Commons Sitting of 14 June 1961

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [Lords] (By Order)
  Second Reading deferred till Tomorrow at half-past Seven o'clock.

  BRITISH TRANSPORT COMMISSION ORDER CONFIRMATION BILL
  MONTROSE BURGH AND HARBOUR (AMENDMENT) ORDER CONFIRMATION BILL
  Considered; to be read the Third time Tomorrow.

  FORTH ROAD BRIDGE ORDER CONFIRMATION (NO. 2)
  Bill to confirm a Provisional Order under the Private Legislation Procedure (Scotland) Act, 1936, relating to the Forth Road Bridge (to be proceeded with under Section 7 of the Act), presented by Mr. John Maclay); and ordered (under Section 7 of the Act) to be considered upon Tuesday next and to be printed. [Bill 138.]
ORAL ANSWERS TO QUESTIONS
  MINISTRY OF DEFENCE

    Conscientious Objectors
    Mr. Brockwayasked the Minister of Defence if he will make arrangements by which men in the forces abroad who disobey orders on conscientious grounds shall have the same opportunity as Service men in this country to appear at a tribunal after serving three months' imprisonment.
    The Minister of Defence (Mr. Harold Watkinson): Yes, Sir. It has been agreed that the present arrangements under which Service men who commit offences on grounds of conscience in this country are allowed to appear before the Appellate Tribunal shall be extended, subject to Service requirements, to men serving overseas. Detailed instructions for giving effect to this decision are being worked out.
    Mr. Brockway: May I express appreciation for that answer? What are the limitations of Service requirements? Does it mean technical matters of transport, or does it mean that there might be particular circumstances in an overseas territory which for other reasons would prevent men coming before a tribunal?
    Mr. Watkinson: I am grateful to the hon. Gentleman. It means the real exigencies of the Service. I do not want to limit this. Perhaps the hon. Gentleman will wait until we have worked out the details. I am naturally anxious to make this work efficiently and ensure that men who wish to appeal to a tribunal are able to do so.
    Mr. Brockway: I thank the right hon. Gentleman.

    Aircraft Carriers
    Mr. Willisasked the Minister of Defence, in view of his statement to Western European Union that the West will no longer have as its main objective preparation for a long conventional struggle, what change of policy he proposes in the laying down of new aircraft carriers.
    Mr. Watkinson: No decision has yet been taken about laying down new aircraft carriers.
    Mr. Willis: Is the right hon. Gentleman aware that a very sustained campaign has been carried on by the Admiralty to prepare the way for the replacement of the present aircraft carriers? Does he not think that that is quite unnecessary, if this is his policy?
    Mr. Watkinson: I am not aware of any sustained campaign by the Admiralty. What I am aware of is that we have to take some big decisions in due course about the replacement of the Fleet carriers, some of which, as many hon. Members know, are approaching the end of their useful life. I merely wanted to make it plain at the moment that this decision has not been taken.
    Mr. Paget: We were hoping that the right hon. Gentleman's observations at Western European Union would be the prelude to the statement that further aircraft carriers were not to be laid down. Is the right hon. Gentleman aware that our aircraft carriers are not merely individually obsolete but obsolete as a type?
    Mr. Watkinson: This is a matter of opinion, and I must not be taken as necessarily agreeing with this thesis. For example, other nations are considering building very large numbers of aircraft carriers. I think it is very questionable, and certainly not a matter for immediate decision, whether their day has gone.
    Captain W. Elliot: Will my right hon. Friend bear in mind that the provision of replacement carriers is only the first step? The provision of replacement aircraft is likely to cost many hundreds of millions of pounds. When the time comes, will he give serious consideration to whether there is not some other more effective vessel available, possibly at a lower price?
    Mr. Watkinson: I think that my hon. and gallant Friend puts it very fairly. This is a very large and complex decision. I have made it quite plain that the Government have not yet considered it, much less taken any decision upon it.
    Mr. G. Brown: Is it not a rather surprising announcement for the Minister
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    to make that, after having held his present office for some years and after the previous occupant of the office changed the whole policy in 1957, the Government have not only not made up their mind but have not yet considered whether we need replacements? Does the Minister think that we can wait very much longer, if any ultimate decision could possibly be in time at all?
    Mr. Watkinson: That is the right hon. Gentleman's view. I do not know whether he wants me to withdraw the word "consideration". Of course, I have given consideration to it. I want to make it plain that this is a big decision and it has not yet been taken. When it is taken, that is a matter that should be debated here; but that is not the immediate prospect.

    N.A.T.O. Forces (Nuclear Weapons)
    Mr. Willisasked the Minister of Defence whether, in view of his reference to the North Atlantic Treaty Organisation's conventional forces in his speech to Western European Union on 1st June, these forces will now be fully equipped with nuclear weapons of limited range.
    Mr. Watkinson: N.A.T.O.'s forces are being armed and equipped to meet the present requirements laid down by SACEUR under current N.A.T.O. strategy with both nuclear and conventional weapons.
    Mr. Willis: The right hon. Gentleman will know that this Question refers to his speech. Is he also aware that in that speech he practically reduced the term "conventional" to meaninglessness? Is he aware that this equipping of the conventional forces with nuclear weapons makes the danger of nuclear war much greater than before?
    Mr. Watkinson: I do not think the hon. Member has read my speech.
    Mr. Willis: I have done, very carefully.
    Mr. Watkinson: I will send him a copy, because I made quite plain in it the careful balance that has to be drawn between the conventional and nuclear capabilities of a modern force. What I am anxious to make plain is that we are carrying out exactly N.A.T.O. policy as

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    laid down by N.A.T.O. and by SACEUR. I do not see what more we can do than that.
    Mr. Strachey: Is not the Minister aware that his speech was almost universally interpreted as being in direct contradiction, for example, to President Kennedy's views in his defence message to Congress, in which President Kennedy said that
    "our objective now is to increase our ability to confine our response to non-nuclear weapons"?
    Is not that a much better doctrine?
    Mr. Watkinson: How my speech was interpreted is hardly a matter for me. What I said was not at all out of line with recent statements made by defence spokesmen in the United States.
    Mr. G. Brown: The Minister will not deny that he actually said:
    "An aggressor cannot assume that we should be prepared to 'limit the war' to suit his own tactical plan…"
    Was the Minister, therefore, saying that we should be prepared to make the war unlimited to suit our plan? Is not that a flat contradiction not only of President Kennedy but of what Admiral Brown said to the very same conference?
    Mr. Watkinson: No, I do not agree. The position is quite plain and is set out plainly in other portions of my speech. In the Government's view, it is not in the interest of maintaining the deterrent to war to set out a clear list of rules or statements showing exactly the kind of reaction which one would make to any action by an aggressor. We have no intention of doing that.
    Mr. Brown—
    Mr. Speaker: We must get on. We are making very small progress.
    Mr. A. Hendersonasked the Minister of Defence whether it is now the policy of Her Majesty's Government that the consent of all North Atlantic Treaty Organisation Governments would be required before nuclear weapons could be used by North Atlantic Treaty Organisation forces.
    Mr. Watkinson: The Government's primary concern is to ensure that the arrangements for controlling the use of nuclear weapons in N.A.T.O. should be such that the credibility of the deterrent
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    is not weakened. This is one of the problems now being studied in the North Atlantic Council as part of the review of N.A.T.O. strategy.
    Mr. Henderson: Can we take it that Her Majesty's Government would agree that in no circumstances should nuclear weapons be used by N.A.T.O. forces except under the terms of the directive which has itself been approved by our own Government acting through the Cabinet?
    Mr. Watkinson: Yes, I think that follows what I said earlier, that General Norstad must be subject to direct political control.
    Sir L. Ungoed-Thomas: Is the right hon. Gentleman aware that, contrary to his previous answer, the arrangements as understood certainly in Germany are that nuclear weapons will be ordered by the general on the spot, where it is necessary to hold conventional forces, without previous reference back for political authorisation at all? If the right hon. Gentleman's view is different from that, will he look into the matter and reassure the House about it?
    Mr. Watkinson: I have been to Germany and I assure the hon. and learned Gentleman that this is not so. If he does not believe me, I will arrange for him to go to Germany and find out for himself.
    Mr. Henderson: Will the right hon. Gentleman qualify the last part of his reply? When he talks about political control, can we take it that that political control is a control shared jointly by the various Governments of the N.A.T.O. alliance and certainly those who actually possess nuclear weapons themselves?
    Mr. Watkinson: Yes, the position is, as General Norstad has stated, that he is subject to authorisation from the N.A.T.O. Political Council, which is representative of the Governments which the hon. and learned Gentleman mentioned, before he could authorise the use of nuclear weapons.
    Mr. M. Footasked the Minister of Defence if he will give an undertaking that the British Government will always oppose the use of nuclear weapons, tactical or otherwise, first by member States of the Western Alliance.
    Mr. Watkinson: Decisions about the use of nuclear weapons must be taken in the circumstances of the time.
    Mr. Foot: That answer does not enlighten us very much. Would not the Minister agree that since the White Paper of 1958 there has been quite a lot of fresh thinking and discussion on this subject among many of the so-called experts on the subject; and since his speech of a few days ago has only added to the confusion on this matter, will he not consider issuing a statement of the whole arguments under which the Government are apparently upholding the doctrine that we should be prepared to use these weapons first?
    Mr. Watkinson: I do not think my speech will be misread by any possible aggressor, and that was its purpose.
    Mr. S. Silverman: If the right hon. Gentleman defends this policy of holding open the threat in some circumstances to use nuclear weapons first as a deterrent, will he explain how the deterrent works in order to frighten people from doing things which he does not specify?
    Mr. Watkinson: If I went into details I should, no doubt, incur your displeasure, Mr. Speaker. The simple answer is that it is part of the validity of the deterrent that an aggressor should not be certain what reaction is made to any aggression.

    British Army of the Rhine
    Mr. Croninasked the Minister of Defence if, in view of the fact that the fire-power and general efficiency of Soviet military units is growing at an equal pace with that of Western units, he is satisfied that the level of British forces in the British Army of the Rhine is adequate to meet United Kingdom treaty commitments.
    Mr. Pagetasked the Minister of Defence whether his references to the defence responsibilities of Great Britain, in his recent speech to the Assembly of Western European Union, included the obligation to maintain the equivalent of four divisions in Germany.
    Mr. C. Pannellasked the Minister of Defence, in view of the fact that the qualitative improvement of North Atlantic Treaty Organisation units is
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    matched by that of the Communist armed forces, and that Her Majesty's Government's failure to provide four divisions in Europe, as originally promised in the Western European Union Treaty, is among the factors preventing the achievement of Supreme Headquarters, Allied Powers in Europe's planned conventional strength, what steps he is now taking to provide forces sufficient to meet our treaty obligations.
    Mr. Watkinson: The reductions in the strength of B.A.O.R. from four divisions to a force of the size represented by seven brigade groups were approved by Western European Union, in the knowledge of the views of SACEUR. We have no proposals at present for any changes in these force levels.
    Mr. Cronin: As the British forces in Germany are substantially below the strength arranged by treaty and in view of the Minister's somewhat bellicose emphasis on nuclear weapons in his speech to the Western European Union, can he reassure the House that the British Army in Germany can now cope with a conventional war with conventional weapons?
    Mr. Watkinson: The answer to the first part of that supplementary question is, as I said in my original Answer, that the reduction of our forces to seven brigade groups was formally approved by Western European Union, which took the appropriate views of SACEUR before so doing. I have also said that we have no proposal at present for any changes in these force levels. Therefore, we are meeting our N.A.T.O. commitments.
    Mr. Paget: Is it not clear that our treaty obligation is four divisions and that the Western European Union reduction was reluctant and temporary? At least, is it not clear that in view of the policy now being advocated by President Kennedy of a capacity to meet conventional war with conventional war, the necessity of our providing our original commitment of four divisions is plain? Is this being reconsidered?
    Mr. Watkinson: As I have said, the original treaty obligation was formally and quite properly altered by W.E.U. through the existing and long-established machinery. As to the current doctrine

