon. Member.

Mr. Howell

At any rate, I am glad to know that the hon. Member is with us on occasions.

The point I was making was that it is an extremely critical commentary upon the philosophy of this Government that when money is wanted by people in the public service doing a dedicated job, doing work on behalf of the health of the community, it is virtually impossible to get that money; as also it is to contrast that extreme difficulty with the readiness with which the Government make Surtax concessions available.

Think for a moment, for instance, of the nursing profession. Those of us who are engaged at all in work of a voluntary nature for the Health Service and hospitals are very worried about the intake of people of good quality into the Health Service—as we are very worried, too, about the intake of people of quality into the education service. When we think of the care of our sick, of the development of the characters of the youth of our country—

Mr. A. R. Wise (Rugby)

Would the hon. Member like to tell the Committee how many rises in pay the nursing profession have had since the Conservative Government got in?

Mrs. Harriet Slater (Stoke-on-Trent, North)

What a shocking wage it was—and is.

Mr. Howell

As chairman of one of the largest hospitals in Birmingham, I would say that everybody in the hospital service, irrespective of political belief, is extremely worried about the future of the Health Service and about caring for the sick. In Birmingham we are exteremely worried indeed about what incentive we are going to have to get people who are not in the Surtax grade to look after the sick in the future.

The point I am making is that, irrespective of the number of increases which nurses have had under the Conservative Administration since 1951, the undeniable fact is that there are fewer people entering the nursing profession today than for many years past.

Hon. Members


Mrs. Slater

Yes. And is it not true that if it were not for the very high unemployment in Ireland we should be without many of the nurses coming here?

Mr. Howell

I was not going to say that, but it is absolutely true and an interesting commentary upon other things, too, and upon what we get from the other side of the Committee, that if it were not for immigrant labour of one sort and another the whole of the hospital service of this country would have collapsed long ago. [HON. MEMBERS: "Nonsense"] These are facts of life. In response to the interjection of the hon. Member for The Wrekin (Mr. W. Yates), who said this would make me very happy, it does not make me happy at all. Those who have the job of trying to run the Health Service and are concerned about the future of the hospital service, anybody who has any experience of hospital administration, is extremely worried about the future and about what is going to happen. I happen to be the chairman of a Birmingham general hospital with 1,000 beds. Conditions are very bad there. In none of our wards at the moment—wards which should have no more than 28 patients each—are there less than 36 patients, and very often 38 or even 40. How can we expect young dedicated girls to nurse 38 or 40 patients, many of whom are in a very serious condition? I am talking of the Dudley Road Hospital, Birmingham.

11.45 p.m.

If the hon. Member for Dorset, South (Viscount Hinchingbrooke) wants to say something intelligent for a change I am willing to give way.

Mr. John McCann (Rochdale)

He is asleep.

Mr. Howell

What he says when he is asleep might be more enlightening than what he says when he is awake. We are extremely concerned to know how we can get people into the public service. I have illustrated this fact by talking about the hospital and nursing service, but it applies throughout the public service. What sort of impression is made upon these young girls who are doing magnificent work—working for twenty-four hours at a time and nursing up to 40 people at a time—when they find they are expected to pay more in National Health contributions and when their friends and patients whom they have managed to nurse back to health have to pay additional prescription charges when they return to society?

Mr. Wise

Is it possible to relate the distressing conditions in this hospital in Birmingham—of which the hon. Member is chairman—to the terms of the Clause?

The Chairman (Sir Gordon Touche)

The hon. Member is entitled to point it out, but he must not go too far into the question of the conditions in hospitals on the Question "That the Clause stand part of the Bill".

Mr. Howell

It would be wrong to burden the Committee at this or any other time with the detailed problems of the Dudley Road Hospital when we are discussing the Question "That the Clause stand part of the Bill", but it is pertinent to point out the way in which the philosophy of making money available to Surtax payers which should be made available to people in the public service is undermining the whole structure of that service. It is indicative of the very outdated, Victorian social philosophy which we are now discussing. There is tremendous resentment throughout the National Health Service at the fact that the Government have got their priorities entirely wrong.

Lest the hon. Member for Rugby (Mr. Wise) should think that I have an undue influence on the situation at the Dudley Road Hospital—not entirely a beneficial influence to judge from his remarks about the distressing situation there—I hasten to add that, although I happen to be the chairman, there is a Conservative majority. But we would all agree that the important factor which we have to consider is the problem of getting more nurses into the nursing service. This is bound up with the question of of the kind of rewards that should be given in our society. Are we in Budget after Budget to say to the best of the people coming from our schools, and even universities, that the rewards that society has to offer them can best be found in private industry and not in the public service? This is what the Government are continually saying. If people want to do themselves well in financial terms, if they want £5,000 a year or more in order to bring up their children, they ought not to go into the public sector of industry.

It is true also of the teaching profession. We are extremely worried that the whole future of the youth of the country is in the hands of people who feel that they are dedicated and doing a first-class job but that their activities are not appreciated and recognised in the most important way in which the community can recognise such service, and that is by financial reward. When the Secretary of State for Scotland is resisting claims for increased salaries for teachers, when local authorities have to contend with the block grant system which so adversely affects local government, can we wonder at the tremendous resentment in the teaching profession over the disparity of treatment as between their pay and the financial rewards for Surtax payers who are the only beneficiaries from this Budget?

These are matters of great concern to us all. If we serve as members of local authorities, or as governors of schools or on hospital management committees, we must agree, if we are honest, that there is tremendous resentment felt by people who consider that they are giving valuable service and who see all the time the monetary rewards going to the "spivs", the "drones" and the "wide boys" who are continually encouraged by hon. Members opposite.

We have heard a lot about incentives, and there would be something to be said for these proposals if they did provide incentives for business men. We should be concerned about the fact that so many business men do not seem to have any idea about how to make either themselves or their business more efficient. [Laughter.] Hon. Members opposite may laugh, but the fact is that there are far too many businesses in this country, particularly smaller businesses, and, I am sorry to say, some family businesses, where the desire of the people at the top is to take a certain amount from the business each year. So long as they can get the £2,000, £3,000 or £4,000, or whatever the figure may be, from the business they do not care a hoot whether the business is modernised or efficient or whether they increase the sale of their products.

As an industrial nation, one of our greatest difficulties in the future will be caused by the apathetic attitude of some business men who are not blazing a trail round the world selling British goods as they ought to be and securing a greater share of the markets abroad. But, irrespective of their efficiency or lack of it, they will receive the incentives provided in this Clause. It is wrong that people in the Surtax bracket should be helped irrespective of their business efficiency. This blanket method of helping Surtax payers is entirely parallel with the general provision of incentives in industry and the increasing of efficiency in industry.

The people I have been talking about in the public services, dedicated folk who have not had the opportunity to amass great wealth, are very bitter indeed about those who can make tremendous capital gains entirely tax free. People who have been in teaching all their working lives, or in local government or the health services, have not had an opportunity to make capital gains, but they see the Government continually refusing to tax those who have made such gains while at the same time making it difficult for capital to be found for an improvement of the public services. This is another commentary on the policy of the Government, and the reason why we should object strongly to this Clause.

Above all, I found in the Small Heath by-election, which I contested, a tremendous resentment among the working-class and the middle-class that the priorities of this Government were stated in such a way that Surtax payers could be given vast reliefs at the very moment when the old folk were denied and the sick were penalised. What sort of a society is it that in these times of difficulty the Government should deny the old people and penalise the sick yet three months later should make vast Surtax concessions of this sort? Consider the plight of the old. Time after time they complained to me in Small Heath, not only that they had to wait for six months to receive the miserable 7s. 6d. rise in their pension—they had to wait all through the winter—but when they got it they found they were worse off because 4s. 6d. was taken off the National Assistance payment. A 7s. 6d. increase was given with one hand and 4s. 6d. was taken away with the other. These are the facts of life. I do not know what the hon. Member opposite is saying.

Mr. W. Yates

I was saying that exactly the same proposition applied when the Labour Government were in power.

Mr. Jay

That shows how ignorant the hon. Member is of the facts, because when the old-age pension was raised in 1951 the National Assistance rates were raised by the same amount.

Mr. Yates

The hon. Member may have that.

Mr. Howell

The hon. Member has withdrawn his interjection and I can pass on. Even if what he said was true, we have had ten years of Conservatism—do we not know it! We must never forget that 1961, the year when the Surtax payer can be relieved of tax on an income of £5,000 a year, is the same year in which the old-age pensioner, the worst off member of our society, had a 7s. 6d. increase from which 4s. 6d. was deducted as a result of the deduction in the National Assistance rate. Are hon. Members opposite pleased at that comparison? Do they think when they try to boost the moral basis of our country that those are the sort of facts on which we should base our expansion?

It has been suggested that the Chancellor of the Exchequer has gone over to M.R.A. I do not know if he has, but if so, it may have the beneficial result that we shall have absolute honesty. If we are to have a Chancellor wedded to the philosophy of absolute honesty, we may get rather more intelligent and revealing answers in future debates than we have had from him in past debates. Whatever we may think of M.R.A., if the Chancellor supports the tenets of absolute honesty and is a man of personal integrity, he will no doubt be able to tell us exactly how he reconciles giving Surtax concessions on this scale whilst at the same time reducing National Assistance payments to old-age pensioners receiving National Assistance. This is a social comparison which should be justified by hon. Members opposite.

12 p.m.

There are many people who need prescriptions to keep going. One can think of many such cases. We have debated the plight of diabetics many times. They need 5, 6 or 7 items on their prescriptions, and must have them continuously for the rest of their lives. They now have to pay 10s., 12s. or 14s. every time they take a prescription to a chemist's shop. This is the comparison which people make. It is far more revealing than any speeches made on either side of the Committee.

One of the things for which I was grateful when I fought the Small Heath by-election was that it coincided with an epidemic of measles. It did not require speeches by me to bring home to the constituents the disastrous nature of the Government's policy on the Health Service. They were faced with the disastrous consequences every time they went to the chemist's shop to get the requisite medications.

Mr. Wise

Does it take measles to make people vote Socialist?

Mr. Howell

It may not take measles to make people vote Socialist, but at any rate the illnesses which inflict the supporters of our party are of a general physical nature and not of a psychiatric nature. The nature of the Government's policy will be brought home to people day in day out as they take prescriptions to chemists, and therefore they are likely to draw more sensible conclusions at the next general election than they did at the last.

Other hon. Members want to speak. If the right hon. and learned Gentleman cannot give us replies which are couched in terms of absolute honesty and purity, we can speak again later in the debate. We on this side can all agree that the social philosophy and purpose embodied in the Budget and the Bill reveals now, as it has not been revealed for many years, the tremendous difference in out- look and philosophy between the two sides. It reveals the social relevance of the policies of the Labour Party to the social problems of the day. It reveals the complete irrelevance of Tory policies, and this Tory Budget in particular, to the needs of the community, to the needs of society, and to the needs and welfare of individual members of society. For these reasons, I hope that we shall vote against the Clause.

Sir John Barlow (Middleton and Prestwich)

We have heard so much about the iniquity of this Surtax concession that I want to bring the whole question into relevance and into its right perspective. Let the Committee not forget what this Government have done in the last ten years. They have done a tremendous amount for the lower paid workers. Ten years ago the single person's allowance was £110, but now it is £140. The married man's allowance at that time was £190, but now it is £240. The earned income relief was one-fifth, and now it is two-ninths—[AN HON. MEMBER: "Tell us about National Insurance charges."] The child's allowance was £70, now it is £100. Let us not forget that the standard rate of Income Tax was 9s. 6d. and that it is now 7s. 9d.

I consider that this Government have repeatedly helped the lower-paid worker, and those of us who are in industry know of the great difficulties which the young, up-and-coming executive, and the middle aged executive, have had.

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

On a point of order. Could I ask if it is not the tradition that if an hon. Member has an interest in the matter under discussion he will not be prevented from speaking and voting on that matter but that he must declare an interest?

The Chairman

Not when it is a general interest shared with the community; only when it is a special interest.

Sir J. Barlow

I was saying that the present standard rate of Income Tax is 7s. 9d. in the £ whereas ten years ago it was 9s. 6d. which shows clearly that this Government have helped, and rightly helped, the lower-paid people of our community. They helped them first and it is only right that the middle-aged executive should now have some concession.

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

After that brief interjection from the other side, I want also briefly to say that because of the very strong feeling in my constituency I am constrained even at this hour to say a few words by way of registering my protest against the Chancellor's proposal for this so-called incentive concession to the Surtax payers.

I would make it perfectly clear at the beginning that I am not against incentive concessions. I am in favour of them. What I am against is one-sided incentives. In his Budget speech the Chancellor quite rightly said that he wanted to stimulate and increase production from our industry. We all want to see that achieved, but I must say that the Chancellor has some strange idea that the only way in which he is likely to get that increased production is by giving the higher paid workers—the highly paid salaried people—this big Surtax concession. If anybody is to have an incentive, then surely it should be made generally for all concerned. I can see at least one hon. Member opposite nodding in agreement with me.

Mr. Loughlin

He is nodding in his sleep.

Mr. Hilton

No. This was a genuine nod of agreement. There is no question of his being asleep.

There are two sides to industry—the large majority, the workers, as well as the small minority who are being given this concession. It would not have been so bad if the workers had been ignored, but they are being asked to help to pay for the incentive concessions which the Chancellor is giving his wealthy friends.

I have reminded the House on many previous occasions that the majority of my constituents are farm workers. They could do with an incentive concession. No worker in this country has a better production record than the British farm worker, and if the Chancellor has some incentive concessions to give, what about giving these workers a little bit of a hand-out. We should not expect it to be on the lavish scale of the concessions to the Surtax payer, but let us spread this gift among all the people concerned with increasing production in this country.

May I remind hon. Members that the minimum agricultural wage of the British farm worker is still only £8 9s. for a 46-hour week.

Mr. Arthur Lewis (West Ham, North)

Can my hon. Friend describe how the farm worker must be suffering if the poor chap to whom the Chancellor referred finds it hard to manage on £5,000 a year? How does the farm worker manage on £8 a week?

Mr. Hilton

The question is how does a farm worker, married with one child, manage to live and bring up his family on £8 9s. a week. It is one of the miracles of our modern society. How the farm worker manages to live on that meagre wage is one of the miracles of our time. I do not know how the £5,000-a-year man manages. I have been a farm worker and know what it is to live on a farm worker's wage, but I have never been in the £5,000-a-year group and it is fairly certain that I shall never get there, and I shall never be able to describe to my hon. Friend how they live. The farm workers have to pay for this incentive concession which the Chancellor is generously handing out to his wealthy friends. We have heard a lot today about business expense allowances. Will the Chancellor tell us what expense allowance the British farm worker gets?

12.15 a.m.

We are told that business men get quite useful allowances for cars and such things. Nowadays a good many farm workers, despite their low wages, manage to acquire cars—and they are not all secondhand. Surely, in view of their good record of service to this country, nobody would deny that they are entitled to motor cars. But the Chancellor does not give an allowance to the farm worker with a car; he charges him an extra 50s. a year for his car licence. It is a one-way traffic. He helps to find money for incentive concession to Surtax payers.

We are told that approximately 300,000 people are likely to benefit from this Surtax incentive concession, and I do not think it would be difficult for the Chancellor to tell the Committee how many of those 300,000 are farm workers. However, I doubt whether a farm worker will come into this category.

I am sorry that the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) has left the Chamber, though I appreciate that he has been here a long time during this debate. He and other hon. Members opposite took exception to an expression used by my hon. Friend the Member for Gloucester (Mr. Diamond) and one or two other hon. Members on this side of the Committee when they referred to the "greed" of hon. Members opposite. The right hon. and learned Member for Hertfordshire, East was very indignant. I could not understand why he and his hon. Friends were so touchy about it. Is it not a fact that hon. Members opposite are displaying sheer greed in their attitude to this matter? What other interpretation can be put on their altitude?

After all, the party opposite to a man voted in favour of the increased prescription charges and the increases in the National Health contributions. Those impositions were designed to hit the lowest paid worker, the sick, the poor and the old-aged, and hit them very hard indeed. If any hon. Member opposite has any doubt about how they have hit some of the poorer sections of the community, I should like to quote from a letter received from one of my constituents. This is nothing novel, because there have already been quotations from letters by hon. Members on both sides of the Committee during this debate.

My constituent writes: As I am a diabetic I have several items to get at regular intervals each item a separate shilling…I also have eye drops so further increases will be a drain on a slender income. Further I have had both legs amputated and am registered as a blind person. That unfortunate constituent of mine is being punished to that extent by the action of the Minister of Health, supported by the Chancellor of the Exchequer and the Tory Party.

Mr. W. Yates

Did the hon. Member advise his constituent what to do?

Mr. Hilton

Yes, I advised my constituent on what she could do, but, as many of us know—particularly those of us who have had the unfortunate experience ourselves in the past—going to apply for National Assistance is not a pleasant thing to do. That person who wrote this letter to me is one of those proud persons who would prefer to suffer in silence rather than apply for National Assistance.

Mr. Yates

Did the hon. Member tell his constituent, as was his duty, that we pay taxes so that she could have National Assistance?

Mr. Hilton

Yes. But many people are still too proud to apply.