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    of defence, I expect that hon. Members opposite will have read the reports of what was said by Mr. Gilpatric, the Deputy Defence Secretary, to the Press Conference in Washington on 6th June. He said:
    "The current doctrine is that if N.A.T.O. forces were about to be overwhelmed by non-nuclear attack by Communist bloc countries, N.A.T.O. would respond with the use of nuclear arms.
    Mr. Paget: Is it, then, the arrangement that we should have forces which are automatically overwhelmed?
    Mr. Watkinson: The arrangement is that we shall have forces that conform to the pattern and doctrine laid down by SACEUR and N.A.T.O. That is the present position.
    Mr. Shinwell: Was it not decided several years ago that, instead of having the formal divisions, we should constitute these brigade groups? Is it not just possible that seven brigade groups up to strength could be far more efficient and effective than seven formal divisions not up to strength?
    Mr. Watkinson: The right hon. Gentleman is perfectly correct in his recollection, and that is what I have already said three times—that the change from a nominal four divisions to seven brigade groups was ratified and approved by N.A.T.O. I have just said that we have no proposals to make to change these force levels. I have also said that they meet the present requirements both as to the balance of conventional and nuclear weapons within them and as to their general disposition and make-up.
    Mr. Donnellyasked the Minister of Defence to what extent it is no longer the policy of Her Majesty's Government that the British Army of the Rhine should be equipped to hold its own in a limited non-nuclear conflict in Europe.
    Mr. Watkinson: There has been no change in Her Majesty's Government's policy that the British Army of the Rhine should be organised, equipped, trained and deployed to meet the N.A.T.O. military authorities' defence plans, which call for both nuclear and conventional capacity.
    Mr. Donnelly: Is the right hon. Gentleman aware that notwithstanding
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    that, his Western European Union speech was either misunderstood or was a very dangerous speech indeed, or both? Is he further aware that we cannot take seriously the Government's commitments in Berlin until he makes it perfectly clear that we do have adequate conventional forces in Germany?
    Mr. Watkinson: I think we have adequate conventional forces. They also have a nuclear capacity as well, which is what N.A.T.O. asks them to have.
    Mr. Emrys Hughes: Is the right hon. Gentleman aware that there is a considerable opinion in this country that the best thing he can do with the British Army of the Rhine is to bring it home and put the soldiers on useful work? Is he also aware that if we go in for large sums on conventional weapons it only means taking hundreds of millions of money which should be spent on education, housing, and things that people need?
    Mr. Watkinson: That is the hon. Gentleman's view. It is certainly not the view of the Government. I do not believe it is the view of the country, and I hope it is not the view of the Opposition as a whole.
    Mr. Strachey: Is not the Minister aware that the doctrine of the nuclear deterrent, which he has repeated here today, of using tactical nuclear weapons as part of that deterrent, loses in credibility anything which it may gain in strength?
    Mr. Watkinson: Is the right hon. Gentleman, with his long experience of Army matters, really saying that we should publicly state that tactical nuclear weapons which are part of the N.A.T.O. organisation should never be used?
    Mr. Mayhewasked the Minister of Defence whether, in view of his recent speech on 1st June to the Assembly of Western European Union, about the priority to be given to improving the effectiveness of the North Atlantic Treaty Organisation's conventional forces, he will increase the proportion of conventional to nuclear artillery deployed with brigade groups in the British Army of the Rhine.
    Mr. Watkinson: In B.A.O.R. the nuclear artillery is held by corps and Army, and separately from the brigade groups, which contain only conventional artillery. I am satisfied that the overall balance between conventional and nuclear artillery in B.A.O.R. is about right.
    Mr. Mayhew: Is the Minister aware that one of the main obstacles to British formations operating in a conventional rôle is the shortage of conventional artillery? Does he mean to change the balance from seven conventional and five nuclear artillery regiments? If he does not mean to change this balance, what on earth did he mean in the speech he made to the Western European Union?
    Mr. Watkinson: I said in my speech that I thought the balance was about right, and I still think so.
    Mr. Paget: Is it not a fact that there is no conventional divisional corps or army artillery in Germany? How can one meet Russian forces which are organised with that conventional artillery support unless one is going to use nuclear artillery?
    Mr. Watkinson: As to the actual make-up of our forces, I would be only too happy if any hon. Members on either side of the House who wish to visit Germany—and I know many do—would go and look for themselves. They will find British forces well organised and well-equipped, following the correct N.A.T.O. make-up and ready to do the job which they are there to do. I consider that the balance of their forces and the make-up is just about right.

    United States Bases, United Kingdom
    Mr. Brockwayasked the Minister of Defence if he has been informed which American military bases in Britain are to be closed, and when.
    Mr. Liptonasked the Minister of Defence what consultations he has had with the United States Government about the removal of certain United. States military bases from the United Kingdom.
    Mr. Watkinson: Her Majesty's Government are in touch with the United States Government about this matter. I
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    hope that it will be possible to make an announcement shortly.
    Mr. Brockway: Can the right hon. Gentleman confirm the statement made by a representative of the American Department that five of these American bases are to be closed? In view of the long range of missiles today, are they not all obsolete? Would not our people be a great deal safer without them?
    Mr. Watkinson: The answer to the second part of that supplementary question is "No". The answer to the first part is that I cannot confirm or deny this until we have finished our discussions. I am anxious that we should make it plain as soon as we can, but I am not able to do that today.
    Mr. Lipton: When the right hon. Gentleman says that he is in touch, what exactly does that mean? Does it mean that he is being consulted in the matter of which bases are to be closed, or is this a further example, one of many in recent years, when this country is regarded as a convenient stamping ground for other countries?
    Mr. Watkinson: It means that the British Government are being consulted.
    Mr. G. Brown: In those consultations, will the right hon. Gentleman keep in mind that the one group of bases that clearly could now be closed, especially since Polaris, are the Thor bases? Will he arrange for those to go?
    Mr. Watkinson: The right hon. Gentleman and I differ on this. The general view of both the American authorities and our own is that Thor makes a valid contribution to the deterrent and, therefore, should not be moved.

    Nuclear Warfare
    Mr. Swinglerasked the Minister of Defence what discussions he has had with the United States Government since President Kennedy took office about Her Majesty's Government's proposals to initiate the use of nuclear weapons in case of war.
    Mr. Watkinson: There has been no change in Her Majesty's Government's policy of replying to any would-be aggressor with the appropriate degree

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    of force. As the House knows, Her Majesty's Government are at present engaged with the United States Government and their other N.A.T.O. allies on a review of N.A.T.O. strategy.
    Mr. Swingler: Does that reply mean that the right hon. Gentleman made his speech to the Western European Union, in which he reiterated his policy of making the suicide threat to initiate nuclear war in Europe, without the consent of or prior consultation with the United States Government and in apparent contradiction with the latest pronouncements made by President Kennedy?
    Mr. Watkinson: Regarding the speech I made to the Western European Union, I am gratified to see that it has received such a lot of attention. That speech does not differ from the Government's policy as set out in successive White Papers or, either, from the N.A.T.O. doctrine.
    Sir L. Ungoed-Thomas: Did not the Minister in his reply, when he referred to the use of the appropriate degree of force, include the use of nuclear forces against conventional weapons? Can he say who decides what is the appropriate degree of force? Is it the commander on the spot?
    Mr. Watkinson: This is a matter first for decision in the circumstances of the time and, secondly, as the hon. and learned Gentleman clearly knows, General Norstad has always made it plain that he would require political authorisation before initiating the use of nuclear weapons.

    Armed Forces (Recruitment)
    Mr. Shinwellasked the Minister of Defence what measures, other than those now in operation, he proposes to adopt in order to bring the numbers of the three Services up to the strength required.
    Mr. Watkinson: Recruiting prospects in the Royal Navy and the R.A.F. are broadly satisfactory. Recruitment for the Army is going better than in 1960, and I am confident that this improvement will continue. I am in close touch with my right hon. Friend the Secretary of State for War about future action.
    Mr. Shinwell: While I am reluctant to blame the right hon. Gentleman, because I know how difficult is the position, would he not agree that there has been some vacillation and some indecision? Is he aware that in another place a representative of the Government—I think a Cabinet Minister—said the other day that the Government had an alternative scheme in the event of failure to obtain the necessary number of volunteers? Can we be told something about this?
    Mr. Watkinson: This is primarily—as my Answer made clear—an Army problem. The Navy and the Royal Air Force look to be able to meet their targets reasonably easily. My right hon. Friend the Secretary of State for War set out clearly in his Estimates speech, firstly, the list of a great number of things which we were going to do and which he hoped would improve recruiting—and this is already happening—and, secondly, he made the proper observation that, of course, if we fail we must have some alternative plan. I have said today, and I believe this, that as things are going we shall succeed in meeting our target on the due date. That is what we must concentrate all our efforts upon.
    Mr. Callaghan: Is the Minister aware that at the Royal Tournament, apart from the splendid show put on by the Royal Marines, the two exhibitions of the Royal Navy comprised one which was concerned with cutlass fighting and hornpipe dancing of the time of Nelson and the second was a field-gun exhibition of the time of the Boer War? Will the right hon. Gentleman tell the Navy that if they are to get more recruits they must put on something more up-to-date?
    Mr. Watkinson: The hon. Gentleman has made a perfectly proper point, but it is equally fair to say that perhaps the most effective display was that of the Royal Marine Commando, which is still part of the Navy. I am sure that the hon. Gentleman will agree with that. This is a difficult problem, and it is my wish that on all these Service occasions we should try to show the Services as they are today, with modern weapons, doing a worth-while job. But it is equally fair to say—and I saw the Royal

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    Tournament last night—that I think the balance this year was fairly and easily achieved, despite the cutlass drill, which drew one of the biggest rounds of applause.
    Mr. Strachey: One of the things that can be done, if the Army has greater difficulties relative to the other two Services in getting recruits, is the further integration of the tasks of the Service by which many of the cold war tasks can be performed by Royal Air Force regiments and by naval commandos. Perhaps this could be carried a good deal further?
    Mr. Watkinson: I do not disagree with that at all. We are forming another Royal Marine Commando now. We are developing the Commando carrier concept. All these things will help to bear the burden. But none of this takes from the Army its proper long-term tasks, and it must make a success of its Regular recruiting to fulfil them.

    19th Brigade Group (Training, Portugal)
    Mr. G. Brownasked the Minister of Defence whether the British troops going to Portugal will be taking part in North Atlantic Treaty Organisation exercises or exercises arranged between his department and the Government of Portugal.
    Mr. Watkinson: This exercise was arranged last January with our Portuguese N.A.T.O. allies who offered suitable territory in which elements of the Strategic Reserve and Transport Command could be trained in rapid air movement and deployment in realistic conditions. It is planned that it should take place early in July. I understand that the token contingents of Portuguese forces taking part will be drawn from forces assigned to N.A.T.O.
    Mr. Brown: Does the Minister mean that since last January he has not reconsidered this in the light of the situation in Angola and the mounting objections that there are to Portugal and to her present policy? Does he not agree that there are a number of other territories—I have a list of them with me—within the same distance from this country offering the same kind of terrain in the land of other N.A.T.O. allies where our troops could be trained? Will
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    the Minister not, therefore, consider countermanding the decision to send them to Portugal and opt for somewhere else where our troops could be trained?
    Mr. Watkinson: I accept that this presents a difficulty. As to the right hon. Gentleman's supplementary question about alternative territories, we have tried a great number of these. We have had one or two disappointments this year in one or two, which I will not mention. They are for understandable reasons. I must make this plain, because I do not want there to be any misunderstanding about this. I think hon. Gentlemen opposite see difficulties in this, but I have my difficulties, too.
    I must first make it plain that this exercise does not imply that we agree with Portugal's policy in Africa. Our own approach to these colonial problems is quite different, as the Foreign Secretary recently made plain in Lisbon. Let us be clear about that. It is a military exercise, and it is a great convenience for which we are grateful to the Portuguese authorities to be able to train this large element of the Strategic Reserve in a hot and barren part of a country where the conditions are just right.
    I must say one other word which, I think, the right hon. Gentleman will understand, even if we differ; I am not doing my duty to the country if I do not see that the Strategic Reserve—which is the spearhead of our forces, the fire brigade that may be able to put out a small dangerous bush fire—is given the chance to exercise outside this country with Royal Air Force Transport Command and with realistic conditions.
    That is why we wish to carry on with this exercise, which is an exercise for British troops. This is really only being done in Portugal because that seems to be the best place at the moment and the only available place where an exercise of this kind could take place. But it has no political connotations.
    Mr. Brown: On a point of order. Before you move to the next Question, Mr. Speaker—
    Mr. Speaker: I am now on my feet. I should not be doing my duty if I did not renew my request that Answers, like supplementary questions, should be short, otherwise other hon. Members who have Questions on the Paper suffer.
    Mr. Brown: I merely wish to ask whether the Minister is not aware that none of us is disputing the need to train forces outside Britain. What we are putting to the right hon. Gentleman is that they do not have to go to Portugal. It is not so much a matter of whether he is acquiescing in Portugal's policy—and the Minister will have seen the observation in The Times this morning—it is a question of other people, particularly Africans, thinking that he may be acquiescing and, since there are other territories that could be used, will he reconsider the matter?
    Mr. Watkinson: Of course, I will take note of what the right hon. Gentleman has said, but I do not want to mislead him. I was careful to say what I did, and I hope that other countries in Africa will take note of this and of the fact—as I hope our N.A.T.O. allies will—that it is essential for N.A.T.O. purposes and for the peace of the world as a whole that our Strategic Reserve should be properly trained and exercised. I was and I still am prepared to give the right hon. Gentleman chapter and verse about this if he wants it, although I should transgress again if I did so now There is at the moment no alternative means of carrying out this exercise in the time schedule that we have.
    Mr. Brown: If we are at this point to move on to the next Question, I beg to give you notice, Mr. Speaker, that later on I shall seek to move a Motion on this matter.