Hon. Members who supported those proposals which are hurting the poor, the sick and the aged will all support the Surtax concessions which, after all, are designed to benefit them. If that is not a case of greed, I should like somebody to tell me what is.

In a derisory and sarcastic manner, the right hon. and learned Member for Hertfordshire, East said of a brief interjection by my hon. Friend the Member for Burnley (Mr. D. Jones) that it would be recorded in the records of the House for all time. The speeches and votes cast tonight by hon. and right hon. Members opposite also will be recorded for all to see. Not long ago they voted to hurt those least able to bear additional burdens, and tonight they will support this Surtax proposal of which they themselves will be beneficiaries.

The Financial Secretary and other hon. Members have implied that we on this side are opposed to voluntary savings. Nothing is further from the truth. I should like some guidance from the Government Front Bench. We are desperately anxious to increase savings. Farm workers are desperately anxious to save, but can the Chancellor or one of his Front Bench colleagues tell me how farm workers are to save on their minimum wage of £8 9s. in view of the continued rise in the cost of living and the additional burdens imposed by the Government? The farm worker does not earn enough to participate in the Tory pension scheme, never mind being able to save to any extent.

Mr. McKay

On this occasion we may be fighting a losing battle. [HON. MEMBERS: "No."] I mean when the voting is announced. One may be defeated at some point, but nevertheless the effect of one's actions may spread abroad and have a natural effect which will lead to victory. On this occasion we want to indicate our views as a Labour Movement about the Government's policy in the Budget.

In my younger days I was associated with a group of people who were always preaching the class war. That happened of necessity, because it existed whether one noticed it or not. My political experience in the House tells me that that matter has lain in abeyance for some time. But there has never been a clearer indication of class war than we have in this Budget. Class war on the part of people in authority means to me that they do not use their authority with discretion but their interest will guide them in their judgment. I have no doubt at all that this has been the influence which has brought this Budget into being.

I used to study the unwritten constitution of Britain. I sometimes wondered what it meant. As I understand it from my political studies, for many years there was a general policy recognised by our Governments, and there was an unwritten principle, which was nevertheless recognised, in the constitution. In relation to taxation, I understood the unwritten constitution to mean that the Governments of the day recognised the principle that when they could give relief to our citizens—

12.30 a.m.

Mr. Diamond

On a point of order, Sir Norman. I am sorry to interrupt my hon. Friend, but I am very worried about the safety of an hon. Member. Just before you occupied the Chair, Sir Norman, an hon. Member opposite attempted to catch the eye of the Chair in order to make a speech in this very important debate. Immediately after that a Government Whip seemed to me to go round to the hon. Member and escort him from the Chamber. The Whip has returned; the hon. Member—I think it is the hon. Member for Rugby (Mr. Wise)—has not. As I am anxious about the safety of the hon. Member, could we have the assurance of the Whip that no harm has come to his hon. Friend for trying to take part in this debate and that the hon. Member will be allowed to try to catch your eye in the ordinary course?

The Temporary Chairman (Sir Norman Hulbert)

That does not seem to me to be a matter for the Chair.

Mr. Jay

Further to that point of order, Sir Norman. It is surely a serious matter if the Whips are using forcible means of some kind, with which we on this side are not familiar, in order not only to prevent hon. Members opposite speaking in support of the Government but to prevent them being in the Chamber. If the Whip concerned is, in fact, present in the Chamber, it should be possible for him to explain what has happened.

The Temporary Chairman

I am sure that the right hon. Gentleman is well aware that no hon. Member is obliged to obey any instructions coming from another hon. Member.

Mr. McKay

I was dealing with the written and the unwritten constitution, and I do not think that the interruption has helped me very much. As I was saying, I understood the generally accepted position to be that when the Government of the day were in such a favourable position that they could help the citizens the relief was not confined to any one section of the community but was spread around. It was certainly generally accepted that the richest section of the community would not get the lot while the rest got nothing.

The present Government have broken the unwritten constitution. A Government can do many things—some of them good. They can lead democracy progressively, or they can lead the people astray. It cannot be disputed that for ten years the Tory Government—

The Temporary Chairman

Order. The hon. Member must keep closer to the Clause.

Mr. McKay

At the moment, Sir Norman, you cannot see exactly what I am driving at, but my whole argument is designed to clear the air so that people can understand what is involved.

To all intents and purposes, this Clause is the Budget. All the other provisions are flimsy and of little importance compared with this. Whatever the differences between us, it will be agreed that it is most important that in attempting to satisfy their supporters the Government should never go to the extreme of showing what an impartial examination would say was favouritism towards one section of the community, especially if that section is rich and influential. When the Government go to that extreme with a tremendous sum like £83 million, if democracy is alive and the trade unions and workers generally realise what has been done—

The Temporary Chairman

Order. Clause 11 deals with Surtax and reliefs for earned income. I ask the hon. Member to keep nearer to that than he is doing at the moment.

Mr. McKay

I will come more directly to the point.

There is a possibility that when the workers of the country realise what is being done by this Clause, when it has been fully ventilated in the workshops and in the trade union congresses, class war will be roused among the other sections of the community. The Clause encourages that kind of thing. To my mind, the policy of the Government in the Budget and the Bill and this Clause particularly is such that there is a danger lying there of effects—perhaps after effects, perhaps immediate effects, but effects which will be felt, soon may be, in a month or two, perhaps—which will not be good for the country at large.

Let us draw upon the experience we have had in this Committee and in the House. Not for one year, or two years, but for many years now we have heard a tremendous number of moans about the Surtax in particular and about taxation in general. I have listened both here and outside to learn what the attitude of the country at large is towards it, and I can tell the Committee that the loudest moans I have heard for years have been in this Chamber—and from the Government side of it. Hon. Members of the Government have been saying the Surtax payer has been handicapped and that there is an element in the situation—at any rate, before the Budget—which bears exceptionally heavily upon him.

Have we a right conception of the Surtax payers? If we compare them with the rest of the community do we get the impression that they are hard hit?

Mrs. Slater

That is what they say.

Mr. McKay

Are they so uncomfortable? Do they feel so keenly the sacrifices they are making? Is their position such that they cannot do for the country as much as they otherwise could?

Hon. Members opposite have been answering those questions affirmatively for years, and at last they got the Chancellor and his colleagues to conclude that there must be something in this complaint, that there must be something in this moaning and groaning of the Surtax payers, continued so long and so persistently. With the great intelligence those people have they have propounded their viewpoint strongly, certainly as strongly as possible. At last, after several years, the high officers of the Government have produced this Clause, giving relief to the Surtax payers, largely on the ground that they are badly hit as compared with the rest of the community.

12.45 a.m.

The general principle of taxation that has hitherto existed in this country is that after giving personal allowances to various sections of our people and after drawing in the taxation, if there is any money left over from Government expenditure it is used to relieve subsequent taxation in general. How much tax did the ordinary worker pay in 1938–39?

The Temporary Chairman

I have asked the hon. Member on three occasions to keep to the terms of the Clause and not range over the whole taxation system.

Mr. Hilton

On a point of order. Earlier in our discussions the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) devoted the major part of his speech to this sort of thing. Surely it is only right that my hon. Friend should be able to reply in a similar way.

The Temporary Chairman

I am in the Chair now. I am concerned only with what is in the Clause.

Mr. McKay

I was coming to the situation of the Surtax payer. We cannot discuss this question in isolation. The Government have not only to discuss the matter of relief to Surtax payers; they have to justify the action they are taking. They are breaking away from the practice which has become acknowledged in our Constitution—that reliefs should be divided fairly and squarely amongst the citizens.

In 1939 the ordinary worker paid no tax. but now he pays 5s., 6s., 7s., and even 7s. 9d. in the £. If the Surtax payers are entitled to grumble and grouse because they are having to pay more tax because they are getting more money, surely the millions of ordinary workers are entitled to grumble and grouse even more at the change that has come over the situation since 1939. The taxation principle which has worked regularly in the past is that when a citizen, whether he pays Surtax or otherwise, receives more money he is more highly taxed—

The Temporary Chairman

I shall have to ask the hon. Member to resume his seat if he continues to range over the whole of the tax system.

Mr. Loughlin

May I put a point of order on the question of making comparisons with industrial and other taxpayers in relation to the provisions of this Clause and the relief which is given to Surtax payers? It is point which I want to deal with if I am lucky enough to catch your eye, Sir Norman. It is the argument of the Government that Surtax relief has been given on the grounds that it is an incentive. Therefore, it is possible to argue that there ought to be incentives to other people who are equally important to the economy but do not earn as much. That is the point which my hon. Friend the Member for Wallsend (Mr. McKay) is making.

Mr. McKay

The point is this—

The Temporary Chairman

The hon. Member may argue any matter relating to the Clause, but it is not in order to raise any other taxation questions.

Mr. Jay

Presumably it is in order for my hon. Friend to give reasons why the Government should not take the action which is proposed in this Clause? That is what I understood him to be doing, and surely that is in order.

The Temporary Chairman

So long as the hon. Member relates his argument to the Clause it is in order, but as I understand his speech he has not been so doing.

Mr. McKay

I do not want to go into too much detail. I want hon. Members to try to understand this problem. I was under the impression that when an hon. Member was considering the question of relief to Surtax payers he was bound to consider the whole history of taxation and to consider whether the workers were paying more or less than the Surtax payers.

Since the workers began to pay Income Tax the amount has been increasing year after year, because their incomes have been increasing. The same principle applies to the Surtax payers. They start at 2s. in the £ on the first £1,000 after £2,000. As they get more money the tax increases. A comparison between the situation of the Surtax payer and the worker reveals that on the average the worker pays more on the money on which he is taxed. I have taken the trouble to work this out. Surely this is a matter of interest and a matter which appertains to this Clause? This is what I have been trying to come to all this time. Of course, it has taken a long time, but to give a logical, educational explanation of the history of the situation it is useful to get some preliminary things over. Having got the preliminaries over, I want to come to the details. It may bore some hon. Members to hear the details—

Mr. W. Yates

I have tried to follow the hon. Member since I came back into the Chamber. Could he explain the last bit of his argument again a little slowly?

Mr. McKay

I shall try. As an example, I take the case of a man who earns £880 a year. That is about £100 above the average. The average earnings are about £15 a week. This is a good worker who has got beyond the average and there is no question that he has done his bit. He has a £20 allowance. He is a married man and pays tax on £429. That is his taxable capacity. On £60 he pays £5 5s. and on the £150 extra he pays at the rate of 4s. 3d., which is £31 17s. 6d. He then pays on another £150 at the rate of 6s. 3d., which is £46 7s. 6d. He has £69 taxable income left on which he pays 7s. 9d. in the £, which is £26 14s. That is £110 14s. paid in tax. In addition to his ordinary taxation, he pays 15s. a week, £39 a year, in National Insurance. That makes a total of £149 14s. 0d. which he has to pay. His average payment on £429 taxable capacity is 6s. 10d. including the July National Insurance payments.

1.0 a.m.

What does the Surtax payer do with all the extra money he gets? Does he pay much more on the average than the ordinary hard working man in the pit or in the factory or on the farm? I am taking the Surtax payer with an income of £8,000. Surtax is paid on £6,000 of that, and the rate increases as the income rises. On the first £1,000 the rate is 2s. 3d., or £112. On the next £1,000 the rate is 3s. 6d., or £175. On the next £1,000 the rate is 4s. 6d., or £225. On the next £1,000 the rate is 5s. 6d., or £275. On the next £2,000 the rate is 6s. 6d., or £650. He thus pays £1,437 Surtax on £6,000. On average he pays nothing like the 6s. 10d. which the wage earners pays on his £880. The Surtax payer pays 4s. 9d. in the £ on the average. I am excluding his Income Tax. [HON. MEMBERS: "Oh".] I am contrasting the treatment accorded to the Surtax payer, rich beyond the dreams of the ordinary wage earner, with that accorded to the wage earner. Is this fair?

Mr. Peter Tapsell (Nottingham, West)

The figures of Surtax given by the hon. Gentleman must be added to the 7s. 9d. standard rate which the Surtax payer already pays in Income Tax.

Mr. McKay

I do not see that there is any point in that intervention. So far I have not dealt with Surtax payers with incomes of more than £8,000. Some have £20,000 a year. This man pays Surtax on only part of the £20,000. He pays in reality £7,110 in taxation, and when one averages it out it is found that the Surtax element is such that the £20,000-a-year man pays only 7s. 5d. in the £ on all his taxable income of Income Tax, and Surtax is £7,100 on £19,300. If the ordinary wage earner is raised from his £880 to a higher figure it is found that he pays far more in the £ on taxable income than the Surtax payer pays with his £20,000 a year. I will leave that point for the moment.

I would like to say finally that when the Opposition gets an explanation such as I have tried to give a little time is needed for the facts to sink in. I do not think that we have ever really gone into the details, which some hon. Members do not understand. There has to be a radical examination of this problem, which takes a tremendous amount of time and some ability; there is some ability needed for this job.

Let us now go ahead on to the question of the taxation of the ordinary worker and of the rest of the community who are paying Surtax. I would like to make that comparison and to explain to the Committee what are the facts. When the Tory Government was just getting used to its job in 1952 and wondering what it could do to help its friends, it largely believed that it was the people with large incomes who, not only as voters, but as people with a tremendous influence in the financial world and many other circles—

The Chairman

The hon. Member must please get back to the Clause. I ask him for the last time.

Mr. McKay

I just want to indicate what the Surtax payers have had in relief since 1952 and until 1961.

How much has been given in those 10 years in taxation relief to people earning between £5,000 and £20,000 a year? What have they got out of the Government in gifts? In 1952 the £5,000-a-year man paid £2,496 in taxation, and in 1961–62 he will pay £1,401, or £1,095 less than in 1952. The £10,000-a-year man paid £6,546 in 1952 and will pay £4,027 in 1961–62, a relief of £2,519. In 1952 the £20,000-a-year man, who pays Surtax at 10s. in the £, paid £16,071 in taxation, and in 1961–62 he will pay £12,138; in other words, in those ten years he has been given taxation relief to the extent of £3,933. The £30,000-a-year man in 1952 paid £25,821, and in 1961–62 he will pay, according to the Financial Statement, £21,013. In those years he has gained £4,808.

Let us see what has happened in those nine or ten years to the worker. We can then decide on the facts whether the workers should have some relief to compare with the tremendous relief being given to the Surtax payer. In 1952 the £450-a-year man paid £26. In 1961–62 he will pay £15 7s. 6d. In those nine years he has been relieved to the extent of £10 12s. 6d. The £700-a-year man paid in tax, in 1952–53, £87 18s. 4d. and in 1961–62 he will pay £66 12s. 9d. The amount of the relief is £21 5s. 7d. In other words the small man is given relief at the rate of 4s. 1d. a week between 1952 and 1961. The relief of taxation for the higher paid man on £700 a year is £21 5s. 7d. a year, or 8s. 2d. a week. He is now paying that mighty amount of 8s. 2d. a week less than he paid nine years ago. What a tremendous benefit the workers have got out of this Budget.

1.15 a.m.

Mrs. Slater

They pay more contributions, too.

Mr. MacKay

Yes, they pay more contributions.

I have dealt with the position of nine years. Now let me take the position of one year. A man receiving £3,000 gets taxation relief in one year of £100. The man receiving £8,000 gets in one year £990 relief. As for the man on £20,000, I am almost afraid to mention the relief that he gets lest I shock hon. Members and the workers in the country generally. By this Budget the man on £20,000 a year will get relief to the extent of £1,775 in 1961–62. Is that not a ridiculous situation? How can such a situation be justified by the Government and their supporters?

The Government cannot justify the situation by any means that the ordinary people can understand. The people cannot understand the reasoning which has influenced the Government to do this kind of thing. The Government say this proposal will be an incentive. They say that there are a large number of Surtax payers, that these people are the elite of our country, the supervisors, people with intelligence, administrative ability, scientific knowledge and so on, who receive high incomes.

True, these people may have had to pay large amounts in tax, but the practice of this country has been that if a man pays a lot in tax it is because he has received a lot, and whenever tax is taken from a man's income he always has enough left in the form of net income. But what do the advocates of this policy say? They believe that these people will not do as much as they could, because their net incomes will not be sufficient to give them an incentive. In other words, they have no morals.

The Government acknowledge that the people to whom they are prepared to give thousands of pounds are of that character. There is no getting away from that. The Government admit that these people have so much money net now that they do not mind whether they have another £1,000 or not, so comfortable and satisfied with life are they. Most of them are not great intellectuals. Everybody who knows about directors knows that. A great number of directors, supervisors and administrators are not outstanding for knowledge or character. The Government admit it and say that their moral character is such that, having far more money than the ordinary person, they do not care whether they get any more.

What regard have people like that for the country as a whole? None at all. The Government and the Chancellor say that. Government policy admits that they are men of that character. Can we allow this Surtax proposal to pass when we know, from the moral standpoint, that there is no justification for it? The Government are prepared to give £83 million to people of this kind and they try to justify it on the ground—they cannot prove it; it is just supposition—that it will be an incentive to the richest section of the community and some good will be done to the country in the end.

The Government dare not say that on a public platform and expect support from their audience. I know that, and I do not believe that the thing can be justified on grounds of either public or private morals.

I think that if we could get at the actual opinion of the representatives of the Treasury on the Government Front Bench it would be found that several of them had some doubt whether this should be done. It may be that they were not enthusiastic about this policy but have justified it to themselves after examination, and if they have done so, all I can say is that I do not admire their judgment. It cannot be a really impartial judgment if they have allowed selfish interest to intervene.

I believe that in considering this policy the Government have not been particularly anxious about the general welfare of the community and have been thinking of other matters. They have a job to do. What kind of job is it? The Government have a special duty; but they seem to regard their special duty as not to the people at large but to a special section of the community. They believe that this special section has tremendous influence in the political world. They believe not only that they should pass policies for the good of the country at large but that in conjunction with that they must pass policies in favour of their rich supporters. That has been one of the influences.

If impartial people could be found—sometimes it is difficult—to examine everything in relation to taxation and the Budget, they could not credit the Government with good judgment or a moral attitude worthy of admiration.

Mr. M. Foot

Everyone on this side of the Committee will join in expressing thanks to my hon. Friend the Member for Wallsend (Mr. McKay) for his speech, not only for the manner in which he delivered it but for the detailed figures which he provided, which will be of great value to everyone who wishes to study what has happened in the debate and what the Government have been doing over recent years in their general taxation policy.

It is all very well for some hon. Gentlemen opposite to attempt to jeer at those figures. Those figures demonstrate clearly that so far from it being the case that the Surtax payers have not had any reliefs over this period and that the Government have waited a very long time—eight or nine years—before coming to their rescue, they have been receiving reliefs throughout that period. Therefore, it was false for the Government to pretend that what they had done was to give reliefs to other sections of the community in previous Budgets and that only at the end, after they had satisfied everybody else, they came at last to do justice to the Surtax payers. My hon. Friend has plainly demonstrated that over the last eight or nine years they have received higher proportionate tax reliefs than have other sections of the community, and the higher the income the greater the relief. We have not heard any argument from the opposite side in this present debate, but my hon. Friend has destroyed a great part of the main argument previously used by hon. Members opposite.

1.30 a.m.

Another extremely apposite comparison arises from my hon. Friend's figures. Many quite proper comparisons have been made by my hon. Friends between these reliefs and the increased charges imposed on the Health Service or on the National Insurance contributions. I well remember the arguments that were presented by the Minister of Health and, in particular, by the Financial Secretary during the debates on the increased National Insurance contributions.

One of the main arguments by which the Financial Secretary sought to justify that increase was this. He said that nobody should complain too much about the increased National Insurance contributions because the proportion that the worker was paying out of his wages in insurance contributions was being kept about the same by the increases the Government were making. So that the poll taxation fell on all members of the community, but most hardly on those with the lowest incomes.

Thus, only a few months ago, the Government were arguing that taxation should be increased in proportion to people's incomes. That was the Financial Secretary's main argument, but my hon. Friend's figures prove the direct opposite. Nobody can deny that the proportion paid in direct taxation has been going down. Whether the Government are right or wrong in doing that is another question, but the proportion paid in direct taxation has been diminished in relation to people's incomes in the last eight or nine years, but in the case of the poll tax, the proportion has been sustained.

All this demonstrates quite clearly that the Government adopt an attitude to the poll tax form of taxation entirely different from that adopted towards direct taxation. They are much more liberal, much more eager to reduce the direct taxation than they are to reduce the poll tax, which is notoriously much more unfair. My hon. Friend has helped to underline the injustice of the whole Government approach to these taxation problems.

I want now to deal with the Financial Secretary's reply to an earlier debate; and with this Clause which, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) has said, is laughably described as "Surtax; reliefs for earned income". We now know that to be a falsification. At any rate, when the Government reprint the Bill for the Report stage that should be changed. It should read, "Surtax reliefs for earned income and for unearned income". The Financial Secretary will not deny that. He was very bashful about admitting what the figure was, and I thought that for a moment he believed that he would get away without disclosing the figure. I must say that I was amazed when I heard what it was.

The Committee has an absolute right to consider what could be done with £19 milion instead of handing it over to people who are getting their incomes from unearned income. We could do a great deal with £19 million a year. We could certainly transform the situation in the coal industry, which has had to bear very heavy burdens and pay huge interest rates to maintain stocks of coal which it has had to build up over three years of depression in the industry. If the Government paid for the maintenance of those stocks required for the industry and the nation, rather than putting that burden on the coal industry, the industry would be transformed.

The sum of £19 million a year would transform the situation of London Transport, which is running down because it cannot get the busmen, because it cannot pay them enough. With £19 million we could have a Cunarder every year, if anybody thought it worth while, with £1 million left to hand over to the Eagle airline on special terms, if that was wanted. Let hon. Members think of the time we have discussed the Cunarder Bill which we have still not finished and about which there are still to be lengthy discussions. The Government Know in their hearts that it is wrong to spend the money in this way, but with the way they are chucking it about in the Bill they could easily do it.

Let hon. Members think of the interminable debates on the extra charges on spectacles and teeth. We could easily wipe out all those provisions for extra charges with this sum of £19 million which is to be given in reliefs not for earned but for unearned income. I know that it is to go to people who are earning some other part of their income, but it is still £19 million in respect of unearned income. The more it is considered, the more scandalous it appears that the Government should have decided to spend £19 million in giving reliefs in respect of unearned incomes.

In previous debate the Government have said that their main reason for these reliefs is that of incentives. That is not the real reason and that whole argument has been ridiculed by my right hon. Friend the Member for Huyton. That argument cannot stand after the analysis by my right hon. Friend tonight and on other occasions.

It may play a tiny part and perhaps that argument can be applied to a very small number among the 300,000 Surtax payers, but it must be a very small number, and even if there is a case for saying that it will be an incentive in these small number of cases, the Government are spending £83 million for what is bound to be a very small result.

I do not believe that hon. Members opposite believe in the incentive argument. I agree with the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) that the reason why hon. Members opposite are in favour of the Surtax concession is that they regard Surtax as an unjust tax. They think it falls with unjust severity upon one section of the community and they want to bring relief to those people.

That is what they really think. Why do they not say so? Because that is the part of the argument I should like to examine: what it is they really believe. They say it is unjust that people should have to pay taxes at this rate. Why do they not just say so and not muddle the matter up with esoteric arguments about incentives? This is, in fact, a psychological, rather than a financial problem. It is a problem of trying to discover what happens in the minds of hon. Gentlemen opposite which leads them to think that it is a piece of injustice that people should have to pay Surtax at the rate at which they have to pay it, but that it is not unjust that people should have to pay extra for things under the National Health Service. It is a psychological problem in the minds of hon. Gentlemen opposite, and I want to see if I can probe it to discover what is the real reason for the Clause.

I can see something to be said for part of their case. It is an absurd arrangement, not only with Surtax but with other forms of taxation, that we give income to people and claw it back again. It is a very inconvenient arrangement, because it is bound to make people anti-social. Nobody likes paying taxes, whether Surtax, Income Tax or any other kind of tax. Therefore, to give people incomes with one hand and draw them back with the other is always bound to create some feeling of antagonism, and a feeling of antagonism towards the State which demands return of the incomes in tax. Therefore, in some respects it would be a much better arrangement if people did not have money in the first place; that would make it not necessary to take it back.

In other words, our taxation system is merely an illustration of the absurd way in which we allow wealth to be owned in this country. If we were to try to solve this tax problem so that we should not have to be clawing back the incomes which we allow people to think that they have, we should have to change drastically the ownership of wealth in this country. Of course, the argument for a real overhaul of our tax system is that it could be carried out only if we had a big change in property owning. It is only in that respect that I say that hon. Gentlemen opposite have got any argument.

To come back to the maim case of trying to examine what goes on in their minds when they think that what they are doing at this time is legitimate and just. They really think that the distribution of wealth in this country prior to taxation is a just arrangement. They think it is fair. They think it is just that some people should own most of the wealth of the country and that the rest of the public should have to own a very little of it. They think it is quite just that some people should earn £10,000 a year or £24,000 a year while, say, half the miners working as surface workers at the pits get less than £13 a week. They think it is perfectly just, and, indeed, they regard the system by which, clumsily and belatedly, taxation tries to restore a bit of justice into this unjust distribution as a piece of unfairness. It is because hon. Gentlemen opposite have such a lopsided and absurd view as to how the wealth which is produced by the community as a whole should be distributed that they think that it is a terrible burden that some sections of the community should have to bear heavy taxes.

It is because they take such an absurd view that also they have got the rest of the economy cock-eyed. They have not got enough teachers, they have not enough miners, they have not got enough nurses, they have not got enough policemen, they have not got enough of a large number of other people who are the most necessary people in the community. What a wonderfully absurd society this is, particularly when we are supposed to be very successful in running it at the moment. We are supposed to be doing very well. Only a few months ago it was being said that we were carrying on our society more expertly than ever before, and were running our system marvellously. But at this moment, when we are supposed to be running it so skilfully, we happen to have a shortage of persons which most civilised peoples would regard as the most essential persons in the community. That is a wonderful achievement.

1.45 a.m.

But even more remarkable and wondrous is the remedy for this disease. We ought to be concerned with what is going to happen to our coal industry; we ought to be wondering whether many people in hospital will go without treatment because there is nobody to treat them, and we ought to be wondering how many people are going to get bashed to pieces because there are not enough policemen. Those are the problems which we should be trying to solve, if we are civilised. But they are not the problems that the Government are intent upon solving. They have introduced a Finance Bill in which the main provision is not designed to improve the lot of teachers, policemen, miners, workers in the steel industry, or other people who are doing the most necessary jobs.

A little benefit may trickle through to the people who are doing a good job as a result of this Clause, but there is no guarantee of that. It is certain, however, that a lot will go to people over half of whose income is unearned. How can it be said that a Finance Bill in which that is the primary provision is relevant to what is happening in our society? This provision which the Chancellor has introduced is not merely a condemnation of his Budget; it is a condemnation of the whole society in which he believes.

That brings me back to the psychological problem, which I was trying to examine. Many hon. Members opposite have been laughing and sniggering and drifting in and out of the Chamber as if what was being said did not matter. They talked as if hon. Members on this side of the Committee were not serious in their criticisms of this Finance Bill. We are very serious about it. Their jeers and sneers are merely a revelation of their own minds on this subject—merely a revelation of the fact that they cannot even see what is happening in Britain today, and cannot realise why what they are doing is so mean and inadequate and unfitting for what should be done in our society.

Many of them believe that there is a great deal of strife going on in the world between the Communist society and Western society. I do not believe that the strife takes the form which hon. Members opposite describe, but if I believed as they do I would not be so complacent and so content about a Budget of which the principal feature is the giving of a little more to the rich, coupled with the hope that a little benefit will also trickle through to those who are performing some useful service to society.

Taking these provisions together with the previous measures we have had, which we realised were preludes to the Budget, we see that this is a most squalid affair—and the Chancellor should be ashamed of himself. When he allowed the savage attacks to be made on the Health Service he knew what he was up to. It is no use his saying that he is balancing this concescession against the higher Profits Tax. If he says that, it is legitmate for us to argue that he is balancing it against the savage attacks on the National Health Service.

The two things should have been incorporated in the same Budget. He would have shown more courage if he had done that. Why did he not have the courage to do it? I remember that Sir Stafford Cripps did it when he was Chancellor. He was rebuked by many people for it, but when he decided that it was necessary to reduce bread subsidies he made provision for it in the Budget, and he defended what he had done in the House, so that hon. Members could compare one form of expenditure with another. That is the honest way of doing it, and that is what an honest Chancellor would do.

If he had shown real courage the Chancellor would have said, "I want the whole nation to know exactly what I am doing, so as to be able to see how I balance the nation's accounts." Instead of slyly attacking the National Health Service before introducing his Budget he would have brought forward those proposals in the Budget, and would have defended them in his Budget speech. If he had done that he would have had even greater hostility to the Budget and to the attacks on the National Health Service than he has had. But he did not want to do that, because hon. Members opposite—and this is another part of their psychological state—do not want the people to examine what is happening. They want to conceal it. They do not want people to know that the principal measure in the Budget is to hand out money on the scale which has been described. Indeed, so little do they want it to be known that we have only discovered at 1 o'clock in the morning that £19 million of this money will go in respect of unearned income. I hope that that fact will become known.

It is not only a question—though that in itself is important enough—of us wanting the people of the country to examine how the wealth of the nation is to be distributed. It is also the case that if there is to be any industrial revival; if we are to change the face of the country; if we are to equip our country to face the next 30 or 40 years as we on this side of the Committee want to do, we shall have to make an end of these miserable, squalid Budgets and have Budgets which deal with the real problems of the nation.

Mr. Dan Jones (Burnley)

I have been in the Chamber for over ten hours listening to the debate and I have been impressed by the levitous and humorous manner in which hon. Members opposite have accepted the arguments advanced from this side of the Committee. I do not say that with relish, but with a sense of dismay. I warn hon. Members opposite that there are people in the country who are following these deliberations very closely, and they are doing anything but laughing about them.

I feel that these Surtax proposals are unjust and morally indefensible, and there are people more responsible than I am who feel the same way. I do not propose to deal with these proposals on the higher levels. I leave that to my right hon. and hon. Friends on the Front Bench. I wish to speak clearly and, I hope, with some sense of logic as a trade unionist. I believe that I should bring to the attention of the Committee what the T.U.C. thinks about it. If the Government represent 12 million people, the trade unions represent 9 million, and would be representing many more if those people who ought to have the protection of a trade union only had the sense to join one. This is what the T.U.C. thinks. It is an official comment: The massive concession on Surtax is not justified either by considerations of fairness as between taxpayers or by reference to the nation's financial and economic situation. Far from acting as an incentive to greater effort, it will actually encourage those favoured by the concession to relax in the assurance of a free though not unsolicited gift of additional spending money. Following so closely on the increases in the health charges, it will be strongly resented by the great majority of ordinary citizens. I follow my hon. Friend the Member for Ebbw Vale (Mr. M. Foot) in saying that these glib and clever approaches from the benches opposite are not being endorsed by the trade unions. I feel very dismal about it. I have no doubt that when approaches for increases are made by the T.U.C. to the employers the answer will be that any concessions will lead to inflation.

I want to draw attention to some facts affecting trade unionists, young people in the branches and districts. These figures I have been given cause great indignation, indignation which possibly will embarrassment to the Government and the country in the months ahead. If they do nothing else, these facts will take the smiles off the faces of hon. Members opposite. That is why I think it does not matter how a contribution is made in this debate it should be treated earnestly. My hon. Friend the Member for Walls-end (Mr. McKay), like myself, is emotionally inclined. I do not apologise about that. My hon. Friend was prone to make his remarks in a somewhat jumpy style.

Mrs. Slater

It was a very well-thought-out speech.

Mr. Jones

I withdraw that observation. The phrases of my hon. Friend the Member for Wallsend occasioned nothing but merriment on the benches opposite. The point I make is that no one could doubt the earnestness of my hon. Friend and no one could doubt the accuracy of the figures he gave.

Mrs. Slater

Would not my hon. Friend agree that our hon. Friend the Member for Wallsend (Mr. McKay) was not only earnest, but had been extremely thorough in the way he had worked out the figures? The Solicitor-General had to get the help of the officials under the Press Gallery to check the figures. They had to work them out. I think my hon. Friend the Member for Wallsend deserves great credit for the energy he has shown and for the work he has done.

Mr. Jones

I do not think I have taken any of that credit away. I think I made it plain that he ought to have been listened to in all seriousness. I objected to the way in which his remarks were received.

I shall now deal with the figures which, I repeat, I have discussed with local trade unionists rather than national trade unionists. They reveal that a man earning £100 a week will tend to benefit to the extent of £10 a week and a man earning £200 a week will benefit to the extent of £25 a week. These figures have caused a tremendous amount of indignation among the people with whom I have discussed them. A single man earning £6,000 a year will benefit to the extent of £689, which is precisely four times the annual income of a single man who is an old-age pensioner. That is a thoroughly iniquitous situation when we are told that these concessions are given as incentives.

My hon. Friend the Member for Ebbw Vale mentioned the teaching profession. If the Government were really in earnest about developing the economy, they would make the first approach by developing the technical schools and the teaching profession. Those people have had an award. I make no judgment of that award except to say that when the offer was made it was post-dated seven months. It has received the treatment which I think it deserved. Can we wonder at that when these people realise that the concessions give a great benefit to another section of the community who do not contribute nearly as much as they do to our economic well-being? Indeed, these people have analysed correctly that certain professional classes will receive under these Surtax arrangements a retrospective benefit for about eighteen months. It is, I repeat, iniquitous.

2.0 a.m.

I turn now to the observation made by the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke). The justification he gave for the Surtax concessions was that we have now eliminated unemployed people and poor people. I want to believe that the observation was made in all sincerity, but I cannot applaud the noble Lord's knowledge. The truth is that we have not eliminated unemployed people. There are vicious pockets of unemployment today. As I have told the Committee, I have been an unemployed person. Anyone who has shared my experience knows that it is not necessary for the man next door to be unemployed to make one realise the full impact of unemployment. It is not true that we have eliminated unemployment. It is an even greater untruth to say that we have eliminated poor people.