    German Forces (Training Facilities)
    Mr. Donnellyasked the Minister of Defence under what terms facilities at Castlemartin are being made available to German forces.
    Mr. G. Brownasked the Minister of Defence if he will make a statement giving full details of the facilities now made available to German troops in this country.
    Mr. Watkinson: Parties of German officers have visited both the range and the storage facilities that might be made available. We are now considering what help we can offer. As soon as a final decision is reached I will inform the House.
    Mr. Donnelly: Surely the right hon. Gentleman has some idea of the implications involved? What sort of terms is he considering?
    Mr. Watkinson: If it helps the hon. Gentleman, perhaps I can give a short guide. First, there will be storage facilities in various parts of the country. Second, it will be a limited requirement for practice firing at the Castlemartin range, which I believe is in his constituency. These are practice firings. They are not in any sense manoeuvres, and it is not a base of any kind.
    Mr. Mayhewasked the Minister of Defence how many North Atlantic Treaty Organisation troops have been sent to the United Kingdom for training during each of the past three years; from how many countries they came; and what proportion in each year were German.
    Mr. Watkinson: In 1958–59, 1,866, of which 649 were German.
    In 1959–60, 1,571, of which 355 were German.
    In 1960–61, 1,468, of which 290 were German.
    In each year they came from twelve N.A.T.O. countries.
    Mr. Mayhew: How many German troops does the Minister expect in the current year, and what proportion of the total will they represent?
    Mr. Watkinson: I cannot give those figures without notice. The hon. Gentleman will see from my Answer that very substantial numbers of German troops have already been here. If he will put down a Question about the current position, I shall be glad to answer it.

    Central Europe
    Mr. C. Pannellasked the Minister of Defence in view of the fact that the major threat to peace in Europe lies in the risk of limited conflict in Central Europe, what steps he is taking to strengthen those types of forces to deal with such a situation.
    Mr. Watkinson: I do not accept the premises on which the hon. Gentleman's Question is based. But I must make it clear that the Government will continue to ensure that the British forces assigned

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    to N.A.T.O. are supplied with, and trained in the use of, the most modern weapons and equipment.
    Mr. Pannell: Is the Minister aware that the recent statement seems to be moving against American policy and most modern policy that has progressed since the time when the Secretary of State for Commonwealth Relations was in his office? Most of us consider that his present attitude is rather retrograde in this matter. Are we having a reversal of Government policy in so far as we are moving again towards the massive deterrent?
    Mr. Watkinson: I should advise the hon. Gentleman to read the speech, part of which I quoted, by Mr. Gilpatric of the Defence Department in America, which, as I say, accords with British and American policy.
    Mr. Mayhew: How many, if any, of our brigade groups in Germany are capable of operating independently of nuclear weapons?
    Mr. Watkinson: The hon. Gentleman knows very well that it is not in the public interest to give that sort of information, and I have no intention of doing so.

    Early Warning Station, Fylingdales
    Mr. Croninasked the Minister of Defence what recent discussions he has had with the United States Government concerning the future of the Ballistic Missile Early Warning Station at Fylingdales.
    Mr. Watkinson: I have had no such discussions.
    Mr. Cronin: Although the future of these early warning stations is in some doubt with the advent of the missile-carrying submarine, does he appreciate that they are of immediate great importance to the defence of the Western world? Will he take all possible steps to settle these frequent distressing labour troubles and hasten their construction?
    Mr. Watkinson: I agree. I understand that the construction at the moment is going reasonably well and I certainly hope it will continue. I agree entirely with the hon. Gentleman. These are absolutely vital to the defence of the Western world.

    Cyprus Bases
    Mr. Pagetasked the Minister of Defence what alterations he has ordered in the United Kingdom's defence dispositions as a result of the declaration of the President of Cyprus that bases in Cyprus would not be available for the performance of the United Kingdom's obligations inter alia under the Tripartite Declaration.
    Mr. Watkinson: None, Sir.
    Mr. Paget: Has the right hon. Gentleman observed Archbishop Makarios' statement that the Cyprus bases would not be available for use in operations in which the United Arab Republic was involved? Do not our obligations under the Tripartite Declaration with regard to Israel involve our use of those bases? Have no alternative arrangements been made, or has not the matter been considered?
    Mr. Watkinson: I have seen Press reports of what Archbishop Makarios said. I think it important not to say anything at this point beyond the statement I have made; it would not be helpful either to him or to Her Majesty's Government.
    Viscount Hinchingbrooke: Will my right hon. Friend be absolutely specific and say that Archbishop Makarios, the President of Cyprus, has absolutely no jurisdiction in these matters and his words are therefore entirely meaningless?
    Mr. Watkinson: That is why I said, "None, Sir." We do not propose to make any changes in the sovereign areas, because our sovereignty remains.
    Mr. M. Foot: Since the British Government in 1956 were responsible for tearing up the Tripartite Declaration, may that be the reason why Archbishop Makarios has followed their example?
    Mr. Watkinson: That is quite another question.

    Berlin
    Mr. Frank Allaunasked the Minister of Defence what are the new commitments of British Armed Forces in an emergency situation in Berlin.
    Mr. Watkinson: We recognise the obligations we assumed in Berlin at the

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    end of the Second World War and we intend to stand by them. There is, therefore, no question of new commitments.
    Mr. Allaun: Has the Minister read the detailed and unrepudiated report in the New York Herald Tribune that there is a new plan which would include the seizure of the East German control post at Helmstedt? Does not he think that this type of military action might precipitate world war?
    Mr. Watkinson: I am not responsible for what appears in American newspapers.
    Mr. Cronin: Bearing in mind that the British forces in Berlin are doing a very good job in difficult circumstances, will the Minister reassure the House that, in the event of an emergency situation developing, their supplies and communications are adequate?
    Mr. Watkinson: I am very carefully looking into that. Perhaps I may repeat what I said in the West German Rathaus when I was there last week, that British forces will stay in West Berlin so long as they are necessary.

  ROADS

    Worcester Link Road
    Mr. Nabarroasked the Minister of Transport if, in view of the unsuitability of the existing roads as a link route from A.449 and A.38 to the junction on B.4084 with M.5 under construction, he will take steps to ensure that the proposed Worcester northern link road is completed as soon as possible after the opening of the motorway.
    The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Hay): We hope shortly to make the order establishing the line of this road. We will then invite the Worcestershire County Council as our agent authority to prepare the scheme to contract letting stage.
    Mr. Nabarro: Can my hon. Friend give any information about timings? Is he aware that the effectiveness of the Birmingham—South Wales motorway will be very largely vitiated until this critical link, the Worcester northern link
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    road, is completed? What is the Ministry's estimate for the commencing date for the northern link road and the completion of it, with the Worcester County Council as its main agents?
    Mr. Hay: I regret that I cannot without notice given an estimate of the time. I can only refer my hon. Friend to what my right hon. Friend said to him in answer to a Question on 26th April last, which was that no firm date can be given at this stage.

    Tonbridge By-pass
    Mr. Hornbyasked the Minister of Transport when he expects to announce a starting date for the construction of a Tonbridge by-pass.
    Mr. Hay: The Kent County Council is the highway authority for this road. I understand that it is still working on its proposals for the by-pass. When it submits an application for grant, we shall consider it, together with other schemes throughout the country.
    Mr. Hornby: Is my hon. Friend aware that one of the reasons why the Kent County Council is at present held up in its plans is that it is still awaiting a reply from his right hon. Friend the Minister of Agriculture? Will my hon. Friend get in touch with his right hon. Friend and see whether he can hustle him on, since this is a matter of importance to my constituents, because Ton-bridge High Street is now just about the most congested thoroughfare in the country?
    Mr. Hay: I was not aware of that. I will certainly look into it.

    Level Crossing, Goole
    Mr. Jegerasked the Minister of Transport whether he has received any complaint about the congestion of traffic due to prolonged delays at the railway level crossing in the Boothferry Road, Goole; and what progress has been made in discussion of methods of improving the situation.
    Mr. Hay: Yes, Sir. We have received two letters from the Goole Chamber of Commerce and Shipping. I am informed that the proposal for installing twin red flashing light road signals is still

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    under discussion between the Goole Corporation, who are the highway authority, and the B.T.C.
    Mr. Jeger: Will the hon. Gentleman be good enough to tell me how the installation of red flashing light signals will lead to trains stopping a shorter time at the level crossing on the main road? Is he not aware that at the present time the gates are closed across the main road for up to eight minutes at a time, and that this has been timed locally by specialists? As it is obvious that the platforms are not long enough to take the new longer trains, will he not get in touch with the British Transport Commission in order to get something done about keeping these gates closed for as short a time as possible?
    Mr. Hay: These are, presumably, the reasons why the Goole Corporation has taken up the matter with the British Transport Commission. If there is anything I can do to help, I will certainly be glad to do it, but this is a matter for the Goole Corporation and the British Transport Commission, and not for my right hon. Friend.

    Boothferry Bridge
    Mr. Jegerasked the Minister of Transport whether he has yet reached any conclusion from the census of traffic over Boothferry Bridge taken last October; and what action he proposes to take to relieve congestion on this main route between the West Riding and Hull.
    Mr. Coulsonasked the Minister of Transport what proposals he has to make for the relief of traffic congestion in the area of the Boothferry Bridge.
    Mr. Hay: The conclusion we have reached from the census is that the advantages of using the abandoned Barnsley-Hull railway track for a new road between Howden and the Great North Road would not be commensurate with the cost, and would offer only limited relief to the route via Boothferry Bridge. In any case, the British Transport Commission have now decided to withhold negotiations for disposal of the abandoned track because they may want it for the supply of coal by rail to a new power station to be built in the area. Our future plans will therefore be based
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    on the comprehensive improvement of the present Doncaster-Howden trunk road via Boothferry Bridge.
    Mr. Jeger: Can the hon. Gentleman indicate when these plans are going to be looked at again, because this census has taken him a considerable time to consider? He may remember that on 15th March he said that the Ministry were about to announce a decision, and it is now three months since then?
    Mr. Hay: Improvements to existing trunk roads have a very high place in our order of priorities, but I am afraid it is too soon for me to say when they can be put in hand.
    Mr. Coulson: While thanking my hon. Friend for that new information, may I ask him if he can give an assurance that the use of part of the northern section of the disused railway will be considered possibly as a by-pass for Howden? Will he give further urgent consideration to the need for a widening or replacement of the existing Boothferry Bridge?
    Mr. Hay: With regard to the first part of my hon. Friend's question, this point will be examined when we know for certain whether the British Transport Commission will be able to make that particular section of track available. In regard to the reconstruction or replacement of Boothferry Bridge, my hon. Friend will realise that it will be a very expensive undertaking. We have formulated no specific scheme, but we will examine the point in the light of the main decision which I have announced today.

    Pedestrian Crossing, Wembley
    Mr. Russellasked the Minister of Transport if he will replace the pedestrian crossing which used to exist in Harrow Road, Wembley, at the junction of Maybank Avenue and Elms Lane.
    Mr. Hay: No difficulties to pedestrians crossing Harrow Road at this junction have been brought to our notice, nor, I understand, to the notice of the Wembley Borough Council.
    Mr. Russell: Is my hon. Friend aware that there is no pedestrian crossing on this road for about three-quarters of a

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    mile until it reaches the junction with Watford Road? Does he not think that that is rather a long distance, particularly in view of the heavy traffic in the early morning rush hours, and that it is a very busy road?
    Mr. Hay: The absence of a crossing on a particular stretch of road does not necessarily mean that one is required. One has to consider the volume of traffic and of pedestrians, and so far we have had no evidence—unless my hon. Friend has some—that a crossing is needed at this particular point.