The Fabian Society issued an excellent pamphlet some months ago entitled "The Submerged Fifth". It demonstrated that one-fifth of the population is living in a state of financial hardship comparable to that in which I lived as an unemployed person in the 1930s. It is only fair that we as legislators should try to get our priorities right. The speeches from the Opposition benches on this subject may not be as polished as the speeches of hon. Members opposite. However, I hope that our contributions smack of political honesty. I hope that they also smack of knowledge and earnestness and demonstrate that we are trying seriously to grapple with the problem which will undoubtedly confront us if we perpetuate this state of affairs.

Mrs. Slater

The debate has, in the main, been concerned with whether the Government's Surtax proposal has put the priorities of the majority of the people in order as against the priorities of the few. We have been told repeatedly that the whole reason for granting this relief is as an incentive not for now but for the future. We were told that the whole purpose was that it would make a few people who are already reaping very good rewards much more anxious to reap heavier rewards, but not necessarily to do more work for them.

The Clause is one of a long succession of moves by the Tory Government since 1955. It is a pay-off to a certain section of the public. We have had the pay-off for the landlords. We have had the payoff for the bankers. We are still having that with the increased interest rates. We have had the pay-off for the brewers. This is the pay-off for the folks who have talked the loudest on the Government benches and in the financial columns of the newspapers in the last two or three years, especially during the last year. This is one of a succession of pay-offs for the folks who took jolly good care that a Tory Government were returned to power.

What about the priorities? I am just about tired of hearing hon. Members on the Government benches and people who write on behalf of the Tory Party claiming that we are now living in an affluent society. Whenever we discuss old-age pensions or widows' pensions, or matters of that sort, there is always someone from the other side telling us that one can walk along a street of council houses or a poor area and see all the television aerials. We are told that folk in these districts have washing machines, refrigerators, and things of that nature and that because of all this we are living in an affluent society.

The fact remains that many of these people can have these things not because of a good wage but because the wife goes out to work, or because another section of the community—a section which is going to get some of this pay-off—the large finance companies dealing in hire-purchase have seen to it that the ordinary working people are encouraged and even forced by their methods to go in for large hire-purchase commitments. We are now getting to the stage where, because of this kind of affluent society, school medical officers, as in Stoke-on-Trent, and the National Society for the Prevention of Cruelty to Children, are deloring the fact that women in ordinary working class homes—in an affluent society—are being forced into nervous breakdowns as a result of this sort of pressure.

What kind of people have got anything out of this Budget? In many respects most people are paying more, not [...]ust because of the Budget but because of Tory policy over the past year in particular. My hon. Friend has just spoken of the farm worker, but the average wage in this country is between £14 and £15 a week. [AN HON. MEMBER: "Average earnings."] I doubt if there is any hon. Members opposite who could live on £14 a week because they simply have not learned to do so. In addition we have a large number of women going out to work, and their average wage is £6 10s. to £7 a week.

These are the people who are now having to pay in order that the Surtax relief may be given under the provisions of this Clause. How is it going to be paid for? With a sob in their voices, when the National Health Insurance Contributions Bill was introduced, right hon. and hon. Members opposite told us that we must raise £49 million this year and £65 million subsequently not in order to give better benefits, but in order to build a few more hospitals or to improve some we have. But only £5 million of that was going to be spent on that side of the National Health Service, so somewhere in the coffers of the Chancellor there is this other amount of money which is going to be handed out to the people who, we are told, have been most hurt in these last few years—the Surtax payers.

The hon. Member for The Wrekin (Mr. W. Yates) laughed and scorned at my hon. Friend when he spoke of the person who is blind and had had two legs amputated. The hon. Member asked, "Did you not tell him to go to the National Assistance Board?" Of course we do that Saturday morning after Saturday morning. The Minister of Health assured us that those people on the border line would be able to get relief on their prescription charges, but a person such as my hon. Friend spoke about, who would probably get a blind pension as well as his other benefits, would no doubt be just that little bit above the border line. No National Assistance Board officer, generous though he may desire to be—and I assure hon. Members opposite that many of them do desire to be generous—is able, because of the requirements of his duty, to give that kind of person any relief from the prescription charge. The hon. Member ought to find out what is happening in his own division about these questions.

Mr. H. Wilson

The point ought not to be left there; it ought to be completed. Last year and the preceding year the Government turned down a new Clause, as no doubt they will this year, which would have given relief to blind persons.

Mrs. Slater

Every year when we have sought to give such relief the Government have turned down our request because they have the majority to do so.

That is not the end of the story. Where else will the Chancellor get a little more money? The workers will have a shock when they have to pay the increased old-age pension contributions. If hon. Members opposite had been in touch with the workers they would have heard many complaints about that increase, especially now that the workers know the little benefit which they will receive in return for their increased contributions. The workers will have another shock on 1st July, when further increases in the contributions will take effect. It is in this way, this insidious, back-door way, that the money is found to make these Surtax concessions possible.

Whenever we talk about the aged we are told that if they were better managers they would make the money go further. We were told in the debate about the increased Health Service charges that we need not worry about the increase in the cost of the welfare food because some people gave it to their dogs. That attitude of mind among hon. Members opposite has not changed over the years.

The Financial Secretary is interested in education; he served in the Ministry of Education. But now every local authority in the country has had its building programme cut, because we have been told that we cannot afford it. We have even had the stupid answer from the Minister of Education that we could not produce enough bricks to build the schools. We can tell him how to make the bricks: pay a decent wage to those who make them, and build factories rather than the skyscraper offices which we see every time we look over the Thames.

We have been told that we could not increase the number of teachers. Hon. Members on this side of the Committee urged the provision of more teachers not only last year and the year before that but three years ago, because we knew what would happen. The Government's priorities are wrong. We have school classes of 40, 50 and more. Although the average may be lower than that, there are numerous classes in the country in which, because of a shortage of teachers as well as of buildings, there are far too many children. I have said before, and I repeat, that during the last two years in particular, since the Government got their huge majority, we have begun to see the Government implement the kind of things about which the Tories write in their pamphlets. We have no definite assurance yet that the working man and woman will not be called upon to pay for the education of their children before this Government leaves office.

2.15 a.m.

I speak for the women of this country who have to struggle—and many of them struggle hard week by week. An hon. Member opposite tried to show how liberal the Tory Government had been and said that taxation had been reduced, but he did not mention how the value of the £ had also gone down. This is an important factor among the housewives. When they go to the shops the £ buys less than it did when the Labour Party was in office. I speak for these people, the ordinary housewives who struggle week in and week out—[Interruption]—An hon. Friend of mine says "the extraordinary housewives". The housewives are the backbone of this country. They make it possible for their men to go to work to earn the money so that the executives may have these Surtax reductions for no executive could have Surtax relief if the ordinary man and woman did not pull their weight.

I speak for those people who know what it is to struggle in order to keep their homes decent. Every working woman should have the necessities and the things which make life easier—much more so than those folk who can afford to pay people to do these things for them; and I must say I sometimes feel sorry for those who have to do it. The present Government are betraying the masses of the people by giving the last priority to the old, the sick, the children in our schools, the ordinary workers earning less than £14 a week and the womenfolk, while those receiving £2,000, £3,000, £4,000 and the poor old £5,000 a year, about whom the Chancellor almost cried, come first.

It is worth staying up tonight if only a few of us can express our thoughts, just as apparently hon. Members opposite who are going to benefit from this Clause think it is worth staying up to make sure that the Clause is accepted.

Mr. Richard Marsh (Greenwich)

This has been an interesting debate—

Mr. William Ross (Kilmarnock)

Whatever else it has been, it has been no debate.

Mr. Marsh

I was going to make the point that there is on the back bench opposite an hon. Member who is either bone-idle or dead. The hon. Member, who I believe occasionally sits, and who apparently has spent more time lying for Carlton (Sir K. Pickthorn), appears to think that Parliament is a place where he can come and sleep.

Sir K. Pickthorn

I have had to say this once before. I have heard every word of this debate, except a small portion of one speech from the benches opposite. If I can choose an attitude which enables me to keep the light out of my eyes, I shall continue to do so.

Mr. Marsh

I seem to have been very successful in—[An HON. MEMBER: "He is not dead, anyway."] I hear one of my hon. Friends say that the hon. Gentleman is not dead. My hon. Friend should produce a little evidence before he makes extravagant statements like that. The hon. Member for Carlton says that he is keeping the light out of his eyes. He is certainly keeping the light out of his mind.

Without being pious about it, I think it is a pity that the House of Commons should come to be regarded as a place where hon. Members may come, with no intention of participating in the discussions, but presumably because it would cost 30s. a night to sleep elsewhere. If they have neither the interest nor the intention to take part in the discussion, one wonders why they leave the bar to come here for brief periods and sit on the benches opposite.

It is a matter of concern that our discussion should be a one-sided affair without any contributions from hon. Members opposite. This is becoming a general practice now.

Mr. Charles A. Howell (Birmingham, Perry Barr)

Let us not be unjust. It may be that their consciences are pricking them. They have a pecuniary interest in Surtax, and they may be recipients of relief. Perhaps they feel that it would, as it were, be ultra vires for them to support the Clause by speeches.

Mr. Marsh

I must disagree with my hon. Friend. For a long time, I have thought that the possession of a conscience and possession of a card of membership of the Conservative Party were incompatible.

Quite seriously, I make the point that we have now reached a stage when, on occasions when we have major debates, hon. Members opposite come into the Chamber—presumably because vacant seats are more readily to be found here—but have no intention at all of participating in the proceedings.

Mr. Diamond

My hon. Friend ought not to be unfair. At least one hon. Member, the hon. Member for Rugby (Mr. Wise), did his best to catch the eye of the Chair a little earlier but unfortunately failed to do so. He was immediately escorted out of the Chamber by one of the Whips. I raised it as a point of order because I was very concerned about the hon. Member. I am happy to report that I have ascertained that he is quite safe. He is in good health. He has been effectively silenced. He has not returned to the Chamber, but he is well.

Mr. Marsh

I do not think we need worry unduly about what happens to hon. Members who suddenly vanish from the Chamber. One feels that they might, perhaps, be better served with sheep dogs than with Whips, but nevertheless it is pleasing to know that when they do come here at least they vote. Even if they do not express any point of view at all, they show an almost totalitarian unanimity in the Lobby.

This is an important subject about which we on this side feel very strongly, though not because it is felt that the Surtax payer has no case. If one considers the time which has elapsed since the present levels of Surtax were fixed, it is obvious that the Surtax payer has a case. I do not think it is disputed that the period of time which has elapsed gives rise to a series of perfectly logical arguments in support of raising the limit. Our contention is that there are other people who have a better case.

The Chancellor of the Exchequer is in a very fortunate position. One might suggest that he is probably in a position which neither he nor the electorate ever expected him to hold. He is in the position of being able to distribute large sums of money and of being able to determine the things upon which he will spend the money. This is a pastime that all of us enjoy from time to time. Probably everybody in the House and most people in the country have spent some time in bed spending their £75,000 from Littlewoods, Copes, Vernons or one of the other football pools. They have worked out the things upon which they would spend the money. But with the Chancellor it was not a dream; it was a fact. He was in a position to get rid of a large sum of money and decide the things upon which he would spend it.

Obviously, we all have different points of view and priorities. Some of us would feel that the most pressing need is to do something for the aged. Some would have a particular desire to do something for deprived children. Others would feel that our roads are such a disgrace and involve such an enormous loss of life that we have reached a stage when we should spend a great deal more money on them. People in the House and the country who so often hear of the tragedies and heartbreaks caused by diseases like cancer and rheumatism would think that we should spend a great deal more money on medical reasearch. Every one of those objects is desirable. A case can be made for every one of them.

Our case against the right hon. and learned Gentleman is not that he believes that the Surtax payer has a case, but that he believes that that claim takes priority over every other claim on the social scene. It is an argument not about the rights of Surtax payers but about priorities. That is an argument which inevitably arises in this Chamber when priorities are considered. It demonstrates time and time again the unbridgeable gulf between the two sides. It is an argument which expresses itself whether we are discussing taxation, the Health Service or any other aspect of our social life; the division of the House is automatic and complete. The reason is that the priorities of both sides have no relation to each other; the two sides of the House approach things completely differently. This is the fundamental difference between the two parties; it is a difference which is always with us. and we ought to stress it.

Hon. Gentlemen opposite are quite sincere when they share out the lolly. They see nothing wrong. [Interruption.] It is a pleasure to see hon. Gentlemen opposite returning to the Chamber now, but it leaves me terrified about what must have happened to the bar, which must have been in some chaos. This brings me back to the point that every time we have a serious discussion on social priorities the House divides right down the middle because hon. Gentlemen opposite see the whole purpose of politics as a method of getting as much as they can for themselves or other people of a certain social group. It is distressing that they view their job at that level.

Hon. Friends of mine have mentioned the Health Service staff. My hon. Friend the Member for Birmingham, Small Health (Mr. Denis Howell) made a considerable and valid point when discussing this. It is frequently argued that if one has an amount of money given away in one aspect of taxation one cannot determine the other things upon which it would have been spent.

2.30 a.m.

In this case we know that some of the money was raised from the National Health Service—£65 million. What would we have done with this in the Health Service? We talk about shortages of hospital staff. Not one nurse pays Surtax—not even matrons pay it. Not a single radiographer pays Surtax. We have no laboratory technicians who pay Surtax. We run our National Health Service by trying to bring people here who come because there is poverty in their own countries. The trade unions, which could recruit people to the Health Service, are publishing leaflets in Polish. Hungarian, German and Italian, because this great Service—this once great Service—cannot provide proper standards of living for those who work in it and so attract recruits from among ordinary working people.

Despite all that, when we raise £65 million from the National Health Service we do not use it to improve the Service. We do not use it to improve local government services. We use it is a contribution towards the Surtax payer. We are not criticising the Surtax payer. We are only saying that there are people who have a more immediate claim to this money.

There is not an hon. Gentleman opposite who does not pay Surtax—[HON. MEMBERS: "What?"] Well, it is interesting to hear that they do not pay Surtax. This is a revelation; it makes us feel their interest in the subject is much more philanthropic than we had believed. It is certain, though, that many hon. Members opposite spend more on one meal in our Dining Room than some families can afford for food for a week. And in case, Mr. Thomas, you should feel for the moment that that is not related to this Clause, I come back to the point we have been trying to make all the time, that if one has £85 million to give away, this was not the most pressing need.

This provision is not only immoral; it is downright dangerous. [Interruption.] It is a great pity that some hon. Members opposite, who seem to make peculiar digestive noises when they come into the Chamber on rare occasions, are not capable of contributing to the debate from time to time. One does not know whether they are permitted to speak after 10 o'clock, but if they are—and always assuming that they had something to say—it would be worth listening to them.

The one thing we have not heard tonight is the case in favour of this Clause, although we have heard much said against it. One gathers that it used to be the custom that when a Government brought a Measure to this House they explained why people should support it, but this Government are becoming so arrogant with their majority of 107—although when one looks at the voting figures tonight one feels that we should get a new Patronage Secretary—that they no longer attempt to present their case, but merely wait for the Division bell, when they will push the Chang through and so decide the issue.

Not only is this provision immoral, because it does not give to the section of the community which needs it most, but it is extremely dangerous, because one of the inevitable problems and the inevitable danger of the sort of economic system on which hon. Members opposite pride themselves is that there will always be an unbalanced economy and a possibility of inflation.

The Government cannot tell the man who is earning £9 a week that he is wrecking the nation's economy if he asks for another 10s. or 15s. a week and at the same time give amounts at this level to a section of the community already earning £40 a week or more. If one asks, as I believe we must, all levels of the community to maintain some degree of wage restraint—because what is wanted for a time is not an increase in wage levels, but an increase in purchasing power—the man with a low income cannot be asked to show that restraint when the Government are giving away these vast sums to many people earning sums which are not considered large by hon. Members, but which are astronomical to men who can never hope to earn £15 or £20 a week.

When we talk so glibly of a national wages average of £15 a week, we must remember that there are hundreds of thousands earning less than £12 a week, not only agricultural workers working for private farmers, but tens of thousands of workers in the direct employ of Parliament.

We have heard the tale about what this Clause is intended to achieve—raise production and improve our exports. What a lot of hypocritical bunk this is! There is hardly an hon. Member opposite who believes it. Is it really believed that the young executive in this country has been on a sort of unofficial strike, waiting for his Surtax to be reduced?

There is a feeling, much of it justified, that values in the country have got out of perspective and that there is too much of an obsession with material things, but I do not believe that the bulk of the people, in whatever job, particularly if they are fortunate—I repeat, fortunate—to have a job which requires the exercise of some skill and which takes their interest, regard the wage packet as the only factor which determines the ability which they exercise in their job.

If it is true, and I cannot believe it is, presumably those with the lowest incomes, who are grossly underpaid in our society—technical people and white collar workers—are all slacking. There have been references to nurses. If the premise of hon. Members opposite were correct, one would assume that nurses were doing a slap happy job and were incompetent and deliberately careless in their work because they were not getting the cash. But of course that is not true.

The young executive, the young technician and the young scientist moan about Surtax and complain about it, but it does not affect the efficiency with which he does his work. If it did we should be in very serious difficulty.

But even if it did, if it were true that to reduce the Surtax levels would be to bring about this burst of enthusiasm and would cause everybody to work much harder, it would contribute nothing to the national economy. It would not necessarily do the nation any good, because it is completely indiscriminate. The manager of the bingo hall will get exactly the same relief as the doctor. The top striptease artiste, if she is paying Surtax—I am sure some of the top striptease artistes are—will receive exactly the self-same Surtax relief as the export manager. It is a completely indiscriminate sort of measure, and it will not have any valuable effect at all.