    St. Neots Bridge
    Mr. Hastingsasked the Minister of Transport whether the construction of the St. Neots Bridge will be included in the 1961–62 programme.
    Mr. Hay: No, Sir. Preparation of the scheme is continuing. We hope shortly to make the necessary Order, but I am not yet able to give a starting date.
    Mr. Hastings: Is my hon. Friend aware that it is now four years since this bridge started to fall into the river, that the situation locally is causing great inconvenience to the people of St. Neots: and that the delay in crossing the bridge at peak hours in summer may be as much as half an hour or more? Will he see that a date is fixed as soon as possible for this work to go forward?
    Mr. Hay: We know that there are certain difficulties about this bridge, though I doubt whether they are as serious as my hon. Friend made out. We will certainly give it the highest priority we can compatible with the claims of other equally important trunk road projects in other parts of the country.

  SHIPPING

    Great Lakes and St. Lawrence
    Mr. Rankinasked the Minister of Transport what consultations he has had with the Canadian Minister of Transport about the modification of the Commonwealth Merchant Shipping Agreement by which the Great Lakes—St. Lawrence River system is to be treated
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    as Canadian inland waters; and if he will make a statement.
    The Minister of Transport (Mr. Ernest Marples): A proposal to reserve domestic Canadian trade in the Great Lakes and part of the St. Lawrence to Canadian registered vessels was announced by the Canadian Minister of Transport on 12th May, 1961. The proposal would entail a variation of the Commonwealth Merchant Shipping Agreement. A formal proposal to that effect has just been received from the Canadian Government and is being examined. In the meantime, officials of the United Kingdom have discussed the matter with Canadian officials in London and in Ottawa.
    Mr. Rankin: Does the right hon. Gentleman realise that a bloc of this nature in the upper reaches of the St. Lawrence and the Great Lakes would do great damage to this country because of our dependence on exports? Does he propose to make any representations to the Canadian Minister of Transport, in view of the fact that, apart from any proposed agreement, it is very difficult indeed for Britain to carry on any trade at the moment in that part of the Western world?
    Mr. Marples: The formal proposal was received only on 9th June, five days ago. Immediately, I got in touch with the General Council of British Shipping to assess the situation and see what the financial loss and the implications or repercussions for this country may be. I must await the outcome of that inquiry.
    Mr. J. Howard: In view of this piece of discrimination which has just been disclosed, will my right hon. Friend say whether we impose similar restrictions on Canadian ships in British waters?
    Mr. Marples: No, Sir, we do not. In this country, our coasting trade is open freely to ships of all flags, which is not so in this recent proposal from Canada.
    Mr. Mellish: Will the Minister assure the House, since this is a matter of great importance, that we shall have a chance of discussing it further? Since he speaks about new plans the implications of which he is examining, will he let us know exactly what they are and

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    ensure that the House has an opportunity of discussing them before anything is finalised?
    Mr. Marples: The question of time for discussion in the House is not for me but for the Leader of the House. The formal proposals were received only five days ago, so I do not think that the House can expect me to pronounce on them now.

    Large Vessels (Port Facilities)
    Mr. Awberyasked the Minister of Transport if he is aware that the tanker "Naess Sovereign", 88,500 tons, registered in London, entered service this year and a sister ship of the same size is to be launched in October; and which ports in this country are capable of receiving these vessels through their entrance locks.
    Mr. Marples: Yes, Sir. These and still bigger vessels can be received at Milford Haven and Finnart.
    Mr. Awbery: Is the Minister aware that this situation constitutes a grave reproach to and reflection upon the British transport industry in that we have ships being constructed now which cannot find a port in this country? [HON. MEMBERS: "He said that they can."] There are two ships being constructed at present of 88,000 tons and 122 ft. beam. There is not a port in this country to take them. Is it not a reflection upon the greatest maritime nation in the world that such ships are made to remain in the Eastern hemisphere because they cannot find a port in the Western hemisphere?
    Mr. Marples: I said that there were two ports which could receive vessels of up to 100,000 deadweight tons, Milford Haven and Finnart, so the hon. Gentleman is not quite right in his facts.
    Mr. Awbery: What about the 122 ft. beam?
    Mr. Marples: Perhaps the hon. Gentleman will put a Question down about that. It is different from the Question on the Order Paper.
    Mr. Callaghan: Is this not an important matter which the Minister ought to keep in mind? Where can these ships be dry-docked? Where can they receive a proper overhaul in this
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    country? Is it not high time that the Ministry of Transport took up a ten-year-old report and started constructing some dry docks to take vessels of this sort?
    Mr. Marples: I am sure that the hon. Member knows as well as everyone else in the House that the particular ship which is the subject of the Question can be dry-docked at King George V dock at Southampton and the Cammell Laird No. 5 dock at Birkenhead which is about to be completed.
    Mr. P. Williams: Are there not two quite separate points here, first, that the economics of ships of this size have not altogether been proved yet, and, second, that because of the perhaps, inevitable increase in the size of ships up to something in the neighbourhood of the figures we are considering, there is need to improve the repair facilities in this country, which calls for another look at the Finance Bill?
    Mr. Marples: With regard to the second part of that supplementary question, that is for my right hon. Friend the Chancellor of the Exchequer, who, of course, deals with the Finance Bill, and not me. With regard to the first part, as I have said, in this country we have docks which can cope with these ships.
    Mr. Awbery: Give us the names of the ports.

    Nuclear Propulsion
    Dame Irene Wardasked the Minister of Transport whether he will now make a statement with regard to the building of a nuclear-powered ship for commercial purposes.
    Mr. F. Willeyasked the Minister of Transport whether he will make a further statement about the construction of a nuclear-propelled merchant ship.
    Mr. Straussasked the Minister of Transport whether he will now make a statement on the development of a nuclear-powered tanker and the award of a contract for its construction.
    Mr. Wallasked the Minister of Transport when he expects Britain's first nuclear-propelled merchant ship to be launched; and how many foreign

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    owned nuclear-propelled merchant vessels will be in service by this date.
    Mr. Marples: As regards a British nuclear-powered merchant ship, I cannot yet add to the Answers I gave hon. Members on 7th June. The only foreign nuclear merchant ships now built or building are the United States' merchant ship "Savannah" and the Russian icebreaker "Lenin". So far as I am aware, no decisions to build any others have been taken.
    Dame Irene Ward: May I ask my right hon. Friend if he is aware that he has gone on giving the answer to the House of Commons that he would be in a position to give us a statement quite shortly? Is he aware that he has made that statement, I should think, for the last three months? Can I have a firm assurance on what date he would like me and my colleagues to put down a Question, because we feel that the time has come that we ought to be able to give a proper lead in this matter?
    Mr. Marples: I do not think I have ever used the words which the hon. Lady attributed to me. The wands I used were very carefully selected, and they were that I would give the answer as soon as possible. The hon. Lady misses the whole point. The question is whether this is the best use of our limited resources and whether we should get the best value for money in this country by doing it.
    Mr. Willey: Is the right hon. Gentleman aware that the industries affected are thoroughly fed up with him and wish that he would give up his job? Is he also aware that this is a matter on which a decision has to be taken, and that it is now believed that the right hon. Gentleman is awaiting a decision by certain European countries which are discussing this matter? If that is so, does he realise that it is thoroughly unsatisfactory and that we must take the initiative in this field?
    Mr. Marples: With regard to the second part of that supplementary question, the hon. Gentleman is quite wrong. With regard to the first part, I should be very grateful if he would give me the names of the industries which are completely fad up, when I will get in touch with them and convey to them the hon. Gentleman's words.
    Mr. Strauss: Will the Minister remember that on 1st March he told the House that he would give the answer to the question in the fairly near future? Those were his very words. Will he tell us what he means by "the fairly near future"? In view of the fact that tenders were called for in 1959, what possible excuse can there be for holding up the award of the contract right up to the middle of this year, or maybe later?
    Mr. Marples: This is an entirely new field of work. The tenders may have been called for at that time, but they were not received until fairly recently. I repeat to the House that I think that here we should get the right decision, and not necessarily a quick decision.
    Mr. P. Williams: Does not my right hon. Friend agree that the important thing here is that we should be able to develop something of a commercially applicable nature, but, if it is decided as a prestige venture, then it would be better to switch the money from the Cunard to nuclear-powered ships?
    Mr. Marples: I will not go into the second part of my hon. Friend's supplementary question. With regard to the first part, I agree with him. The real point of nuclear power in ships is that, to be effective, it must be economic.
    Dame Irene Ward: On a point of order. May I ask whether there has been an alteration? Why is it that the Joint Parliamentary Secretary who is responsible for shipping and shipbuilding does not answer?
    Mr. Wiley: He is fed up.
    Dame Irene Ward: Why is the Minister answering?
    Mr. Speaker: It is not very clear to me what point of order or procedure arises.

  TRANSPORT

    Road Vehicles (Direction Indicators)
    Sir G. Willsasked the Minister of Transport whether he is now in a position to make the fitting of direction indicators on all road vehicles compulsory.
    Mr. Marples: I would refer my hon. Friend to the Answer I gave the hon.

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    Member for St. Helens (Mr. Spriggs) on 7th June, of which I am sending him a copy.
    Sir G. Wills: I expected that that might be my right hon. Friend's reply, so I refreshed my mind on the Answer. I find that it is very similar to an Answer I received in 1959 and again in 1960. Will my right hon. Friend accelerate the process of reaching agreement on this matter?
    Mr. Marples: I am glad that my hon. Friend found the Answer satisfactory.

    Heavy Goods Vehicles
    Mr. Hockingasked the Minister of Transport whether he will introduce a regulation to prohibit the use of trunk roads by heavy goods vehicles between the hours of 8 a.m. and 8 p.m. on Sundays during the period of British Summer Time, in order to relieve congestion on the roads.
    Mr. Marples: No, Sir. The movement of heavy goods vehicles is much less on Sundays than on other days. Its total prohibition would have a serious effect upon supplies. I do however ask hauliers to limit traffic on summer weekends.
    Mr. Hocking: Is my right hon. Friend aware that this system works perfectly well in Western Europe, particularly in Western Germany and Holland? Will not he have another look at the matter?
    Mr. Marples: The heavy traffic on Sundays is very much less than on other days. From Monday to Friday, it averages 20 million vehicle miles, on Saturdays 9 million vehicle miles, and on Sundays 3 million vehicle miles, so I think that we are dealing with the weekend traffic pretty well.
    Mr. Lipton: Has the Minister ever had to drive behind a giant transformer or an aeroplane being carted along the Great North Road on a Sunday?
    Mr. Marples: I have travelled behind a transformer but never behind an aeroplane.

19TH BRIGADE GROUP (TRAINING, PORTUGAL)
Mr. G. Brown: Mr. Speaker, I beg to ask leave to move the Adjournment of the House under Standing Order No. 9
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for the purpose of discussing a definite matter of urgent public importance, namely,
the refusal of Her Majesty's Government to countermand the dispatch of the 19th Brigade Group to Portugal.
It would be wrong to argue the merits at this point, but may I submit to you, Sir, in support of my request, that there is no question about the definiteness of this, or the facts. They are clear and admitted by the Government. This is wholly an executive matter. Its urgency is that there is now very little time left, but just enough time left if an immediate decision were taken, to change the proposed venue for this training. The public importance of it lies not only in the repercussions on public opinion here, which, as most of us know, are very great, but the enormous repercussions in Africa of our identifying ourselves quite unnecessarily with a policy of Portugal, which is execrated throughout the world.
Mr. Speaker: There is one point about which I must not, in the circumstances, trust my recollection. I thought that the Minister said—but there were rather a lot of words at that time. [Laughter.] I do not mean on the part of any one hon. Member, but on the part of many. I thought that the Minister said—I should like to be corrected if I am wrong—that he would consider what the right hon. Gentleman had been putting to him.
Mr. Watkinson: Perhaps I may help, Mr. Speaker. I said those words. I also said that this exercise is not due to take place until early in July. I must, if I may, just correct the right hon. Gentleman. It is not possible to alter the venue of this exercise. It must either be cancelled or not. You, Mr. Speaker, correctly interpreted my words, but I think it only fair to state that I went on to say that I would consider the right hon. Gentleman's points, but that it would be very difficult to make an alteration at this stage for the reason that I have just given.
Mr. Speaker: I think that that is right.
The right hon. Member for Belper (Mr. G. Brown) has asked leave to move the Adjournment of the House under Standing Order No. 9 for the purpose of discussing a definite matter of urgent public importance, namely,
the refusal of Her Majesty's Government to countermand the dispatch of the 19th Brigade Group to Portugal.

427
In those circumstances, I cannot accede to the application.
Mr. Brown: With respect, may I ask you, Mr. Speaker, what circumstances? As I understood, the Minister said in answer to you—I am merely trying to clear it up—that he said that he would consider what I put to him. He went on to say that it was only fair that he should state that what he then said was that he could do nothing about it. What are the circumstances in which I am precluded from moving the Adjournment? The Minister is standing firm on something to which we are asking to be allowed to draw attention by moving the Adjournment Motion.
Mr. Speaker: I follow that. I am extremely anxious that on each of these occasions it should not be said that this is a wholly exceptional case in which I must give reasons, because, if so, it will happen every time. Frankly, I would infinitely prefer not to argue reasons, because I think that it is in the general interests of the House that I should not do so.
Mr. Gaitskell: I appreciate what you have just said, Mr. Speaker, but, before giving your Ruling, you yourself asked for some clarification, and I should like to raise a point which really arises out of your question. Are we to understand that if the Minister had said that he was not prepared to consider my right hon. Friend's question that would have influenced your decision? Are we to assume that, if the Government in such circumstances say that they will consider it, that is a reason for refusing the Adjournment?
I do not think that we are entirely clear about this. I should have thought, with respect, that the purpose of the Adjournment was to seek to change the situation either by a Motion of the House, or by influencing the Government's decision. Therefore, I cannot quite follow why, if the Minister concerned says that he will consider it, that is a reason for turning down our application.
I did not understand the Minister, just now, to give a clear indication that he was prepared to consider the matter. On the contrary, he made it plain that he was not going to change his mind. Could you, Sir, clear up something which arises out of your own question?
Mr. Speaker: I am put on the horns of a dilemma. Either I begin to argue reasons with the right hon. Gentleman, or appear discourteous. I have no wish to do either.
The reason why I asked the Minister to help me about what he said was that it is extremely difficult, over the whole period of Questions, to carry accurately in one's head the precise verbal matters. The right hon. Member for Belper (Mr. G. Brown), in rising to explain his application to me, said, "There is a refusal to countermand. That is definite", or some such phrase. It was because I had not in mind at that time whether or no the words used by the Minister made it common ground that it was definite that I desired to amend my recollection before considering the application.
Mr. Paget: Is the position this, that when the Government have made up their mind then there will be something definite and we can raise the matter with you again, Sir?
Mr. Speaker: I do not propose to enter into arguments about that. I do not accept that that is in any way a dilemma for the Chair, or that my correction of my recollection about what the Minister said involves an indication of the sole or any reason on which I decide this matter. I do not think that it is a good idea that the Chair should be involved in argument about reasons.
Mr. Brown: I quite understand that, Mr. Speaker, and do not wish to transgress it, but we should be clear about whether the Minister has announced a refusal to countermand the order, as we, who were present at Question Time, together with yourself, Mr. Speaker, thought, or whether, in his last ambiguous statement, he was saying, "No. I am still considering whether I will countermand it". Would you, Sir, permit the Minister to say what is the position?
Mr. Speaker: I do not think that I can properly do that. [LION. MEMBERS: "Why?"] Because Question Time is over. What the Minister said originally will be a matter of record in the OFFICIAL REPORT. What he has said on this occasion is, I hope, clear in the recollection of the House. I do not think that I could allow him to be asked further questions about it now.
Sir L. Ungoed-Thomas: In view of the Ruling which you have given, Mr. Speaker, I do not wish to press for reasons in this case, but it puts us in an embarrassing position concerning considerations which may arise in future with regard to moving a Motion of this kind.
Either the Minister has said that he will not consider it or that he will consider it. If he will not consider it, one might have thought that it would be desirable for the House to express its view so that he might reverse his decision. If he said that he will consider it, it might be thought desirable that the House should express its view so that he might take the view of the House into consideration. But it appears clear to us from your Ruling, Sir, that the fact whether the Minister says that he will take it into consideration or not is a decisive matter.
It would be very helpful to the House in future cases of this kind, and might save a great deal of time, if the House knew what was the criterion in an answer of that sort.
Mr. Speaker: Once again, we get to the business of the Chair giving reasons. I do not think that it is a good idea that it should. I am sure that it takes up time. I do not propose to do more than exercise my judgment to its very best on each case as it arises. I shall not always be right. I hope that I shall not always be wrong, but I believe that
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it is to the advantage of the House to trust the Chair in matters such as this.
Miss Lee: May I respectfully say to you, Mr. Speaker, that on both sides of the House we accept that for you a Motion must be definite and urgent, and that we do not want explanations. But the dilemma in which many of us find ourselves is that we do not know whether the Government are saying that they are definitely not prepared to consider this matter at a later time. We are also in a dilemma because we do not know whether they are saying that this is not urgent, because we have a week or two to consider it, or whether the Government have a closed mind on the matter.
If we could be told that the Government are not prepared to consider the matter at this moment, but that they are not simply hiding behind the rule about definite and urgent, and would give us an opportunity in the very near future to debate it, that would make the situation much clearer and easier for many of us.
Mr. Speaker: The arrangement of business and the subject matter for debate is not a matter for me. No doubt what has been said will have been listened to. About what the Minister said I cannot help the hon. Lady further than by referring her to his words as they will in due course appear in the OFFICIAL REPORT. There are now two answers about it.

ORDERS OF THE DAY

  FINANCE BILL
  Considered in Committee [Progress, 13th June].
  [Sir GORDON TOUCHE in the Chair]

  FINANCE BILL

    Clause 27.—(INCREASE OF RATE OF PROFITS TAX.)
    3.42 p.m.
    Mr. A. E. Oram: I beg to move, in page 23, line 6, at the beginning to insert:
    "Subject to the provisions of section (Reduction of rate of profits tax on co-operative societies etc.) of this Act".
    The Chairman: I think that it would be convenient if, with this Amendment, we discuss the next Amendment, in line 9, after "shall", to insert:
    "in the case of any society registered under the Industrial and Provident Societies Acts, 1893 to 1954, or under the Industrial and Provident Societies Acts (Northern Ireland), 1893 to 1955, be reduced from twelve and a half per cent. to three per cent. and in other cases shall".
    And also the new Clause in the name of the hon. Member for East Ham, South (Mr. Oram)—(Reduction of rate of profits tax on co-operative societies, etc.):

    (1) As from the beginning of August, nineteen hundred and sixty-one, and in relation to any trade or business carried on by a society registered under the Industrial and Provident Societies Acts, 1893 to 1954, or under the Industrial and Provident Societies Acts (Northern Ireland), 1893 to 1955, the rate at which the profits tax is to be charged shall be three per cent.

    (2) This section shall have effect notwithstanding any enactment to the contrary whether in this Act or elsewhere.

    Mr. Oram: I agree with you, Sir Gordon, that it would be convenient to consider the next Amendment with this one and the new Clause to which you have referred.
    These are alternative drafts by which we seek to achieve the same purpose. I am sure that I speak for my hon. Friends when I say that we shall be happy whichever of the alternatives the Government spokesman finds himself able to accept. The immediate necessity, as we see it, for moving this Amendment arises from the proposed increase, which will be brought about by the provisions
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    of this Clause, in the rate of Purchase Tax from the present figure of 12½ per cent. to a proposed figure of 15 per cent. Although that is the immediate reason for our Amendment, I must remind the Committee that the origin of our complaint goes back to the Finance Act of 1958. It was in that Measure that, in our judgment, an injustice was imposed on co-operative societies in relation to the Profits Tax.
    I think that it would be helpful if I remind the Committee of a little of the history of this matter. Before 1958, Profits Tax was charged at two alternative rates. At that time it was 3 per cent. on profits which remained undistributed and as high as 30 per cent. on profits which were distributed to shareholders. In 1958, the then Chancellor of the Exchequer decided to merge those two rates into a single rate of 10 per cent.
    At that time we complained that this had the effect of increasing the amount of Profits Tax which co-operative societies would be required to pay by no less than £1⅓ million; and this at the same time that companies were paying a less amount of Profits Tax, I think to the tune of about f16 million. That appeared to us a gross injustice and it has been intensified. Last year, there was an increase from 10 per cent. to 12½ per cent. and this year it is proposed that there should be an increase from 12½ per cent. to 15 per cent.
    When there were two rates under the previous system it was possible to recognise the differences of financial structure and of social purpose of differently taxed organisations. But when the two rates were merged into a single rate this was no longer possible without special provision. It was a special provision in respect of societies registered under the Industrial and Provident Societies Act that we sought, in 1958, to bring about, and also last year, and again we are seeking to do so this year.
    I stressed that it was possible when we had two rates to differentiate between different organisations. It may be asked what I claim is the difference between an ordinary trading company and a co-operative society in respect of Profits Tax. I suggest that there is a most important difference which used to be recognised, but is recognised no

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    longer. It is that co-operative societies make no profit distribution on capital to shareholders in any sense comparable with the distributions made by companies. The distributions which co-operative societies make are of two kinds. First, there is the familiar "divi" on purchases, which is recognised in law as not being a dividend in the sense of a company dividend. It is a deferred price rebate and has, therefore, nothing to do with the profit position.
    The second distribution made by co-operative societies is a payment to their shareholders of a low fixed-interest payment on their shareholding. I stress that this is low and that it is fixed. It is about 3 per cent. It is fixed beforehand and does not vary according to the profit or surplus made by the society in any trading period. The Royal Commission on the Taxation of Profits and Income recognised that this distribution, this low fixed-interest payment to shareholders, is the equivalent of interest paid to holders of loan capital in companies.
    I am quite sure that, again, we shall be told from the Treasury Bench—it has been stated on previous occasions—that when the two rates were merged in 1958 another change was brought about, and co-operative societies were allowed to reckon this distribution of interests as an expense before computing their profits for Profits Tax purposes. It has been claimed, and no doubt it will be claimed again, that this was, so to speak, a concession, a quid pro quo against the increase in charges that co-operative societies were expected to meet. I stress that that was no concession at all. It was something which ought to have been done since 1947, in my judgment, and was only a belated recognition rather than anything in the nature of a concession.
    During yesterday's debate on the payroll tax quite a lot was said about that tax being a blunt instrument, about its not being possible for it to be used in a discriminatory way. In considering the Profits Tax as it is at the moment I suggest we have another example of a blunt instrument. It used not to be a blunt instrument. As I have explained, it used to be on two rates, it used to be in two forms; it used to be possible to discriminate; but it is no longer possible to use it in any flexible planning way.
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    What happened in 1958 was that a taxing instrument which had been flexible was made into a blunt one. Consequently, it is now no longer possible, in the ease of companies, to discriminate between profits which are distributed and profits which are undistributed, and, still more important from the point of view of the societies on whose behalf I speak today, it is no longer possible to discriminate between organisations which serve a social purpose and those which do not. In previous years we had a series of debates on a number of organisations which are adversely affected in a way similar to the co-operative societies. Local authorities, sports organisations, building societies, the Mersey Tunnel were examples.
    I claim that the co-operative societies in this country and elsewhere are different from ordinary trading companies. They serve a social purpose which ordinary trading companies do not seek to serve, and whereas companies seek as their main purpose, or one of their main purposes, in life to maximise the profits which they distribute to their shareholders, co-operative societies do the reverse. They seek to keep at a minimum the distribution of profits or of interest to the holders of share capital. What they do is to try to maximise the benefits which the consumer members of co-operative societies derive from their co-operative trading, and throughout more than a century of existence co-operative societies, I suggest to the Committee, have been a most important thrift institution in this country.
    Millions of people are now organised in this movement of ours. They are small people with small savings in their local co-operative societies. The average is no more than about £20 per member. These people, ordinary working-class and middle-class people, are not profit makers in any sense in which that term can ordinarily be used.
    Therefore, I suggest that it is quite absurd to apply to them this Profits Tax. It is still more unjust to apply it to them in the unfair way, which, I suggest, was brought about when the change was instituted in 1958.
    There is one other point which I want to make. That relates to another kind of co-operative society. I have been referring so far to the ordinary retail