Mr. W. Yates

On a point of order. Is it in order in a debate like this to bring in striptease artistes?

The Temporary Chairman (Mr. George Thomas)

It is in order to bring in anybody who pays Surtax. The hon. Member may continue.

Mr. William Blyton (Houghton-le-Spring)

Further to that point of order. Have you noticed, Mr. Thomas, that two hon. Members opposite who have never had it so good are fast asleep?

The Temporary Chairman

It is not a point of order for me whether hon. Members are awake or asleep.

Mr. C. Howell

Surely it is not out of order for the hon. Member for The Wrekin (Mr. W. Yates), who came in only a few moments ago, to raise a point of order so that he can be reported in HANSARD and show that he is here?

The Temporary Chairman

That is not a point of order.

Mr. Yates

If the hon. Member himself had been here earlier he would have noticed that I have been here since 10 o'clock and that I have done my best to remain here ever since.

Mr. Loughlin

The hon. Member came to hear about striptease.

Mr. Marsh

I do not want to pursue the subject of striptease artistes—[HON. MEMBERS: "Go on."]—but I think that the importation into the debate of a contribution from anyone on the opposite side of the Committee who does work hard for his living would make for an improvement in the situation.

The point I was trying to make is that even if the Clause were to have the effect—I deny that it would—of raising productivity by giving people a greater incentive, it is still a completely indiscriminate measure, because, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) said in the Budget debate, it gives exactly the same benefit to the importer as to the exporter and will achieve nothing at all for the national economy. Therefore, one could not justify this measure on the ground of any contribution it will make to the nation's economy.

One thing which is interesting about it is that now both sides of the Committee are agreed that there is something wrong with the national economy, and we are on both sides agreed that we ought to do something about the present economic position. Of course, it is not in a very happy state at present. This once great industrial Power now proudly boasts that it is way ahead of Belgium and Luxembourg and battling feverishly to stay afloat in the league tables. This is the state we have reached after ten years of Conservative rule. I agree that there is a need to do something about our economy.

2.45 a.m.

The competition we face at present is already causing us considerable economic embarrassment, and it is a great deal less than that which we can expect in the coming years. We find ourselves unable to compete on equal terms with West Germany, or with Japan. We have recently had a trade fair in Moscow, in the hope that we may be able to increase our exports to the Soviet Union. That is another issue, but hon. Members opposite—who seem to pin their faith for a solution of Britain's economic problems in an increase in trade between this country and Eastern Europe—are not on a very good horse. It would be very useful to increase our trade with those countries, but it would not meet the economic problems that face us today, and we have even bigger economic challenges to meet in the coming years. We have the problem of the enormous industrial potential of China, from whom we have had no competition as yet.

This brings me to the argument that to lower Surtax levels, as an answer to the economic ills which face us, is to dodge the basis of the problem. If hon. Members opposite are seriously saying that they have lowered the Surtax levels not to have a field-day for themselves and their friends but for the good of the British people, and to do something—we know not what—for the British economy, they are completely missing the boat. What is wrong with our economy is lack of planning. What is needed to improve it is not the raising of the Surtax levels; it is not to give £85 million to a small section of the community. This does not have any real effect upon the difficulties which face us, and which will face us in the future.

It misses the fundamental problem which faces us and which the Chancellor completely failed to face in his Budget, because he was so concerned with getting a few more votes—however these things are arranged at the Conservative Party Conference—when it comes to queueing up for the succession to the throne. He was so concerned with getting support for that that there was nothing in his Budget which was relevant to the economic problems facing us.

The hon. Member for Dorset, South (Viscount Hinchingbrooke) would agree, perhaps for different reasons, that the Budget was irrelevant to the problems which face us. The big problems which face us, which were completely untouched by the right hon. and learned Gentleman, are problems of investment.

The Temporary-Chairman

The hon. Member is now going very wide of the Question "That the Clause stand part of the Bill". He is making a Second Reading speech.

Mr. Marsh

I apologise, Mr. Thomas, but it is difficult to discuss these Surtax proposals without discussing also the reasons for their introduction. I submit that the question which is particularly relevant to the debate is whether anyone is justified in introducing these changes. In so far as they have deigned to participate in any discussion of economic matters the Government have given us a series of reasons for the introduction of the Surtax proposals which do not appear to be genuine. If the reasons they advance are not genuine, obviously it causes many of my hon. Friends to approach this with a completely objective attitude when considering whether they are able to follow the Government.

If the party opposite had approached the problems facing the economy in a different manner, they would have found, for example, hat a publicly owned steel industry might have contributed far more to the econom[...] than the raising of the Surtax level.

Mr. G. W. Reynolds (Islington, North)

I am interested in the point that my hon. Friend aised about investment and the reduction in Surtax. Does he think that because of the Surtax reduction there is any possibility that some of the money, which will find its way into the pockets of some people, might be used for investment, or for some other purpose?

Mr. Marsh

That is an important point. Investment presents one of the biggest problems at the moment. If it could be shown that the Government's proposals relating to Surtax would result in a large increase in investment they would be justified in asking hon. Members on this side of the Committee to support them. But the proposals are not likely to result in that. I am quite convinced that the noble Lord the Member for Dorset, South does not believe for a moment that the whole of the £83 million to be handed out will be saved and invested. If he did—which he does not—he does not believe that it would have a significant effect on the economy because it would require a great deal more than an investment of £83 million to achieve that.

The reason why we oppose these proposals is they involve a major redistribution of the wealth of the country. That is something which this and successive Conservative Governments have been doing for the past ten years. In a brief but interesting contribution, the hon. Member for Middleton and Prestwich (Sir J. Barlow) suggested that this was an episode in a long series of taxation changes designed to improve the living standards of the people. That is perfectly true. One must be fair about it and admit that since the Conservative Party have been in power they have reduced taxation year after year and they have reduced the taxes paid by the people. But the significant thing is that only people with an income of over £23 a week net have benefited. Any person earning less than £23 a week pays more in tax contributions than he did ten years ago and any person earning more than £23 a week pays less. We have had a gradual shift of the financial burdens and charges from one section of the community to another.

Not for a moment would hon. Members on this side of the Committee criticise the man who is earning £20, £23 or £30. a week. But we will not support any measure which would result in a move back to the inequalities which obtained before we started to remove some of them between 1945 and 1950. Hon. Members opposite have a different attitude towards these things. They make great loans and increase the pay of some sections of the community. The right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) gave us a good example. I believe that the right hon. and learned Gentleman was the first Minister when he was Minister of Health—after an agreement had been entered into between employers and employees—to refuse to honour that agreement and to say, "You may have reached agreement among yourselves, but you are not going to have the money". He stuck to that because he believed at that time that a small percentage increase for the people in the National Health Service who were earning £500 or £600 a year would disrupt the economy. Yet I am sure that he will go into the Lobby and support the disbursement of £83 million to people earning on the average £50 a week. This is the philosophy of the Conservative Party—all of us are equal, but some manage to be a great deal more equal than others. When one looks at hon. Members opposite one is reminded of Chrstmas pantomimes, "Ali Baba and the Forty Thieves", the removal from one section to another.

The important point is that this was not just a surplus of £83 million, £65 million of which was deliberately raised by imposing additional hardship on the less better off section of the community. It was quite deliberately done, raising £65 million on the one hand and giving away £83 million on the other. To achieve that saving, the Government not only involved those people in higher contributions, but also achieved part of the Surtax concessions they are giving by economies in the social services to make up the balance.

I put a Question in the House only this week asking why the locum tenens sessions for consultants under my local hospital management board had been reduced by 135. Only one argument was made in favour of that reduction—economy and the need to save money. If there were need to save money because the nation was in difficulties through the incompetenence of hon. and right hon. Gentlemen opposite, we would all join in an attempt to raise money to save the situation, but if it is suggested that we should cut down on the National Health Service, cut down on provisions for the chronic sick, and increase National Health Service prescription charges and contributions so that we can give reductions in taxation to the Surtaxpayer, we say that the priorities of hon. and right hon. Members opposite are radically wrong and very seriously wrong.

I come finally to the point made by my hon. Friend the Member for Ebbw Vale (Mr. M. Foot). There is a great deal of talk in the House and in the country, indeed in the whole western world, about the methods of meeting and the need to meet the ideological challenge of the other half of the world. It is true, and I think most of us accept it whatever other arguments we may have, that the days when one could meet that sort of challenge by military force have dong since past. The big arguments today are not of battles and military force but of ideology and moral values. If the right hon. Gentlemen opposite provided this country with the sort of moral values we have in this Measure, if they go to the uncommitted section of the world and say that a capitalism and free enterprise society is one where if you are in power you grab as much as you can of the "lolly" for yourself and the weakest have the least while those with the most get a bit more—[Interruption.] That is the way hon. Members opposite do it. I wish they were all as honest as the ion. Member for Gravesend (Mr. Kirk) and were prepared to put it on record that that is the way they do it.

3.0 a.m.

Mr. Peter Kirk (Gravesend)

I did not say what has been attributed to me. I said, "That is how they do it in the Soviet Union".

Mr. Marsh

It would be unparliamentary if I suggested that the hon. Gentleman were not teling the truth when he said that that was what he said, so I will not say it.

Mr. David Price (Eastleigh)

On a point of order. The hon. Member for Greenwich (Mr. Marsl) has cast aspersions upon my hon. friend the Member for Gravesend (Mr. Kirk). I confirm that my hon. Friend said what he claimed to have sad. I ask the hon. Member for Greenvich to apologise to my hon. Friend.

The Temporary Chairman

I gather that the hon. Genleman's point of order is that he takes exception to something which the hon. Member for Greenwich (Mr. Marsh) has said. It would be wrong to impute any motive or to declare that an hon. Gentleman is not speaking the truth. If the hon. Member for Greenwich said that, I know that he will withdraw it. If he did not say it, nothing arises.

Mr. Marsh

I understand what you say, Mr. Thomas, and I agree with it. I certainly would not have said it. If it were suggested that I did, then I did not. If I had, I would not have wanted to.

Mr. Kirk

On a point of order. If the hon. Gentleman had apologised, I would have accepted it.

The Temporary Chairman

Order. I think we should now return to the debate. We are getting a little out of hand.

Mr. Marsh

I will obviously accept the hon. Gentleman's apology. In this modern world the ideological battle cannot be won with the sort of morals which are implicit in the Clause. This is an issue on which right hon. and hon. Members opposite will win. We know that. They will go through the Lobbies. They will not know why they will go through the Lobbies, but they will do so. They will all go through the same Lobby. Some of them will growl like a lot of angry rabbits at the weekend and tell their constituents what they will tell the Patronage Secretary if he dares say a word out of place, or they will write articles in the Evening Standard. But when it comes to the point, they will go through the Lobby and vote. They will win because they have a majority. [HON. MEMBERS: "Why have we a majority?"] They will go through the Lobby and get a majority because they solve their party differences, not on the basis of any political morality but—

The Temporary Chairman

Order. The hon. Member must return to the Question "That the Clause stand part of the Bill".

Mr. Marsh

I am sorry, Mr. Thomas. I was provoked by [...]he unruly rumblings of hon. Members opposite.

Mr. Willis

Furthe[...] to that point of order.

The Temporary Chairman

There is no point of order that I know of.

Mr. Willis

May I have your guidance, Mr. Thomas? It would be in order to point out the electoral results of the Clause as exemplified in the Paisley by-election, when the Tory vote was slashed considerably.

Mr. Marsh

I think all of us would agree that we must approach this issue, not as to who won the most votes—

Mr. Willis

They won at Paisley. The Tory Party almost lost its deposit.

Mr. Marsh

I wonder, Mr. Chairman, if we could arrange for two debates to go on at the same time? Hon Members opposite are gradually coming back, and I was trying to say that the important issue is the effect which any particular Motion of this Committee or this House has upon the people of the country. The Motion which we are asked to support this evening is for benefits for a small section of the community. It is one which has not real economic benefit at all. There are no moral reasons in favour of it. It is a simple basic piece of sharing out the spoils, shutting up Conservative ladies who thought that they were not getting quite so much as they should, especially when compared with the shipping companies and the airline operators and those other offshoots of Conservative enterprise. It is just one of those features of the rather undignified rat race which appears to be going on for the leadership on the other side.

It bestows no benefit upon the ordinary people of this country, and when we next have a General Election I think that it will become obvious to the people that those hon. Members who supported the proposals tonight did so because their philosophy is such that they are out of touch with the people; out of touch with modern problems facing our society, subscribing as they do to a political belief—I should not have called it a philosophy—which is blatantly immoral and which causes us on this side to continue in the hope that we shall shift that lot from that side on to this, and eventually get rid of them altogeher.

Mr. Edward J. Milne (Blyth)

I have followed this debate through yesterday and into this morning with the bewilderment that might be expected of a comparative newcomer. What has surprised me has been the reluctance of hon. Members opposite, who claim to be representative of a political party which believes in personal freedom, but who have been whipped into silence on a Bill which is not only of great interest to them, but which they themselves have admitted has given them a considerable amount of aid.

I say that with due deference to the hon. Member for Middleton and Prest-wich (Sir J. Barlow), who indulged in a little private enterprise around midnight, and the hon. Member for Rugby (Mr. Wise), who endeavoured to speak but then had to be escorted from the Chamber; and the hon. Member for The Wrekin, who has used the speeches of other people in order to project his own ideas—[Interruption.]—I will withdraw the word "ideas"; perhaps they were not.

Mr. W. Yates

On a point of order, Mr. Chairman. I object to the hon. Member withdrawing "ideas".

The Temporary Chairman

That is not a point of order for me.

Mr. Milne

No, and the point is not really relevant to the particular matter on which I wish to speak.

The Clause is the foundation and the purpose not only of the Budget but of the Conservative Party. Last November, the Chancellor, who was facing his first Budget, began to sound warnings of the economic disaster which lay ahead of the country. He told us that we were running into an economic crisis. Not long afterwards the Minister of Health decided to increase the Health Service charges. In direct contrast to the empty benches now, in order to pilot that Measure through the House hon. Members opposite crowded on to the Government benches and into the Lobbies.

Some of us felt at that time that they were merely carrying out their philosophy of attacking the weakest sections of the community—and that is what they were doing. But they were doing more than that; they were preparing the ground for the type of Budget which was introduced in April and for this type of Clause. They were flying economic distress signals, warning people that they must not ask for wage increases and paving the pay for the £65 million which they extracted from the poor, the sick and the needy in order that £80 million could be handed to those who are to receive these Surtax concessions.

In relation to the philosophy of Toryism, that should not have occasioned us a great deal of surprise, but what did occasion a great deal of surprise were the reasons given for the imposition of the charges and the introduction of this Clause. We were told that the people working in the export trades were not working hard enough and that some incentive must be given to them. This was in sharp contrast to the treatment which had been received by people in various trades and professions who, because of the Government's policy, had been forced to seek wage increases.

We reach a situation in which those who are supposed to be engaged in the export trade are told to be good little boys; we are told that they have not been working hard but that we can expect them to work harder if they are giver the concessions in this Clause. The economic fallacy of this is easily exposed. The export trade of this country does not depend on the Surtax payer. If every Surtax payer disappeared tonight it would make no difference to our export trade, because the people who have given this country its place as an exporting nation are those who produce the goods which are exported.

If there were any logic in the Chancellor's argument the concessions in the Budget would not only have been spread over the entire range of the people employed in the export industries but would have been diverted into the section of the export trade more likely to lead to an increase in exports. But that was not the principal reason for or purpose of the Clause.

3.15 a.m.

As my hon. Friends have remarked, we have had ten years of Tory rule. Hon. Members opposite, when defending Measures of their own, have chided us on these benches by saying that this or that was done by a Labour Chancellor, or that this or that Measure was introduced during the lifetime of a Labour Government between 1945 and 1951. But what they conveniently ignore is the tremendous difference in the circumstances of the two periods. The people of Britain are beginning to see the effects of the differences on themselves, their families and their standard of living.

The real test is made by looking at some of the industrial constituencies. It is from these constituencies that the nation's real wealth emerges. It is not the Clores, the Frasers and the others, the people who are benefiting from this Clause, who have made this contribution. Unfortunately, in the older industrial areas the older industries are declining—[HON. MEMBERS: "Hear, hear."] Some hon. Members say "Hear, hear," but they do not know what they are talking about because they have never made an attempt to analyse this problem. They are not concerned with the question of wealth production. They are concerned merely with extracting the maximum profit that they can from that wealth production without any regard to its effect on the nation or the nation's workers. We in the older industrial areas are watching the decline in our basic industries. If hon. Members opposite were really concerned about the export drive, they would start diverting some of the newer industries into the areas that I have mentioned.

The President of the Board of Trade made a glowing defence of the Chancellor's Budget on the basis that justice was being done to the nation. But the President of the Board of Trade is the chief victim of the Chancellor's policy, and particularly of this Clause because if the President of the Board of Trade is going to tackle the economic problems of Britain and the export problems that flow from them, he will have to get much more assistance from the Chancellor of the Exchequer and the Government than he has had so far. It is no use talking of new policies and new ideas because the present Government have had ten years in which to set their wheels and their sights in the right direction and all that they have done in that period has been to change direction at different times to suit the pressure groups which have been applying pressure in order to extract these types of concessions.