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    consumer co-operative societies with which I am most familiar, but one of the most interesting developments in agriculture since the Second World War has been the development of agricultural co-operatives. I know that there are many hon. and right hon. Gentlemen on the Government side of the Committee who are interested and actively engaged in supporting agricultural co-operative societies. I know that these societies are faced with a serious problem of capital accumulation.
    Indeed, my hon. Friend the Member for Glasgow, Govan (Mr. Rankin), because he was lucky in the Ballot for Private Members' Bills, has been piloting through Parliament a Bill to raise the individual shareholding limit from £500 to £1,000, principally to facilitate the operation of agricultural co-operative societies—not so much, although the retail co-operative societies welcome the change, in their interests but in the interests principally of the agricultural co-operatives which, as I said earlier, have a particular capital accumulation problem.
    The way in which the Profits Tax operates is a direct disincentive to management committees of co-operative societies to plough back into their societies the surpluses which they make, a direct incentive to them to pay it out in interest to their shareholders. It is absurd to have a tax operating in this way, contrary to good financial policy for co-operative societies.
    I would urge the Government, as we have urged them on previous occasions, to have really serious second thoughts about this, chiefly from the point of view of hon. Members on these benches, because we believe that the 13 million consumer co-operative movement is unjustly dealt with in this matter, but also because it does represent a serious problem in the newly developing and promising agricultural movement as well. I am hoping that as a result of this debate today we shall get a more helpful answer on this matter than we have had in previous years.
    Mr. George Darling: I rise to support this Amendment with some confidence on this occasion, partly because many hon. Members
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    opposite have a very similar Amendment on the Notice Paper to exempt building societies from the operation of the increase in the Profits Tax. Admittedly, our Amendments go a little further, but we see co-operative societies and building societies in precisely the same position in relation to Profits Tax. I feel some confidence, also, because the Chancellor, during the debates that we have had on the Finance Bill, has, I think, given us good grounds for believing that in the interests of social justice these Amendments will be accepted. I shall come to that point in a moment.
    I have no doubt that when the Economic Secretary replies he will tell us the old story, that money put to reserve in co-operative societies is in precisely the same situation in relation to tax as money which is put to reserve out of profits in companies and partnerships, and so on, and that the Government cannot discriminate between the reserves of trading institutions.
    However, the answer to the Government's case as presented on previous occasions boils down to this, as my hon. Friend the Member for East Ham, South (Mr. Oram) has said, that the reserves of co-operative societies are quite different, because they cannot increase the shareholdings of co-operative societies in the same way that the reserves of private companies can increase the shareholding; nobody can get capital gains out of co-operative societies.
    Therefore, to suggest that the two forms of reserves are the same is quite wrong. As my hon. Friend also pointed out, the shareholdings in co-operative societies are relatively small and represent the savings of ordinary people. They are not like the big investments of big financiers and investors. They are the accumulated rebates on purchases which ordinary members of co-operative societies have accumulated and they represent the savings of small people.
    This is where I come to the point that I think that the Chancellor, in the interests of social justice, will support us. He will remember that when we were complaining about the fact that an imposition had been put on the ordinary people of the country in having to pay a National Health Service charge, in having to pay higher contributions for

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    that Service, and so on, and that when we claimed that those higher conbutions were being used to give tax relief to Surtax payers, he denied this. He said that he was imposing the increase in Profits Tax for the purpose of providing him with an income to give to the Surtax payers.
    4.0 p.m.
    Some of this increase in Profits Tax will come from these small people. I put a Question down for Written Answer to elicit information and the Chancellor said that he would have £½ million a year out of the co-operative societies from this increase in Profits Tax. His previous statement therefore means that he will take £½ million a year extra out of the small savings of people in co-operative societies deliberately to give it to the Surtax payers. That is what the right hon. and learned Gentleman said. It is absolutely shameful and disgraceful that a special tax should be imposed on the ordinary investors, the little people in co-operative societies to be given, as the Chancellor admits, to Surtax payers.
    During the course of debates on the Budget and on the Finance Bill the Chancellor has never given any indication that he has any interest in the welfare of wage earners. All his sympathy was devoted to the Surtax payers. The only point that the right hon. and learned Gentleman made on the ground of social justice was that the Surtax payers should have some relief. I admit that this increase in Profits Tax will be imposed also on companies but, as I have said, £ million a year will come from a tax on the savings of ordinary working people. It may be a small sum but, as my hon. Friend the Member for East Ham, South has said, it represents a burden on co-operative societies. I do not think that the Chancellor has seen this point before. I believe that if he had realised that this was precisely what he was doing he would have thought twice about levying this tax on co-operative societies.
    At this stage, therefore, I ask the Chancellor to reconsider the matter merely in the interest of social justice and on the ground of what he himself said about the source from which he proposed to obtain money to help the Surtax payers. I
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    ask him to agree with the Amendment that this increase of tax for this purpose ought not to be imposed on co-operative societies.
    Mr. Percy Holman: I do not often address the House or the Committee, but during the sixteen years that I have been a Member of the House I have found, in discussing co-operative societies with hon. Members opposite, only one Conservative Member who understood what co-operative societies were, their constitution and their nature. When we in the co-operative movement talk about shares, what do we mean? I put it simply to hon. Members opposite that this is more like a deposit account at a bank with withdrawal without notice in certain cases, with seven days' notice in other cases, and with a rate of interest averaging somewhat under 3 per cent. This is what we call shares in the co-operative movement, and this is far from the imagination and percipience of hon. Members opposite.
    These shares, we are told, average in amount about £20 per member. The co-operative societies have about £250 million of so-called capital, part of which is used in their own business in retail societies and part loaned to wholesale societies. These are organised in precisely the same way as the retail societies, except that while the retail societies have individual members the members of the wholesale societies are the retail societies themselves and they pass the dividend back to the retail societies out of any surplus that they accumulate.
    Only three things therefore happen to the surpluses of co-operative societies. First, something is put to reserve as a safeguard. Businessmen on the benches opposite can appreciate that. A company or any other organisation must put something in reserve against a possible bad day, just as the retail societies in South Wales had to do in the tragic circumstances of the 1930s when people were out of work and they were forced to take out their savings. Without reserves, the retail societies would have gone out of business, though they were supported by the wholesale societies and even by the Co-operative Union in many cases.
    The major part of any surplus in a co-operative society goes back as dividend.

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    Again, there is a great deal of misunderstanding of this term as it is employed in the co-operative movement. This is not a dividend on capital, but a dividend on the amount of purchases. If a member purchased £100 worth of goods in a year, and the dividend was 9d. in the £, he would receive the equivalent of 100 ninepences, usually payable half-yearly.
    The third thing is the interest on deposit accounts which today averages under 3 per cent. per annum. There have been failures in the past, but today no co-operative society is allowed to become bankrupt. One can say of loan shares in the co-operative movement, therefore, that though the words are the same as those employed by private companies, the meaning in the movement is that £1 always remains £1. It is true that in present conditions that £1 yields rather less in purchases, particularly since the inflationary conditions of this year have come about and are likely to represent a loss in purchasing power of at least 4 per cent.
    This steady increase in Profits Tax from 3 per cent. to 10 per cent. and to 12½ per cent. and now to 15 per cent. on non-profit making organisations for the working class ought never to have been allowed. The increase will mainly fall on the dividend on purchases and this further £½ million will make a total of £2¼ million which will be taken from these societies this year. An additional 9d. will be paid by each of the 13 million co-operators for the purpose, according to the Chancellor, of giving the £10,000a-year men a reduction of £1,000 in their taxation. This money is being demanded from co-operators to give men earning an amount of money beyond the comprehension of the majority of people an extra £1,000 in their pockets.
    This is the effect and the reality of this imposition. Other non-profit-making organisations will also suffer additional taxation. This is for home buyers the last straw because it has forced the building societies to increase rates of interest for borrowers. This is another tragedy which ought not to have been allowed to happen.
    It is my opinion that confusion, not so much among officials in the Treasury as among those who occupy the Government Front Bench and those who sit behind them, has led to this imposition
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    being made when it ought not to have been imposed at all on co-operative and other non-profit-making organisations on exactly the same terms as those imposed on profit-making organisations many of which have equity shares that have risen to ten times and even more of their original value. This is a real injustice which mainly arises from the ignorance of the party opposite.
    Mr. John Rankin: We have embarked on a rather hard task today. I am certain that we shall move the heart of the Chancellor of the Exchequer a little. The important point is how far we shall guide his head. I hope that we can be effective in that regard. The right hon. and learned Gentleman has heard a strong case. We agree that perhaps there is nothing very new in what we are saying, but it is necessary to emphasise it because we have never before had the chance of putting it directly to the right hon. and learned Gentleman. We hope, as we are entitled to hope, that he will be more responsive than his predecessor was.
    My hon. Friend the Member for Bethnal Green (Mr. Holman) said that Profits Tax has sharply increased on co-operatives from 3 per cent. to 15 per cent. over four years. Between 1958 and 1961 we have seen it make that jump. It was very proper of my hon. Friend to direct attention to that point. It has meant that the tax liability has increased from £750,000 to £2¼ million. In terms of £ s. d. that is not a negligible sum.
    I hope that the Chancellor will say that it is negligible and that we are not complaining about much. If it is negligible in his eyes, although it is not in ours, he must concede our claim. While this steep rise has occurred in the application of Profits Tax to co-operatives, there has been a sharp decline in its effect on joint stock companies, because it has dropped steadily over the same period from 30 per cent. prior to 1958 to the present common meeting ground of 15 per cent. While the impact on the co-operative surplus has increased five times, the impact on the private investor has diminished by half. I feel sure that the right hon. and learned Gentleman will not find it easy to defend a situation which shows without qualification such a startling discrimination. I believe he thinks that the tax applies