I remember saying during the by-election in my constituency that the nation would find in the course of time that the present Chancellor would have a more disastrous effect on the nation than he had as Foreign Secretary. That was a bold prophecy at the time, but the right hon. and learned Gentleman has at least done us the service of proving it correct.

The economic crisis which the Chancellor predicted in November last year is upon us now. The Tory Party is shackled by its own slogans from previous elections. If hon. Members turn back to their election addresses of 1959, they will find nothing there bearing any relation to the type of Budget we have now in 1961. They will find no reference to the difficulties confronting the export trade, to increases in National Insurance contributions or National Health Service prescription charges, or to the possibility that their constituents would in times of ill health have to do as some of my constituents now have to do. Some people now, after visiting the doctor on a Monday or a Tuesday, find that the charges in respect of their prescriptions, sometimes two or three of them for different members of the family, cannot be met. The result is that the prescriptions are either left with the chemist until the Friday or are not even taken to the chemist until that day, when the wherewithal is to hand.

When I raised this matter with the Minister of Health, he said he had not heard of that difficulty arising. That did not prove that it did not exist, of course. It proved only that neither he nor any other Member of the Cabinet, like the rest of hon. and right hon. Members opposite, were in touch with what is happening to ordinary folk.

It has been said that £14 or £15 a week is the average earnings of industrial workers. [Interruption.] I can well understand the submerged frustration of hon. Members opposite after being whipped into silence for several hours. They have to have some outlet for their energies. But I am not the one who has compelled them to stay here. I can carry on just as well without their presence. When one examines the record of some hon. Members opposite, one finds—

The Temporary Chairman

The hon. Member must now return to the Question "That the Clause stand part of the Bill".

Mr. Milne

I bow to your Ruling, Mr. Thomas. After 10 years spent in examining the records of the Conservative Party, I do not think that anything that we may say will greatly alter the outlook and attitude of hon. Members opposite.

What is particularly important is that at some stage in the development of the nation the people of Britain must realise how they have been hoodwinked during the last 10 years. In reference to the average weekly earnings of industrial workers, the figure of £14–£15 is very misleading. Millions governed by wages councils set up by Parliament have wage rates below the £9 mark. Many are in trades where they have no opportunity of adding to the basic rate. Even if we turn to voluntary agreements on joint industrial councils and other bodies, we find millions below the average figure.

The hon. Member for Middleton and Prestwich talked about the tax changes which had taken place and which had had an effect on the lower-paid workers. But, as my hon. Friend the Member for Wallsend (Mr. McKay) clearly showed, many of those who will benefit from the operation of the Clause will get two or three times as much per week in Surtax concessions as the people to whom I have referred are getting from doing an honest week's work.

If that is the kind of society that hon. Members opposite want they should cut out the cant and humbug from their election addresses and really tell us what they are aiming at. What they are doing is merely retaining the power, privilege and profit which has been theirs not only over the last 10 years but for centuries. The facts about the Government's economic policy given to us are very sketchy. If we have to accept them, we have to say that they apply not to the second half of the twentieth century but to the latter part of the nineteenth century. Our real quarrel with Toryism is not so much this or that aspect of policy but that hon. Members opposite are completely out of touch with the world in which we live. In short, they are completely unfitted to lead a great industrial nation in the second half of the twentieth century.

Several hon. Members rose

The Chairman (Sir Gordon Touche)

The Chancellor of the Exchequer.

3.30 a.m.

Mr. Marsh

On a point of order, Sir Gordon. A number of hon. Members have been trying to take part in the debate all the evening—[Interruption.] I take it, Sir Gordon, that we still have only the one Chairman. I seek your guidance. Is it not possible for the Chancellor to speak at some length later in order that those hon. Members have a chance to speak?

Mr. Loughlin

Further to that point of order, Sir Gordon. Is it the intention to close this debate after the Chancellor has spoken? Let me—

The Chairman

That point does not arise now.

Mr. Loughlin

Then when does it arise?

The Chairman

That point does not arise now.

Mr. Loughlin

Further to that point of order. Could I have your guidance—

The Chairman

Order. No point of order arises now.

Mr. Loughlin

I am asking you—

Mr. H. Wilson

Further to that point of order, Sir Gordon. In order to know what is planned—and, after all, your Ruling is strangely reminiscent of Rulings we had some time ago—and in a genuine attempt to make progress, because I am not attempting to hold up the Government, would you permit me now to move to report Progress so that we can hear from the Government what their intentions are? I think that there is some misunderstanding, perhaps genuine, about the Chancellor's rising now. A number of hon. Member? want to speak, and there is a feeling that the Closure is about to be moved. That being so, may I move that you do report Progress, and ask leave to sit again?

The Chairman

I would accept that after the Chancellor has spoken, as I have called the Chancellor.

Mr. Lloyd

It may help to clear things up if I say that there is no intention to move the Closure after I have spoken, but I have been listening now for nearly live hours and thought that it would not be inappropriate to offer some remarks.

It has been a very wide-ranging debate, and many side issues have been raised. The question of M.R.A. was brought up; I have no connection with that organisation. Reference was also made, by the hon. Member for Fife, West (Mr. W. Hamilton) to Mau Mau, and I have no connection with that organisation either. Mention has been made of the problems of full employment, of recruiting teachers, police, nurses, etc.; matters which I do not think are appropriate for a debate on this Clause. [HON. MEMBERS: "They are."]

A lot of rough things have been said, about which I have no complaint to make—

Mr. C. Howell

On a point of order, Sir Gordon. [HON. MEMBERS: "Sit down."] Is not a charge that hon. Members have been out of order in making those references a reflection on the Chair?

The Chairman

I do not think it is a reflection on the Chair, but several hon. Members have gone very wide.

Mr. Milne

Is it in order, Sir Gordon, for hon. Members opposite, when a Member is rising to put a point of order, to shout "Sit down"?

The Chairman

It is not proper Parliamentary behaviour.

Mr. Lloyd

As I was saying, a number of rough things have been said in this debate, about which I make no complaint, but, if I may say so, the speech of the right hon. Member for Huyton (Mr. H. Wilson) was more to the point than some others that have been made. I agree with some of the things the right hon. Gentleman said. I agree with his statement that direct taxation is much too high, and I agree with his statement that the tax basis is too narrow. I hope that one will have the opportunity to hear him develop further ideas on both points.

The main criticism during this debate has been that I have my priorities wrong. The hon. Member for Greenwich (Mr. Marsh) admitted that the Surtax payers had a case, and the hon. Member for Fife, West said that his attitude to the problem might have been changed had the proposal been accompanied by proposals for a capital gains tax. I think there is general acknowledgement that something had to be done for the Surtax payer. It may not be particularly popular to do it, but I believe that in the present economic position of the country I have got my priorities right and that it is right for me to take this step.

Mr. Marsh rose

Mr. Lloyd

I listened to the hon. Member without interrupting him and I think that he should now hear my speech without interruption.

It is right to give the Surtax payer some relief next year—nothing in this year—because the level of direct personal taxation is very high in the United Kingdom, particularly for incomes over £2,000 a year. If comparisons are made with the position in Western Germany and the United States, it will be seen that there is a substantial difference between our scales and theirs. The rates of taxation are much higher in this country.

If hon. Members look at Chart 4 in the May issue of the National Institute Economic Review, they will see not hypocritical bunk but the facts, showing that in this band of incomes, particularly between £2,000 and £10,000, a higher rate of tax is paid than is paid, for example, in Western Germany. That also applies to the marginal rates. At a gross income of £2,000 a year, an American keeps almost 80 per cent. of the next segment of his income and the West German about 72 per cent., but the Briton only 60 per cent. Of a gross income of £5,000 a year, the American retains about 68 per cent., the West German about 60 per cent. and the Briton only about 40 per cent.

Mr. Jay

In quoting those figures, should not the right hon. and learned Gentleman add that the American marginal rate at the top level is higher than our own and that the amount kept in Sweden comes out lower than our own?

Mr. Lloyd

I do not think there is any reason for including Sweden, because in these league tables which are all the time being thrown in my face it is not Sweden but always Western Germany which is mentioned. That is why I thought it appropriate to refer only to Western Germany and the United States in this context.

Mr. George Lawson (Motherwell)

While the tendency in America and Germany is to say that these people earn their incomes, is it not the case that in this country it is largely nepotism which results in their receiving these incomes?

Mr. Lloyd

That does not reflect very well on the hon. Member or on industry in this country. That is not a fair comment.

Mr. W. Hamilton

Everybody knows that it is true.

Mr. Lloyd

I am certain that the figures which I have mentioned are a disincentive to people who, whatever may be said, are a very important section of the community.

I do not agree with the hon. Member for Gloucester (Mr. Diamond) that the more people are directly taxed the harder they work. A high level of direct taxation is a disincentive. The Report of the Royal Commission has been mentioned, but the Commission was talking mainly about P.A.Y.E. I do not accept that its conclusion was against my proposal. The Commission discussed a different aspect of the matter on such evidence as was available to it.

There has been some discussion of the reference by my hon. Friend the Financial Secretary to the Measure as a dynamic boost to the economy. I agree at once that these are not the only people who make a contribution to the economy. Many others contribute a great deal, but this section has a very great rôle to play. There are some who do not contribute as much to the nation's well-being as others, but basically this group of income receivers has a tremendous lot to give to the country's prosperity.

I will be as precise as I can about the effects of this proposal. As the hon. Member for Bosworth (Mr. Wyatt) when seeking under the Ten-Minute Rule, to introduce a Bill to raise the Surtax level said, it will be an incentive to the younger executives to get on and make progress in their industries or professions. As my hon. Friend the Member for Bath (Mr. Pitman) said, I think it will make it easier to get people to move from industry to industry, and within industry from firm to firm, and also from place to place in this country. If anybody disputes the fact that the high level of taxation has been a disincentive to people moving, then he really does not know the facts of life. I think also that it will lead people to accept responsibility. Case after case has been reported of people not being willing to accept greater responsibility because they considered that on the Whole the additional reward was inadequate.

Then there is the question of a husband and his wife both working. I think that what I have done will be a very substantial incentive to wives to work because up to now a large number of those who could work have been deterred from doing so, or from doing more, because of their being assessed with their husbands for Surtax. With this £5,000 level I think I have done a great deal to meet that disadvantage.

I think another benefit will be that it it will bring some reality into figures of salaries. At present, because of the high level of taxation, we have astronomical salary figures. When people retain rather more of what they get, that will lead to more reality in salary figures.

Mr. H. Wilson

The right hon. and learned Gentleman seemed to suggest that a lot of people are refusing to work. He just said that. He did not produce evidence. Will he give the evidence of cuts in salaries which have occurred since the Budget to take account of the suggestion he has just made? Has that happened?

Mr. Lloyd

Of course not. The Budget has not been passed yet. I do not think the right hon. Gentleman really expected an answer to his question.

The plain fact of the matter, and hon. Members opposite must accept it, is the changed value of money. I know that £5,000 sounds a lot, and of course, a man with £5,000 a year is a good deal better off than people with a small weekly wage. [Interruption.] Of course he is, but there is that remark which hon. Members have thrown in my teeth again and again, and what I said was that a man with £5,000 was not a rich man.

Mr. Hilton

Tell the farm workers that.

Mr. Lloyd

But hon. Gentlemen opposite have said that I would make the rich man richer. [HON. MEMBERS: "Hear, hear."] I was trying to point out to hon. Gentlemen opposite that a man with £5,000 a year is not a rich man. The figure which I gave—I give it again to the Committee—was that a man with £5,000 a year gross now has the same spending power as the man with £1,400 a year gross in 1937. I do not think that hon. Members, even on the other side of the Committee, would say that a man with £1,400 in 1937 was a rich man. [HON. MEMBERS: "He was."]

I think the change embodied in the Clause will be beneficial to the economy. Not one penny is going to the Surtax payer this year. As I said in my Budget speech, almost the whole cost is covered by the increase in the Profits Tax. I think the Opposition is out of date in its approach to this matter. It has been said that this is a straight political debate. I certainly accept the challenge of a straight political debate. I think that what I have done is common sense and is in the interests of the economy, and I ask the Committee to pass this Clause.

3.45 a.m.

Mr. Houghton

It may be convenient if I make a few observations on the Chancellor's speech, without intending to bring the debate to an end, since a number of my hon. Friends may still wish to contribute to the discussion. I think I should express regret at this stage at the lack of co-operation from the benches opposite. What astonishes me is the fact that hon. Members opposite, who are supposed to be made of flesh and blood, have been reduced to a state of lifeless silence under the lash of the criticisms of my hon. Friends. I do not believe that the Patronage Secretary has silenced them. On other occasions when they have wished to say something and have wished to vote against their own Government the Patronage Secretary has not been able to restrain them. They must have been silent because they have nothing to say.

Sir D. Walker-Smith rose

Hon. Members

Make a speech.

Mr. Houghton

I have something to say. I will give way to the right hon. and learned Gentleman in a moment. He must let me finish my castigation first. A proposal of this kind, which is the main one in the Bill, in the most contentious Clause, should surely have been defended by hon. Members opposite. It is not fair to the House or to the country that all explanations and defences of this case should be left to the Government Front Bench. Hon. Members opposite must feel something about the explanation given by the Chancellor. The reason why we are left in such doubt as to the real motive behind the Clause is that so little has been said by hon. Members opposite. Does the right hon. and learned Gentleman wish to intervene now?

Sir D. Walker-Smith

I merely wanted to ask the hon. Member if the explanation of the silence from these benches during the five hours of speeches of hon. Members opposite might be that they have not produced a single comment worthy of reply.

Mr. Houghton

Have the fighting instincts of hon. Members opposite left them? Has their blood run so thin that they cannot get up and reply to the provocative speeches from hon. Members on this side of the Committee? What is the matter with them? They have been called almost everything, from knaves to fools, by my hon. Friends, yet they say nothing has been said that is worthy of reply.

Mr. D. Price

May I assist the hon. Member in his dilemma? St. George is prepared to fight a dragon but not a mouse.

Mr. Houghton

When the hon. Member was sitting on the bench below the Gangway a little while ago he did not say that we were mice; he said that he was bored. [Laughter.] I hope that hon. Members opposite are in the mood for a little serious discussion of the matter.

Mr. D. Jones

Hon. Members opposite will lose their smiles in the months to come. [Laughter.] I hope they will remember my words. [Laughter.] They can enjoy their smiles while they can.

Mr. Houghton

Whatever the motive behind the Clause, we fully understand its effect on the level of Surtax for 1961–62. And we have to put this proposal in Clause 11 in the context of the general situation accompanying this Bill and the Budget.

Some speakers have seemed to suggest that the Chancellor was considering what to do with a surplus of revenue. That is not the position at all. This is not a distribution of surplus revenue. The right hon. and learned Gentleman is not distributing something which he does not want. This proposal is made against a background of the highest surplus above the line for ten years. Only the other day the Financial Secretary to the Treasury, in the debate on an Amendment which would have cost something over £4 million, declared that it was fundamental to the Chancellor's Budgetary strategy to retain a surplus above the line of over £500 million. That is the first thing.

The second thing to remember is that these concessions are announced in a year in which the Chancellor has actually increased taxation for this year by £68 million, and next year, even after allowing for the Surtax concessions, there will be a net addition to taxation of £58,500,000. Against that background there has to be overwhelmng justification for what the Chancellor is proposing in this Clause.

He said when he introduced his Budget that he could not give any general tax reliefs this year. Notwithstanding the reduction in the standard rate in 1959 and the postponing of further reliefs on personal allowances which we might have expected to have been introduced this year, the Chancellor has chosen this proposal in Clause 11 as the relief uppermost in his mind, and the most important to be done now. Therefore, I think the Committee is fully entitled to make some searching inquiries into the motives behind this proposal, because it is something quite exceptional in the context of the Budget and the economic position as a whole.

A few moments ago the Chancellor reiterated what he has frequently said on earlier debates on the Bill and Amendments to this Clause, that he is virtually making an investment in strengthening the economy by giving incentives to people who have a valuable contribution to make to the wealth and well-being of the country. I think it understandable that some of my hon. Friends should doubt whether the Chancellor's reasons are genuine, but I want to look at them. I think it understandable that some of my hon. Friends should inquire whether some of these proposals are relevant to the divisions on the benches opposite. Perhaps this is not the occasion to delve into the sordid divisions and struggles for power which go on on the benches opposite—[HON. MEMBERS: "Oh."]—but I am quite sure that at a time when there are so many obvious divisions among hon. Members opposite it would be underestimating the Chancellor's sense of political advantage if we did not think that he was searching for some unifying proposal.

I suppose that one reason why hon. Members opposite have remained so silent is that they agree with what the Chancellor is doing and are content to let him get on with it. [HON. MEMBERS: "Hear, hear."] That at least proves that the Chancellor has made a somewhat shrewd bid for unity on the benches opposite.

I think it also quite legitimate for those of us on these benches to inquire whether there was anything in the mind of the Chancellor in making these proposals which would satisfy the expectations of the closest friends and supporters of the Conservative Party. I think there may be something in that. After all, people do not support parties without expecting them to fulfil their desires or beliefs of what they think good for the country as well as themselves. There was one reference, however, which I thought perhaps relevant, that even though some Surtax payers would not subscribe to the view that they were going to work harder or be any more efficient the proposals would still justify what the Chancellor proposed on the ground that the present level of taxation was unjust. Injustice in the Surtax range would have to be justified lower down. My hon. Friend the Member for Wallsend (Mr. McKay) gave the Committee many figures to suggest that lower down reliefs have not been as freely given as in those higher up. Was it really the motive in the mind of the Chancellor to keep key men happy at their work? If so, the proposition has to be looked at as an investment in efficiency and in higher productivity. The Chancellor must surely have some evidence available to justify the investment of £84 million in this way to achieve the purpose he had in mind.

Personally, I dismiss the comparisons which he made with the levels of personal taxation in other countries. What is the reason behind that comparison? Is that merely a sense of comparative justice, or does he suggest that those other countries with allegedly lower levels of taxation in the higher ranges are in competition with us for brains and skill? Are the executives and technicians and professional men, civil servants and company directors leaving Britain for the countries were taxation is lower? There is no evidence that they are. Some are going, and it would be a great pity if some did not go to help build up the economies of other countries perhaps very much in need of their assistance. We have exported skill and service in the past, and I see no reason why we should not continue to do so, but that is no justification for reducing Surtax in England in order to keep people here. I do not think that can be the reason.

Does this inequality in the level of taxation in the higher ranges put this country in a less favourable competitive position in relation to those other countries? I do not think that can hold water. The level of company taxation, Profits Tax and Income Tax, on industry may have some effect on cost of production or on profit margins which companies are looking for in their export trade, but as individuals, as executives and directors, I see nothing to suggest that by any differences in levels of taxation we are put in a less favourable competitive position.

4.0 a.m.

Moreover, in making these comparisons what is frequently lost sight of is the composition of the taxation in terms of redistribution for social service purposes. There is no National Health Service in the United States. Many people wish there were. The one cloud that hangs over every household in the United States is the fear of illness and the great expense of medical, surgical and hospital attention. Voluntary organisations are being formed which I believe will one day lead to a National Health Service in the United States. Any visitor to the United States, as hon. Members opposite know even better than I, is soon asked questions by Americans about the working of what they describe as "socialised medicine". Their own risk of illness may be an expensive one indeed. There are such questions as the cost of education and other social benefits, which are not available in the United States and are not available in similar form even in Western Germany.

We must look at our level of taxation in relation to our social needs, our traditions, and the expression of our social obligations in the Welfare State which we have built up in the last fifteen years.

Sir E. Boyle

The President of the Board of Trade said in the Budget debate that social expenditure has risen by 90 per cent. during the last ten years. That is a very important reply to the many hon. Members opposite who have talked about this Government redistributing income in favour of the better off. We must consider the social income and the great expenditure on the social services, quite apart from the 20 per cent. increase in the living standards of ordinary working people.

Mr. Houghton

There is no doubt that my hon. Friends are right in saying that recently there has been a greater tendency for redistribution to relieve the direct taxpayer and place additional burdens on the flat-rate contributor. I am disposing of one of the points raised by the Chancellor in justification of the proposal in the Clause.

The Chancellor then said that he was sure that the present level of taxation acted as a disincentive to a valuable section of the community. How does he know? No evidence has been produced to the Committee or anyone else to confirm that "certainty" about the high level of taxation being a disincentive. The Chancellor said that if we did not know of cases of people refusing to move or accept additional responsiblity because the net additional rewards would not be worth it, we did not know the facts of life.

What sort of people are they who refuse to move or accept additional responsibility because the net rewards will not be worth it? These are key men. These are among the 400,000 men and women in Britain today on whom we are said to rely for the expansion of our economy, the health of industry, and the development of our services. If these men and women will demur at accepting what is clearly their duty, on the ground that the net rewards are not good enough, I doubt very much whether they would make the grade if they accepted. I have yet to meet any such person.

I challenge hon. Members opposite—there is plenty of time before breakfast—to rise and give us actual instances of the type which the Chancellor says he is sure exists. Many junior civil servants have to move from, for instance, Peterhead to London with very little additional reward or hope of promotion. They do it because they conceive it to be their duty, because they have entered a mobile service. They have undertaken an obligation to serve where they are wanted. I should have thought that many of those to whom the Chancellor referred would have accepted similar obligations with the firms employing them. I think that that can be very much exaggerated, and when it comes to rock-bottom, there is nothing more in the Chancellor's remarks a few minutes ago than he has given us before, unsupported by the more convincing evidence which he must have felt challenged to give in reply to the scepticism and criticism which we on this side have levelled at the real reasons for the proposals in Clause 11.

I think that the Committee, notwithstanding all the debate which we have had, can still be uncertain as to the real motive behind all this. Why did the Chancellor do it? What made him do it? Why did he go so far? If he did it on the basis of the sort of hearsay which he gave us a few minutes ago, then I think he has taken a budgetary proposal costing £84 million in a spirit of irresponsibility; for, not only is this Clause going to cost £84 million, but he has levied industry in order to make good the loss of taxation when the reliefs come to be implemented in a year's time. In that way he has justified not only the relief, but the accompanying additional taxation on industry to pay for it. That makes this step doubly serious and requiring fuller justification.

We have a new phrase now which will no doubt be quoted. The Financial Secretary referred to this as being "a dynamic boost to the economy". If that is what it is, and we are to get it from 400,000 people, what about the other 20 million? They seem to have been completely overlooked. Does the Chancellor not realise that for £84 million he could have increased the personal allowance for single persons to £150 and the personal allowance for a married couple from £240 to £260, and the wife's special earned income relief from £140 to £150? He could have spread that £84 million over the whole of the direct taxpayers, and the Surtax payers included because they would have had the benefit of a spread of the personal reliefs. None of those reliefs has been increased since 1955, excepting that the standard rate of Income Tax was reduced more recently in 1959. There is one way in which he could have given a boost to the economy. He could have done it by spreading these benefits over the wider field, but he has chosen to concentrate on the very narrow front.

This, I think, raises serious doubts. I should have thought that the Chancellor had doubts as to whether he will get from these reliefs the additional strength for the economy which he apparently believes will come. As we all know, there is a considerable proportion of the Surtax payers which consists, by the very nature of their occupation, of persons who will be unable to contribute any more to the strength of our economy. Indeed, some of them would strengthen the economy of the nation if they would get out of business and allow resources now used for useless purposes to be devoted to something much more worth while.

The Chancellor's approach to this problem raises the fundamental question whether Britain will survive on this philosophy. It seems to me that the capitalist system will work only as long as greater effort and drive and higher efficiency can be bought with money; personal gain must lie at the root of all human activity if industry is to prosper and the country to survive. But when material gain loses its attraction, when men stop trying because more money alone fails to enable them to fulfil their personality, what do we do? We may be coming to the end of the capitalist road, because if these reliefs do not repay the Chancellor and the nation in terms of higher productivity and greater wealth, then this method of obtaining it will have failed and the country and the House will have to consider an alternative. If the carrot fails and one cannot use the stick, what, then, will make men work harder or be more efficient or be more adventurous or put more drive into their work?

This is a serious gamble—one of the most serious fiscal and economic gambles that the Chancellor has undertaken. I also assert that there is nothing in the experience of the last substantial benefits to the higher income groups to give the Chancellor any confidence that he will get higher productivity and greater wealth from the step which he is now taking. I discern nothing from the wide extension of the earned income reliefs into the field of remuneration of the Surtax payer which would offer the Chancellor any encouragement in carrying that example further.

I think that Conservative policy must be bewildering even to those who think that they support it, because it is not without significance that although this Clause is designed to boost the economy, we have Clauses 8 and 26 to put bits and curbs on the economy if it shows any signs of getting out of control—and it is a matter of speculation whether the boost or the curb will happen first. We appear to be getting rather nearer the curb than the boost.

In the background to this Clause, and the whole approach to it, is the soul-destroying Conservative philosophy which is building a society governed almost exclusively by materialism and hope of personal advantage, a society which has been strongly and justly criticised by some of my hon. Friends. It makes me wonder what is the future of Britain if all the young people are to be subject to the attentions of the ad-men and the persuaders and are to see almost every aspect of human activity in terms of romantic love—even cigarettes, even beer. That is the sort of background which is drawn behind the Chancellor's hope that by offering relief to the Surtax payers he will in some mysterious but nevertheless tangible way show how much stronger the economy can become.

4.15 a.m.

Mr. Ross

My hon. Friend the Member for Sowerby (Mr. Houghton) gave hon. Members opposite something to think about—although while they have been in the Chamber they have spent most of their time jeering and conducting themselves with considerable levity. This links up closely with the leading article in The Times yesterday morning which wondered whether the Government are moving in the right direction and whether they have their moral values right in their present policy.

This, to my mind, is the most serious part of this matter—the whole implication of what the Chancellor is doing, and this, being the one great thing that he is doing within this pessimistic Budget of his, is something which is bad for Britain. If this is the only way in which we can get the executives, the scientists and the exporters of Britain to work for Britain, heaven help Britain.

I begin to wonder in what sort of spheres the people at the Treasury move when we get this story about the £5,000 man and his outlook. This is the outlook of the grouse moors. "Nigel was worried; he was very depressed." This is another bit of Tory gossip which came from the grouse moors of the Treasury playground. "It is anti-British but it makes good sense to me"—not "Patriotism and Britain come first," but personal gain. I had hoped that what my hon. Friend the Member for Fife, West (Mr. W. Hamilton) said about the Chancellor's interest in Moral Rearmament might have been true. I appeal to him now, while he still has time, to withdraw this Clause.

Let us put the matter into perspective. Here is a Finance Bill following a Budget concerning which the speech of the Chancellor was one of the most realistic and best that we have heard for many years. He put clearly before the country the razor-edge balance of our whole economy, and he sought to strengthen his own hand by putting into the Finance Bill two great new powers which underlined the fact that we were required to act quickly. In respect of one of those powers, he visualised acting before August of next year. They are two great regulating powers. Is this the time to anticipate his Budget of next year by giving relief of £83 million to one section of the people? It is a denial of the reality which he himself tried to face. I cannot understand why the Chancellor does that.

We had a speech from the Chancellor a short time ago in which he sought not so much to justify his proposal as to justify a silly reference he made in a speech. He spent all his time trying to justify the suggestion that a person with £5,000 a year is not rich. He said that one is only rich if one has a great amount of capital. Even on the logic of that statement, he should have introduced a capital levy or a capital gains tax into his Budget.

The Chancellor suggested that we ought to make a comparison with a salary of £1,400 a year in 1937. My memories of 1937 are still quite vivid. I had just started out on my career as a school teacher at that time, and I was very lucky to be working at all because at that time Glasgow was not short of applicants for jobs, and those who were working would have looked at £1,400 a year as wealth beyond anything that they could ever hope to achieve. I was very fortunate because my father was in a good job. He was one of the kings of the working class, an engine driver, on £4 a week steady. That was real wealth. The Chancellor is just about as wrong in his notions about the pre-war world as he is about this.

The right hon. and learned Gentleman cannot divorce what he is doing from what he has already done. He cannot ignore the fact that he came to us, having first sent Enoch the Baptist before him, to say that the only way we could have hospitals was by taxing the sick 2s. per item on prescriptions, by putting up the National Health Service contribution—this is still to come in July—by 1s. for a man—10d. for the man and 2d. for the employer—and in various ways raising an extra £65 million a year for the purpose. Then he says, "I shall be able to afford next year £83 million for 300,000 or 400,000 Surtax payers". It does not make sense.

Will the right hon. and learned Gentleman move among the people? Why were the Conservatives completely deserted at the polls in Paisley so that they nearly lost their deposit when previously they had almost 20,000 votes? Because Conservative supporters were utterly dismayed and could not believe that in our situation the Chancellor could do something like that. I do not know why he has done it. It is said that he has done it to purchase popularity within the Tory ranks. If so, it will be very expensive for the nation, because it will cost more than £83 million.

Other people will be affected. The Chancellor talks about helping the exporter. In Kilmarnock, we do quite a bit of exporting of carpets, boots and shoes, whisky, engineering supplies and so on. In the whole of Kilmarnock there will not be, I imagine, 300 people who will benefit from this Clause, but every single worker is working for export. What will their reaction be? They will think, "If this is the way things are done"—we all had the stuff from the Institute of Directors and we know about the activities of the pressure group all last winter, the articles in the Press and so on—"we will start too". They will start through their trade unions, and quite rightly so. Does the right hon. and learned Gentleman see what he is doing to the nation? It is not at all funny. This goes from one section of the population to another, and we shall become a rather shoddy nation in our moral values.

In Scotland today the picture houses are all opening for "Bingo" sessions morning and afternoon. People are going in to labour in the casinos of London. We have it from the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) that the attractions of the expenses racket are indications of sober Christian society. What a muddle we have had from the one or two speeches made by hon. Members opposite.

The Clause cannot be defended in relation to the situation today. The Chancellor tells us—we have had so many justifications for this—that it is to help the export trade. That was laughed out of court by my right hon. Friend the Member for Huyton (Mr. H. Wilson). Are all the people who will benefit from the Government's proposals in the export trade, are they all young, and are they all sufficiently uninspired as to be completely stationary and refusing to move? This is just not true.

I reckon that as a result of what happened at Epsom last week many bookmakers have come into the Surtax class. They do not increase production. I do not know how they come into this in relation to the well-being of the nation. The more we examine this, the more the original reasons given by the Chancellor are shown to be utterly stupid.

The President of the Board of Trade told us that it was a belated act of social justice. The hon. Member for Ormskirk (Sir D. Glover) told us about teen-age tycoons with £7 to £8 per week and said that it did not matter because they could pay this and that. Now he sits in silence; when he opens his mouth it is to jeer.

Mr. Scholefield Allen (Crewe)

Or yawn.

Mr. Ross

The Chancellor is giving £83 million to 300,000 Surtax payers, and £19 million of that is in respect of unearned income. How can he justify that in view of his preparedness to tax the 10s. widow? Social justice does not enter into it. The Government are just clothing the proposal with fine phrases. There are many other things that we could have done with the £83 million.

I have just been dealing with correspondence about housing and overspill in Glasgow. We need new towns. The people do not like the Government's proposal. If the Tory Party are to be responsive to the feeling of the people—and the people in general are not always wrong—they must take this proposal away. Back-bench Members opposite are hoping that we shall have had the debate, controversy and argument this year and by the time the proposal comes into force next year people will have forgotten it and the General Election will be a year nearer. That may be the subtle timing of the proposal.

It is quite wrong. Hon. Gentlemen opposite must appreciate that what is right for the Surtax payers is not necessarily right for the people of Britain as a whole, and that the Surtax payers are not the people who most need help at present.

I wonder whether the silence of hon. and right hon. Gentlemen opposite comes from their inner feeling that this is wrong and that what we require is something much more realistic to get our priorities right and inspire the people with a certain measure of confidence. Let the Government not forget that they have had ten years, and that it is after that that they tell us that this is the only way to make Conservative freedom work. This is the only way to make the most Tory section of the community work, because 90 per cent. of the 300,000 will be not only supporters of but contributors to the Conservative Party. Is this the sort of bribe Britain needs to make her way in this world? If so, the Budget and the feeling behind it make me even more pessimistic about how we are to proceed if we have the present Government very much longer. I ask the Chancellor to withdraw the Clause.

4.30 a.m.

Mr. Laurence Pavitt (Willesden West)

I thought that I might be one of the fortunate back benchers to hear and be able to answer at least one speech from the other side when I saw the Chancellor rise. What has happened in this debate is that my right hon. Friend the Member for Huyton (Mr. H. Wilson) with amazing foresight demolished most of the speech of the Chancellor before it was made, and the rest was entirely destroyed by my hon. Friends the Members for Sowerby (Mr. Houghton) and for Kilmarnock (Mr. Ross). The right hon. and learned Gentleman must have some of the qualities of the centipede. During seven and a half hours of debate I had thought that my various hon. Friends did not leave the Chancellor a leg to stand on, but he was still able to find his feet—though without being able to say anything new.

The Chancellor told us that, in 1937, £1,400 was not the income of a rich man. What sheer nonsense that is to anyone who can remember 1937. The Spens Report, on which the doctors' pay was based, showed that the average all-sources income of the general practitioner was under £900 in 1939. The Health Service was based on the understanding that the general pracititioner's rate of pay in 1947 was £1,111. Yet the right hon. and learned Gentleman tells us that in 1937 an income of £1,400 was not that of a rich man.

The Chancellor's other point was torn to pieces by my hon. Friend the Member for Kilmarnock; that young technologists, scientists and executives likely to be in the Surtax class, needed to have some incentive, and that he was providing that incentive by paying £19 million of advantage to people not on earned, but with unearned income. I fail to see how such a concession on unearned income can have the slightest bearing on the situation, nor can my hon. Friends. From the speeches that have been made during this rather long period, it is obvious that Clause 11 stinks in the nostrils of all my hon. Friends. I hope that the advice proffered by my hon. Friend the Member for Kilmarnock will be taken, and that the Clause will be taken quietly away, and withdrawn.