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    more or less fairly. The facts that we have stated show that it applies with complete unfairness.
    4.15 p.m.
    My hon. Friend the Member for East Ham, South (Mr. Oram) said that the co-operative movement is not merely a trading movement, but a thrift organisation. I subscribe to that; but it is also a great educational force. All these extraneous efforts are made possible by the purchasers—the women who shop at the co-op. They save as they buy. There are countless such women. My mother was one of them. In her own words, she never put a halfpenny by the store in her whole life. Everything that she saved was saved through the co-operative movement through buying in the society. As a result of the mere act and fact of trading she, a working woman, left a sum of money which surprised me.
    Tremendous credit is due to her and the movement of which we speak today. It is a thrift movement, but it is also an educational movement. The movement is to be admired for the work that it does amongst young people in clubs—where woodcraft, for instance, is taught—and for the work it does amongst adults by lectures, debates, and so on. In view of the needs of this age, the Chancellor should seek to aid this, instead of trying to retard it, as he is doing, in penalising it by unfair taxation.
    I emphasise that this organisation, this great movement, is not a way of making money out of money. There is nothing inflationary about it. It never creates values which are not backed by goods. This must be stated to its credit. There is no attempt at any time to falsify its capital, because capital to some extent is a subsidiary aspect of its work. It still carries on in much the same way as the Fenwick pioneers who started the organisation. From an accumulated surplus it buys consumer goods which are necessary to supply its members. It sells the goods to them. The little surplus which arises is apportioned to the members, and for the most part it is collected at the end of the half year.
    In my own society, in south Glasgow, the board of management has to set aside a fortnight—five days in each week—to pay out the great mass of women who queue up to draw their dividends.
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    Very little is left lying in the society. The total accumulated capital works out at about £20 per head. This is the organisation which the Government are attacking by this penal form of taxation. [HON. MEMBERS: "No."]. Yes, they are attacking it. They are attacking it most unfairly. Now that I have provoked a noise from the other side, later on the noise may formulate itself into speech. We may hear something which will show us that under co-operative influence even Tories can advance towards articulate speech.
    There is one strongly contradictory situation about all this. Reference has been made to the fact that last Friday I, with the help of hon. Members on both sides of the House, put through the Industrial and Provident Societies Bill. [Interruption.] The hon. Member has the opportunity to make a speech. I have heard him speak before. There is no reason why he should not enjoy the experience again. Whether we can enjoy it is another matter.
    On Friday, I completed the process of piloting a Bill through the House, and the purpose of that Bill, as has been said, was to provide the producer and consumer sides of the co-operative movement with more money. That was its simple object, and the Government backed me in that. I appreciate the support which I received from the Government Front Bench and from hon. Members on the back benches opposite. They were in favour of more investment in co-operation. Now, having allowed more money, in effect, to go from one hand, the Chancellor has decided that, with the other, he is to take away extra money. That is not consistent practice.
    I notice that the right hon. and learned Gentleman is taking copious notes, and I assume that he is doing so because he realises that he has a good deal for which to account. He has to tell us why he claims that the co-operatives need more money while, at the same time, he is taking from them, in toto, £2¼ million a year. That is a difficult position to defend. I am certain that the easiest way for the right hon. and learned Gentleman to do so is to fling aside his defences and agree that those of us who have been supporting co-operation have a case based on solid rock and that he will give us what we are asking for.
    Mrs. Harriet Slater: We are very disappointed that the hon. Member for Barry (Mr. Gower) has not risen, because apparently he disagrees with the comments of my hon. Friend the Member for Glasgow, Govan (Mr. Rankin). The way in which the hon. Member interrupted implied that he did not think that this was an unfair tax.
    In the co-operative movement we feel that the tax is not only unjust but biased, and that if it were not for the name "co-operative", the taxes would not be applied. It is clear that it is biased because the amount has increased not steadily, but rapidly, since 1958, and the burden on co-operatives and friendly societies, not only retail but agricultural and other forms of co-operative and friendly society undertakings, has become much heavier.
    The tax is unfair because the co-operative movement is a thrift organisation. It is an organisation which encourages small savings which the Chancellor and other Treasury spokesmen have repeatedly asked the public to increase. Throughout its existence, this organisation has encouraged people to save in a small, but nevertheless effective, way. The small savings in co-operative societies mount up. Nobody has yet made the point that co-operative societies also make a substantial contribution through their investments in Government and local authority loans, so that, in a way, by this tax, the Chancellor is taking out of his own hands money which would otherwise be invested.
    These small savings are of considerable advantage to working people. I know of many families who, because wives are able to save through their dividends from co-operative societies, are able to reclothe the children in September after the summer holidays. It might be said that that is not the state of affairs in our society today, but it is true especially for the lower-paid income groups. Many children are able to have new shoes and new clothes in September after the long summer holidays simply because their parents have accumulated dividends in their co-operative society.
    Many working-class families are able to spend money on holidays because of
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    these dividends. Any member of a co-operative society can prove that by checking on the half-yearly returns of the amount of withdrawals of dividend and savings at holiday times. Many people are able to buy things which they need because of dividends which they have saved.
    This increase will mean that once more the consumer will have to pay, because some of the dividends will be used to meet this tax. In another part of the Bill the consumer is to be called upon to pay in another way. It is becoming impossible to penetrate the minds of hon. Members opposite with the idea that there is some advantage in belonging to a co-operative society. We see the hackles rise and resistance grow just because of the name. The Chancellor has a chance, by accepting these Amendments, to be fair and unbiased and to help those people who, through a lifetime of membership of the co-operative movement, have shown that they are prepared to help themselves.
    4.30 p.m.
    The Economic Secretary to the Treasury (Mr. Anthony Barber): The Amendment which has been moved, and the new Clause which goes with it, would reduce the rate of Profits Tax payable by co-operative societies to 3 per cent. as from 1st August, this year. They would allow the increase of rate from 12½ per cent. to 15 per cent. to operate in relation to co-operative societies for the four months from 1st April to 31st July. The second Amendment is only slightly different in that it would make the 3 per cent. rate apply to co-operative societies as from 1st April, this year.
    Both Amendments and the related new Clause raise the same points of principle. The hon. Member for Glasgow, Govan (Mr. Rankin) rightly said a good deal about the work of the co-operative movement, but I am sure that he and every other hon. Member will agree that there are other more special considerations which we cannot ignore and which must be taken into account. As the hon. Member for East Ham, South (Mr. Oram) pointed out, in the fair speech with which he moved the Amendment, to judge the merits of these proposals it is necessary, without going

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    into great detail, to consider briefly the history of this matter.
    As I think the Committee knows, from the inception of the Profits Tax in 1937, when it was known as the National Defence Contribution, until the introduction of the two-tier system by the Labour Government in 1947, no special rules applied to the calculation of the liability of co-operative societies to Profits Tax. The 5 per cent. rate of charge, the rate appropriate to companies, applied, and although loan interest was deducted in computing the profits of co-operative societies, share interest was not deducted.
    Under the Finance Act, 1947, which introduced the two-tier system, co-operative societies were made chargeable at the lower rate only, although the share interest was still not deductible in computing their profits. Then came the final Report of the Royal Commission on the Taxation of Profits and Income, in June, 1955, and the Commission's observations on this matter are so important that I should like to draw the attention of the Committee to two passages in the Report which bear directly on the matter we are now considering.
    The first is paragraph 562 where, with regard to the general principles to be applied to Profits Tax, the Commission said:
    "The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and those formed to serve private purposes. It seems to us that only by an impartial distribution of the tax whenever and wherever profits are found can there be a fair balancing of costs and prices between the public and private sectors of industry and commerce. And if these factors are not balanced fairly the true relationship between these different activities in respect of their development is itself disturbed."
    Applying that principle, the Royal Commission recommended that when a flat rate of Profits Tax was introduced the co-operative societies should be taxed in the same way as other concerns, except, as the Committee knows, that the Commission also recommended that the share interest should be deducted as well as the loan interest, as in the case of building societies, and its recommendations in this regard are set out in paragraph 573.
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    The hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater) said that the Government were in some way biased against co-operative societies in what they are doing. I find it very difficult to understand why she says that. Does she consider that the Royal Commission was biased against co-operative societies for making the recommendations which have been carried into effect by a Conservative Government?
    I do not think that it is either worthy or fair of the hon. Lady to make a suggestion like that, because, in the Finance Act, 1958, we gave effect to the Royal Commission's recommendations in regard both to the flat rate of Profits Tax, which was then fixed at the 10 per cent. limit, and to the allowance to co-operative societies of a deduction for their share interest. The proposals which we are now considering seek to restore the 3 per cent. rate of charge, while, of course, they do nothing to repeal the provisions introduced in 1958 under which share interest is deductable.
    As the hon. Member for East Ham, South said, it is true that the dividend on shares, as opposed to the ordinary dividend, is different in kind from dividends paid by ordinary companies. The hon. Gentleman also said that I would say that this was a concession. I am prepared to say quite frankly that there is a difference in nature between the dividends paid by co-operative societies on shares and the dividends paid by ordinary trading companies. Therefore, quite apart from any question of concessions to co-operative societies, I think it right that they should be treated in this special way.
    However, the over-riding objection to giving co-operative societies the special relief of Profits Tax which is sought in these Amendments is that it would be most unfair to their trading competitors. After all, their trading competitors are liable to Profits Tax at the full rate. They, like the co-operative societies, have built up their businesses out of taxed profits, and I do not believe that it would be equitable to give co-operative societies any more favourable treatment.
    Profits Tax is levied on the profits of trades and businesses carried on by corporate and similar bodies, and there can be no denying that co-operative societies are carrying on trading activities, and

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    that they are doing so with a view to making profits. There can be no doubt that they are carrying on their trade in competition with other enterprises, many of them small businesses, and, whatever the hon. Member for Sheffield, Hillsborough (Mr. Darling) may say about the relationship between Profits Tax and Surtax relief, I am sure that he will agree that there must be equity as between competing trading undertakings.
    The hon. Member for Bethnal Green (Mr. Holman) referred to reserves, but, here again, it cannot be denied that if a co-operative society ploughs back part of its profits to expand its business it is doing what many of its competitors are doing, and under the present methods of computing profits for Profits Tax purposes the co-operative societies are rightly permitted to deduct their share interest, which is something which cannot be done by ordinary trading organisations.
    Mr. Holman: Will the hon. Gentleman agree that one cannot make a profit out of oneself? Therefore, there is no profit arising out of mutual trading, and the reserve is merely an insurance against possible losses under certain conditions, of which I gave one example.
    Mr. Barber: I am subject to correction, but if the hon. Gentleman is right in saying that the co-operative societies do not make a profit, they should quickly appeal to the House of Lords. If he is right, they would find that they would not be liable to Profits Tax, because that is a tax made only on profits on trading. I think that it must, therefore, be accepted that they like their competitors, make a profit.
    Mr. Douglas Jay: Does the hon. Gentleman not see that the argument he has used about share interests of co-operative societies being of a special kind shows that their profits are a different form of profits from those of other trading companies, and that that invalidates his argument?
    Mr. Barber: I do not want to waste time on this point, but if the right hon. Gentleman looks at paragraphs 570 to 572 of the Royal Commission's Report he will there find set out the reasons for treating dividends paid on share interest differently in the case of co-operative
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    societies, and this has nothing to do with their trading activities, or with the nature of their profits or services. The treatment of co-operative societies is precisely in line with the recommendations of the Royal Commission.
    The hon. Member for East Ham, South and the hon. Member for Govan contended that this was unjust. I suggest that to treat them otherwise than they are being treated would be most inequitable and would give them an unfair advantage over those with whom they are in direct competition, and for those reasons I ask the Committee to reject the Amendment.
    Mr. Harold Wilson: The Economic Secretary is a continuing disappointment to us. His speeches are in themselves not only disappointing, but are becoming utterly predictable. It is not that he does not read very well. He does, but I think that any of us on this side of the Committee, if we had been given a pencil and a piece of paper before the hon. Gentleman rose to speak, could have written down word for word what he was going to say.
    The hon. Gentleman's reply was very predictable. I have heard it from that Front Bench several times in the past few years. We thought that we would get something different from the new dispensation at the Treasury. I well remember the encomiums poured upon the Chancellor in the Sunday Times, last September. It was said that a fresh mind was being brought to bear, and that a new breeze was blowing through the Treasury which would get the country and the Treasury out of the rut. It was said that we would get some fresh ideas. But all we have got is the same turgid thoughts, expressed in the same terms as last year's.
    What was remarkable about the speech was that instead of arguing the proposition that he was supposed to be arguing and dealing with the points made by my hon. Friends, the Economic Secretary read out yard after yard from the Royal Commission's Report. At one stage, I was not certain whether he was reading from the right page. His first quotation did not seem particularly relevant, and I thought that if he turned over the page he might find the bit that he was seeking.

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    It is extraordinary that he quotes from the Royal Commission to justify the Government's activities. Does he regard it as gospel? Does he agree with the conclusions in that Report? Last night he had the nerve—if I may use that term—to quote from the Radcliffe Committee's Report, which has been turned down flat by the Government. Now he gropes through the Report of the Royal Commission, trying to find a squalid little footnote with which he can agree, so that he can produce it in a debate. But the Royal Commission's Report has page after page of recommendations which have been turned down by the present Chancellor and his predecessors.
    My hon. Friend the Member for Sowerby (Mr. Houghton), who has done some diligent research into the matter, could curdle the blood of the Economic Secretary, if he had any blood. He could quote a long list of recommendations—not merely footnotes—from the Report of the Royal Commission, which has now been available to us for exactly six years. They are recommendations which have either been ignored or turned down flat by the Government. Do not let us have any more of those arguments. Next time, I hope that we shall get from the Economic Secretary or the Chancellor a proper consideration of the points raised by my hon. Friends, and some attempt to deal with them. My hon. Friends have put their points very clearly.
    It is evident that these related Amendments and the new Clause are designed to do two things. First, they seek to repel the attack made by the Chancellor on co-operative societies by increasing Profits Tax by 2½ per cent. I agree that the attack is not directed only against co-operative societies; it is a general rise of 2½ per cent. But the purpose of the Amendment, limited to co-operative societies, is designed to resist the proposal to extend the rate of taxation from 12½ per cent. to 15 per cent.
    The second motive is to counterattack. Having, it is hoped, defeated the Chancellor, or held him on his proposal to worsen the situation, the Amendments seek to put the rate of taxation back to what it was before Lord Amory got at this problem in 1958, and to reverse the decision taken in that year, so that the co-operative societies
    450
    would be paying at a rate of 3 per cent. The Economic Secretary was dimly beginning to perceive that there is a difference between co-operative dividends and dividends in ordinary commercial life, and that there is also a difference between co-operative shares and shares in ordinary commercial life, which fact my right hon. Friend the Member for Battersea, South (Mr. Jay) brought out. What he has not yet begun to see is that there is a difference in what he calls the profits.
    This is a point to which he should devote some study. It would dawn on him if he thought hard about it. It follows not only from the arguments of my hon. Friends but from his own arguments that co-operative societies are not in business to earn profits. That is what he does not understand. They were originally created as a mutuality, for the purpose of providing a common service for their members. Some of the school textbook histories of co-operative societies refer to the Rochdale pioneers, but the co-operative principle goes back far beyond those days. As a Yorkshireman, I cannot give the palm to Rochdale. There was an extremely successful co-operative society functioning in Yorkshire in the eighteenth century, and before that there were co-operative societies in Portsmouth and Southsea and various other parts of the country.
    Mr. James Griffiths: Robert Owen.
    4.45 p.m.
    Mr. Wilson: He was more of the Rochdale period. I am going back to the days before his time. He was functioning in the nineteenth century. I am prepared to concede to my right hon. Friend the Member for Llanelly (Mr. J. Griffiths) any claims he wants for his part of Wales.
    The plain fact is that many of the earlier co-operative societies did not have any dividends. That was a significant development of the Rochdale system. My hon. Friends know a great deal more about co-operative history than I do, but I think that the earliest societies were associations of workers who got together to buy a sack of flour at a commercial price and divide it among themselves, thereby making a saving. Where was the profit in that?