Each of my hon. Members has spoken always from the point of view of his own knowledge and experience of people. My hon. Friend the Member for Norfolk, South-West (Mr. Hilton) spoke from the point of view of the agricultural worker. My hon. Friend the Member for Birmingham, Small Heath (Mr. Denis Howell), spoke of the way the interests of the hospital staffs had been affected by the whole of the Budget speech. Time and again we have had points from hon. Members speaking with knowledge of their constituencies, and of the industry, commerce or agriculture, in their areas. My hon. Friend the Member for Wallsend (Mr. McKay) displayed a terrific knowledge of figures, but as I find figures far more difficult than he does, I shall not follow him there.

During this debate, we have been representing the ordinary people. As to the other side, it has often been said that the Establishment is full of faceless people. Perhaps the Surtax payers as part of the Establishment are some of these faceless people. If so, they have been aptly represented by the voiceless wonders in this Chamber—because, apart from the Chancellor's speech, we have had only one speech from the other side, and that was merely a short intervention.

We on this side must interpret the intricacies of the Clause in terms of people. I must follow the general line adopted by most of my hon. Friends this evening and say that this extra hand-out of £83 million can be considered only in the light of the £65 million already taken in the previous budgetary exercise conducted by the Minister of Health and the Treasury. The two clearly stand in juxtaposition and it is in that context that I have to visualise the effect of these Measures on the people I know.

We have talked of the language of priorities. I know a man who has cancer of the bowel, a very unpleasant and difficult disease with which to deal. He has a colostomy, which means that he has to have a drainage system from his abdomen. He requires five items on prescription every eight, nine, or ten days. He is not particularly poor, but he is an ordinary person trying to struggle along in an ordinary kind of job doing light work. He is coping with his disabilities very well, but this is the man who has to pay an extra 10s. every fortnight apparently in order that the Surtax payers shall have this incentive which, so far as I can see, does not exist.

On the other hand, there is the chap to whom this concession will probably be given. I go back to my experience when for a short time I worked in a stockbroker's office—the only time I have had much to do with people paying Surtax. At that time, people paying Surtax used to get to the office at ten minutes to ten, go to the Stock Exchange at ten o'clock, come back for lunch at Simpson's at half-past twelve, and come back from lunch at half-past three, and then go back to the Stock Exchange for three-quarters of an hour and then, as has been said, go home to Woking after a busy day. Among those Surtax payers I did not see anyone who deserved to receive the product of the 2s. prescription charges. I am also concerned about the third Budget which we may get in the autumn and which may help to increase handouts similar to this sum of £83 million next year.

The Surtax payers I know used to get cases of champagne and whisky every Christmas—all on the expense account and again part of the fringe benefits. I am now fighting the case of a man in my constituency who was given a bonus of £7 at Christmas but who, because he happened to be 69, had £5 2s. taken away because the gift was regarded as a bonus and was therefore liable under the earnings rule. Not only was he left with only £1 18s, but he has had an additional 2s. a week deducted from his pension in anticipation of his receiving a similar bonus next Christmas.

That is the disparity, the gulf, the gap, between people like that and those affected by the Clause. Is it to be wondered at that we are indignant and distressed and that we are trying to do something for the ordinary people whom we meet in our everyday life? Yet we are faced with the absolute stone wall of the dogmatism of the Treasury Bench.

My hon. Friend the Member for Ebbw Vale (Mr. M. Foot) discussed what could be done with the £19 million relief in respect of unearned income. We can all think of useful things which could be done with it. There is the whole question of a creative approach to the social services instead of the present mean and niggardly approach. There is the whole question of a dynamic in industry. All those things are being entirely missed for the sake of a pay-off to the friends of right hon. and hon. Members opposite.

It has been suggested that this Clause is not only irresponsible but entirely irrelevant to the situation in which we find ourselves. This Clause is definitely obnoxious and unjust. I hope that the Chancellor, even at this late hour, will see his way clear to withdraw it. As we know, that is unlikely. We on this side will do our best to throw it out neck and crop.

Mr. Loughlin

I want to oppose this Clause because I feel that it may do serious damage to the economy of this country in the next few months. I know that the Chancellor has argued that his intention in giving relief to the tune of £83 million to the Surtax payers is to ensure that those people whom he described, the executives, the managers, the technologists, and so on, would have an incentive to take initiative and to work with the intention of improving the economy. In his Budget speech he said that in looking at the future we should think not only of salaries and wages but of an increase in consumption in the next twelve months of some 3½ per cent. If he decides to give to the executives, the managers, the technologists, those people who pay Surtax, relief to the tune of £83 million, he cannot very well at the same time say that the incentive to the ordinary worker in industry, who is as vital to the economy of the country, in the next twelve months should be restricted to a 3½ per cent increase in wages, because that means that for every £5 the worker earns he should be restricted to an increase in the next twelve months of 3s. 6d.

If the average earnings are in the region of £15 it means that the workpeople of this country will be restricted, if my arithmetic is correct, to three times 3s. 6d., which is 10s. 6d. We cannot very well argue that it is possible without creating inflation to spread £83 million in the form of Surtax reliefs amongst 300,000 people and at the same time say to the ordinary worker in industry that if he receives wage increases in the next twelve months in excess of 10s. 6d. it will be inflationary—assuming that he is earning at the average level.

It is no good the Chancellor saying that this money he is distributing will not go into circulation for twelve months. I know no Surtax payer who will not be able to get a loan from the bank or who will not be able to get credit to purchase any goods he wants. He can spend this money in advance of receipt from the Chancellor.

It is no good arguing that we can give £83 million to these people without its being inflationary but that we cannot afford to give workpeople earning £10 a week any more than 7s. in twelve months—even 7s. 6d.—because that would be inflationary. The Chancellor cannot expect the trade union movement or the industrial or distributive worker whose rates of pay are often well below £10 a week to pursue a policy of wage restraint when the Minister is, at the same time, giving relief to people who, by no stretch of the imagination, can be assumed to need it.

4.45 a.m.

I do not expect hon. Members opposite to agree with my view on the question whether it is right to give substantial reliefs of this kind to those who do not need them and, at the same time, to impose in one way or another, by the action of the Minister of Health, taxation on a good number of people who cannot afford it and who, at present, are suffering considerably as a result of its imposition. I recently talked to some old-age pensioners in my constituency. Some of them did not even know that they were entitled to get 2s. back on their prescriptions. I happened to be sitting in the waiting room of a hospital in my constituency where I chatted to a number of old-age pensioners, who told me that they were finding it extremely difficult to pay for the prescriptions which the medical practitioner attending them felt they should have in order to maintain a decent standard of health.

I do not expect hon. Members opposite to consider this matter on the basis of social injustice, but if they claim to be the custodians of business I expect them to consider the issue on the basis of the question whether it will be good for business or for the country. I can tell them that many trade union officials will not be prepared to go to their workpeople and tell them that the 3½ per cent. to which the Chancellor referred in his Budget speech is the maximum that they are prepared to argue for around the negotiating table.

Although they accept that they have a responsibility to ensure the continuance of a decent standard for their people they will quickly reach the point when they will have to ask themselves whether they have not also a right to take up the same attitude as that adopted by hon. Members opposite—that it is all right to extract the maximum. If we were arguing that we ought to have £1 a week more, and, having failed in our negotiations, decided on official strike action, hon. Members opposite would argue that we were holding the country to ransom. But the philosophy of the party opposite is that it is right for them to acquire the material goods of this life. They will do it at the expense of anybody, because if they will do it at the expense of pensioners and old people, they will do it at the expense of their own mothers. If they take that attitude, it is right that the trade union movement should do the same. If the party opposite can get the maximum amount of this world's goods without being charged with holding up the country to ransom, the trade union movement should have the same rights and privileges.

Mr. F. H. Hayman (Falmouth and Camborne)

I do not intend to detain the Committee for long, but having listened to the debate for some hours I feel that I cannot contain myself any longer. The title of this Clause is—"Surtax: reliefs for earned income." The Financial Secretary told us that £19 million of relief would apply to unearned income. That information was not given us in the Budget statement. I have seen things in the last week which make me feel that, unless this House of Commons faces the reality of the position of Britain in the world, the country will go to ruin. Any thinking person who watched television last Saturday night and saw the dinner in Vienna and the concert that followed must have thought that the influence of Britain as a great Power had passed. The time of past glories of which hon. Members opposite continue to brag has gone. There were two men dominating Europe and the world and both were at an historic dinner wearing lounge suits. There were no fripperies such as must adorn banquets in Britain. If the Government and the Tory Party feel that they can glorify free enterprise to the bitter end, the workers have an equal right to exploit their power to the bitter end.

Last night a man was interviewed on T.V. He said that he had left Britain to go to Jersey in order, as he said, to practise tax avoidance. That is a pretty despicable thing. Yet the Tory Party, which brags about Britain's power, is prepared to support the tax avoiders. Whether a man calls it tax avoidance or not, it is tax dodging. That man went to a part of the British Empire, which I suppose is still part of the United Kingdom, and expects to get British protection. I despise people of that kind.

The Chancellor spoke about a man earning £1,400 a year in 1937 and seemed to think that it was a small amount. I recall that in 1937 in my constituency one worker in four was unemployed and in the country as a whole one in six were unemployed. In 1937 £1,400 was a quite respectable sum. We must realise that there has been a great change in power in the world and a great change in patterns of society.

Last week the House debated Commonwealth Training Week, which was supported by hon. Members on both sides of the House. I spoke in a technical college in Falmouth last Friday night. The Minister of Education has refused point blank to grant enough money to expand that college. A fortnight ago I was in an ordinary school in Helsinki. There I saw a metal workshop which was far better than the metal workshop

at the technical college in Falmouth. As a nation we cannot afford to neglect our technical colleges, yet in giving this £85 million relief in Surtax this Government are hampering the technical development of the country.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 163, Noes 89.

Division No. 194.] AYES [4.58 a.m.
Agnew, Sir Peter Grant-Ferris, Wg. Cdr. R. Page, Graham (Crosby)
Aitken, W. T. Green, Alan Pearson, Frank (Clitheroe)
Allan, Robert (Paddington, S.) Gresham Cooke, R. Peel, John
Allason, James Grosvenor, Lt.-Col. R. G. Percival, Ian
Balniel, Lord Hamilton, Michael (Wellingborough) Pickthorn, Sir Kenneth
Barber, Anthony Harris, Reader (Heston) Pike, Miss Mervyn
Barter, John Harrison, Brian (Maldon) Pilkington, Sir Richard
Beamish, Col. Sir Tufton Harvie Anderson, Miss Pott, Percivall
Bennett, F. M. (Torquay) Hastings, Stephen Powell, Rt. Hon. J. Enoch
Berkeley, Humphry Heald, Rt. Hon. Sir Lionel Price, David (Eastleigh)
Biggs- Davison, John Hiley, Joseph Prior, J. M. L.
Bingham, R. M. Hill, J. E. B. (S. Norfolk) Pym, Francis
Bishop, F. P. Hinchingbrooke, Viscount Quennell, Miss J. M.
Black, Sir Cyril Hirst, Geoffrey Rawlinson, Peter
Bossom, Clive Hobson, John Redmayne, Rt. Hon. Martin
Bourne-Arton, A. Hocking, Philip N. Ridley, Hon. Nicholas
Box, Donald Holland, Philip Roots, William
Boyle, Sir Edward Hopkins, Alan Scott-Hopkins, James
Braine, Bernard Hornby, R. P. Seymour, Leslie
Browne, Percy (Torrington) Hughes-Young, Michael Sharples, Richard
Buck, Antony Hutchison, Michael Clark Shaw, M.
Campbell, Gordon (Moray & Nairn) Irvine, Bryant Godman (Rye) Simon, Rt. Hon. Sir Jocelyn
Carr, Compton (Barons Court) Jackson, John Skeet, T. H. H.
Carr, Robert (Mitcham) Johnson, Eric (Blackley) Steward, Harold (Stockport, S.)
Chataway, Christopher Kerr, Sir Hamilton Stodart, J. A.
Chichester-Clark, R. Kershaw, Anthony Sumner, Donald (Orpington)
Clark, Henry (Antrim, N.) Kirk, Peter Tapsell, Peter
Clark, William (Nottingham, S.) Langford-Holt, J. Temple, John M.
Cleaver, Leonard Leavey, J. A. Thatcher, Mrs. Margaret
Cooper, A. E. Legge-Bourke, Sir Harry Thomas, Leslie (Canterbury)
Cordeaux, Lt.-Col. J. K. Lewis, Kenneth (Rutland) Thomas, Peter (Conway)
Corfield, F. V. Linstead, Sir Hugh Thornton-Kemsley, Sir Colin
Costain, A. P. Litchfield, Capt. John Tiley, Arthur (Bradford, W.)
Critchley, Julian Lloyd, Rt. Hon. Selwyn (Wirral) Turner, Colin
Curran, Charles Longden, Gilbert van Straubenzee, W. R.
Currie, G. B. H. Loveys, Walter H. Vickers, Miss Joan
Dalkeith, Earl of Lucas-Tooth, Sir Hugh Vosper, Rt. Hon. Dennis
d'Avigdor-Goldsmid, Sir Henry MacArthur, Ian Wakefield, Edward (Derbyshire, W.)
Deedes. W. F. McLaren, Martin Wakefield, Sir Wavell (St. M'lebone)
Drayson, G. B. McMaster, Stanley R. Walker, Peter
du Cann, Edward Macmillan, Maurice (Halifax) Walker-Smith, Rt. Hon. Sir Derek
Duncan, Sir James Macpherson, Niall (Dumfries) Ward, Dame Irene
Elliot, Capt. Walter (Carshalton) Maddan, Martin Watts, James
Elliott, R. W. (Nwcstle-upon-Tyne, N.) Maitland, Sir John Webster, David
Emery, Peter Markham, Major Sir Frank Wells, John (Maldstone)
Farr, John Mathew, Robert (Honiton) Whitelaw, William
Finlay, Graeme Matthews, Gordon (Meriden) Williams, Paul (Sunderland, S.)
Fletcher-Cooke, Charles Maxwell-Hyslop, R- J. Wilson, Geoffrey (Truro)
Fraser, Ian (Plymouth, Sutton) Mills, Stratton Wise, A. R.
Freeth, Denzil Montgomery, Fergus Wolrige-Gordon, Patrick
Gardner, Edward More, Jasper (Ludlow) Woodhouse, C. M.
Gibson-Watt, David Nugent, Sir Richard Yates, William (The Wrekin)
Glover, Sir Douglas Oakshott, Sir Hendrie
Glyn, Sir Richard (Dorset, N.) Osborn, John (Hallam) TELLERS FOR THE AYES:
Goodhart, Philip Page, John (Harrow, West) Colonel J. H. Harrison and Mr. Noble.
Gower, Raymond
Ainsley, William Bowden, Herbert W. (Leics, S. W.) Crosland, Anthony
Albu, Austen Boyden, James Diamond, John
Allaun, Frank (Salford, E.) Broughton, Dr. A. D. D. Evans, Albert
Allen, Scholefield (Crewe) Castle, Mrs. Barbara Fitch, Alan
Bacon, Miss Alice Cliffe, Michael Foot, Michael (Ebbw Vale)
Blyton, William Cronin, John Fraser, Thomas (Hamilton)
Gaitskell, Rt, Hon. Hugh Mabon, Dr. J. Dickson Short, Edward
Gaipern, Sir Myer McCann, John Silverman, Sydney (Nelson)
Ginsburg, David MacColl, James Skeffington, Arthur
Gordon Walker, Rt. Hon. P. C. McInnes, James Slater, Mrs. Harriet (Stoke, N.)
Greenwood, Anthony McKay, John (Wallsend) Slater, Joseph (Sedgefield)
Grey, Charles Mackie, John (Enfield, East) Small, William
Hamilton, William (West Fife) Marsh, Richard Spriggs, Leslie
Hannan, William Mellish, R. J. Steele, Thomas
Hayman, F. H. Mendelson, J. J. Swingler, Stephen
Herbison, Miss Margaret Millan, Bruce Taylor, John (West Lothian)
Hill, J. (Midlothian) Milne, Edward J. Thomson, G. M. (Dundee, E.)
Hilton, A. V. Mitchison, G. R. Thornton, Ernest
Houghton, Douglas Morris, John Wainwright, Edwin
Howell, Charles A. (Perry Barr) Oram, A. E. Warbey, William
Howell, Denis (Small Heath) Oswald, Thomas White, Mrs. Eirene
Hughes, Emrys (S. Ayrshire) Owen, Will Whitlock, William
Hynd, John (Attercliffe) Parkin, B. T. Wilkins, W. A.
Irving, Sydney (Dartford) Pavitt, Laurence Willey, Frederick
Jay, Rt. Hon. Douglas Pentland, Norman Willis, E. G. (Edinburgh, E.)
Jeger, George Probert, Arthur Wilson, Rt. Hon. Harold (Huyton)
Jones, Dan (Burnley) Randall, Harry Woof, Robert
Jones, Elwyn (West Ham, S.) Reynolds, G. W.
Lee, Frederick (Newton) Robertson, John (Paisley) TELLERS FOR THE NOES:
Lewis, Arthur (West Ham, N.) Robinson, Kenneth (St. Pancras, N.) Mr. Ifor Davies and Mr. Lawson.
Loughlin, Charles Ross, William

Clause ordered to stand part of the Bill.

Clause 12 ordered to stand part of the Bill.