    451
    The Economic Secretary would have brought in a squad of Income Tax inspectors to weigh out the flour and to say what profit was involved, and then go trekking off to another place to get a favourable decision.
    The idea of these earliest societies was to provide a service, just as, for example, four or five people may decide that instead of paying bus or train fares to go on a journey they will share a car and so save some money. That is not a profit. That is providing a service. As my hon. Friend the Member for Bethnal Green (Mr. Holman) said, there is no identifiable profit, because one cannot make a profit out of oneself.
    As my hon. Friend has shown, the co-operative movement is now an enormous, nation-wide social service, but with all its development it is still based on the original principle. It is true that a dividend is paid in respect of purchases, but that dividend is not of itself necessary to the co-operative principle; there can still be co-operation without any trade dividends being paid at all. The whole structure of the co-operative movement in relation to its capital is based on the principle of a group of partners getting together and providing a service for each other.
    The shares pay very low rates of dividend. They are not shares in the sense that shares are understood in ordinary capitalism. One of the most important points, which my hon. Friends have stressed, is that these shares are not subject to gambling, or to variation in price on the Stock Exchange or anywhere else. They hold their value. They are flat-rate shares, always sold at par, and any transactions that take place in them take place direct with the societies and not through third parties.
    Mr. Holman: The shares of co-operative societies are merely a form of loan to the societies. The Committee should appreciate that 30 per cent. of all the money put into them by their members is reinvested in Government or local government securities.
    Mr. Wilson: I am grateful to my hon. Friend for that interjection. I was about to make that point.
    In this sense, the co-operative movement has something in common with
    452
    building societies. The shares are not subject to gambling. In other words, the holders of equity shares who, in the modern world, not only get their dividends at fairly high rates, but, in a few years, can almost certainly count on a capital gain, are in an entirely different position from co-operative society members, on whose dividends capital gains cannot be made. That is the argument for a different system of profits taxation.
    Even if there were no other arguments, that argument alone should be enough. As my hon. Friend the Member for Bethnal Green has said, about 30 per cent. of the money of co-operative societies is invested in gilt-edged securities of one kind or another. It is invested in Government securities, local authorities, public boards, and other gilt-edged securities.
    This should be something to please the Chancellor. It should not be something which gets him to reach for his fiscal pen and then try to extract more taxation. With all the wreckage which there has been in the gilt-edged market as a result of his and his predecessor's activities, he should be glad of a vast movement of this kind, which is doing something to support the gilt-edged market. It has suffered very heavy losses in the process.
    The co-operative societies do not exist for the purpose of paying dividends on their shares. That is not their motive. As my hon. Friend the Member for Bethnal Green pointed out, the amount which they pay on their shares is comparable to a low rate of interest paid on a loan for the purpose of the societies' business. They are, therefore, essentially different. They do not exist for the purpose of paying dividends on shares.
    There was some degree of justice in the system before 1958, when the co-operative societies were taxed at the lower of the two rates of the dual rate system, the same rate as the Profits Tax on undistributed profits—because these are, of course, undistributed profits. But once Lord Amory—I do not disagree at all, as a matter of history, that he was following the recommendation of the Royal Commission—unified the rates at 10 per cent., he put the co-operative societies on the same basis as the rest of industry and trade. The result was that

    453
    what had been a 3 per cent. rate shot up to 10 per cent. Now, it is 15 per cent.
    If one takes the average company distributing fairly fully up to its earning power, whereas that company was paying 30 per cent. on its distributed dividends before and is now down to 15 per cent., even after the Clause becomes law—in other words, on its distributed dividends it is paying half as much as it paid before—the co-operative societies, which previously paid 3 per cent., are now asked by the Clause to pay 15 per cent., or five times as much. In spite of this, the Economic Secretary tells us that everybody is being treated alike, that there is no injustice and that he is amazed that anybody should talk, as my hon. Friend the Member for Stoke-on Trent, North (Mrs. Slater) has done, about bias and prejudice in the Government's approach to this question.
    Even if these arguments are not crystal clear, as they should be, to the Economic Secretary—I realise that it might take him a day or two to absorb them and to realise their meaning—they will, however, be crystal clear to the Chancellor, who, as we all know, has a ready and quick mind in these matters. We do not need to wait for a day or two for the Chancellor to take account of it all.
    I hope that either the Chancellor will say that he accepts these arguments of my hon. Friends and will accept our Amendments or, at least, that the Economic Secretary will get up and say that he is so impressed by the arguments which have been put forward that now that he has read his brief and these bits from the Royal Commission Report, which he was told he must do, whether they were the right or the wrong bits, he will consider what has been said and will come back to us with proposals on Report.
    If either the right hon. and learned Gentleman or his hon. Friend gives that perfectly reasonable response to this argument, we might, perhaps, agree to pass on—[Laughter.] Yes, pass on to the
    next Amendment. I thought that when I was following a real, intellectual argument, I should strike oil with the hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport). One thing that I have always found is that if the Government Front Bench is a little slow to see the sometimes, perhaps, difficult and complicated arguments, it is not long before one gets some reaction from the hon. and gallant Member. I look forward to seeing him in the Division Lobby with us.
    Mr. Barber: The right hon. Member for Huyton (Mr. H. Wilson) is quite right in saying that my reply was somewhat similar to a reply given in earlier years. The right hon. Gentleman will, however, also admit that his own observations were not wholly dissimilar from those which have been made on previous occasions. We were, therefore, dealing with the same point.
    The right hon. Gentleman referred at length to dividends. Even if no dividends were paid, Profits Tax would still be payable on the profits of an undertaking, whether a co-operative society or any other form of trading organisation. If it really is the case that these societies are not making profits, I find it is a little difficult to understand why, under the Labour Government, although they paid at a reduced rate, they were, nevertheless, liable to Profits Tax. Therefore, in the end, it is just simply a question of equity.
    I realise that the right hon. Gentleman takes a different view from that of my right hon. and learned Friend. If I may put the matter briefly, the societies are trading. They are making a profit. They are operating in direct competition with other trading undertakings. Therefore, the view of my right hon. and learned Friend is that for Profits Tax purposes they should be treated in the same way.
    Question put, That those words be there inserted:—
    The Committee divided: Ayes 178, Noes 241.

    Division No. 200.]

    AYES

    [4.56 p.m.

    Abse, Leo

    Bowden, Herbert W. (Leics, S. W.)

    Chapman, Donald

    Ainsley, William

    Boyden, James

    Corbet, Mrs. Freda

    Albu, Austen

    Brockway, A. Fenner

    Craddock, George (Bradford, S.)

    Allaun, Frank (Salford, E.)

    Broughton, Dr. A. D. D.

    Cronin, John

    Allen, Scholefield (Crewe)

    Brown, Rt. Hon. George (Belper)

    Crosland, Anthony

    Awbery, Stan

    Butler, Herbert (Hackney, C.)

    Cullen, Mrs. Alice

    Benson, Sir George

    Butler, Mrs. Joyce (Wood Green)

    Darling, George

    Blyton, William

    Callaghan, James

    Davies, G. Elfed (Rhondda, E.)

    Davies, Harold (Leek)

    Jeger, George

    Price, J. T. (Westhoughton)

    Davies, Ifor (Gowar)

    Jenkins, Roy (Stechford)

    Probert, Arthur

    Davies, S. O. (Merthyr)

    Johnson, Carol (Lewisham, S.)

    Proctor, W. T.

    Deer, George

    Jones, Rt. Hn. A. Creech (Wakefield)

    Pursey, Cmdr. Harry

    Diamond, John

    Jones, Dan (Burnley)

    Rankin, John

    Dodds, Norman

    Jones, Elwyn (West Ham, S.)

    Reid, William

    Donnelly, Desmond

    Jones, J. Idwal (Wrexham)

    Rhodes, H.

    Dugdale, Rt. Hon. John

    Jones, T. W. (Merioneth)

    Roberts, Albert (Normanton)

    Ede, Rt. Hon. C.

    Kelley, Richard

    Roberts, Goronwy (Caernarvon)

    Edelman, Maurice

    Kenyon, Clifford

    Robertson, John (Paisley)

    Edwards, Rt. Hon. Ness (Caerphilly)

    Key, Rt. Hon. C. W.

    Robinson, Kenneth (St. Pancras, N.)

    Edwards, Robert (Bilston)

    King, Dr. Horace

    Ross, William

    Edwards, Walter (Stepney)

    Lee, Frederick (Newton)

    Royle, Charles (Salford, West)

    Evans, Albert

    Lee, Miss Jennie (Cannock)

    Shinwell, Rt. Hon. E.

    Fernyhough, E.

    Lewis, Arthur (West Ham, N.)

    Short, Edward

    Finch, Harold

    Lipton, Marcus

    Silverman, Julius (Aston)

    Fitch, Alan

    Logan, David

    Silverman, Sydney (Nelson)

    Fletcher, Eric

    Loughlin, Charles

    Skeffington, Arthur

    Foot, Dingle (Ipswich)

    Mabon, Dr. J. Dickson

    Slater, Mrs. Harriet (Stoke, N.)

    Foot, Michael (Ebbw Vale)

    McInnes, James

    Slater, Joseph (Sedgefield)

    Forman, J. C.

    McKay, John (Wallsend)

    Small, William

    Fraser, Thomas (Hamilton)

    Mackie, John (Enfield, East)

    Sorensen, R. W.

    Gaitskell, Rt. Hon. Hugh

    McLeavy, Frank

    Spriggs, Leslie

    Galpern, Sir Myer

    MacMillan, Malcolm (Western Isles)

    Steele, Thomas

    Ginsburg, David

    MacPherson, Malcolm (Stirling)

    Stewart, Michael (Fulham)

    Gordon Walker, Rt. Hon. P. C.

    Mahon, Simon

    Stones, William

    Gourlay, Harry

    Mallalieu, E. L. (Brigg)

    Strauss, Rt. Hn. G. R. (Vauxhall)

    Greenwood, Anthony

    Manuel, A. C.

    Swingler, Stephen

    Grey, Charles

    Mapp, Charles

    Sylvester, George

    Griffiths, David (Rother Valley)

    Marquand, Rt. Hon. H. A.

    Taylor, Bernard (Mansfield)

    Griffiths, Rt. Hon. James (Llanelly)

    Marsh, Richard

    Thomas, Iorwerth (Rhondda, W.)

    Gunter, Ray

    Mason, Roy

    Thompson, Dr. Alan (Dunfermline)

    Hale, Leslie (Oldham, W.)

    Mellish, R. J.

    Thomson, G. M. (Dundee, E.)

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Mendelson, J. J.

    Thornton, Ernest

    Hamilton, William (West Fife)

    Millan, Bruce

    Wainwright, Edwin

    Hannan, William

    Milne, Edward J.

    Warbey, William

    Hayman, F. H.

    Mitchison, G. R.

    Watkins, Tudor

    Healey, Denis

    Monslow, Walter

    Weitzman, David

    Henderson, Rt. Hn. Arthur (Rwly Regis)

    Mort, D. L.

    Wells, Percy (Faversham)

    Herbison, Miss Margaret

    Moyle, Arthur

    Whitlock, William

    Hill, J. (Midlothian)

    Neal, Harold

    Willey, Frederick

    Holman, Percy

    Oliver, G. H.

    Williams, D. J. (Neath)

    Houghton, Douglas

    Oram, A. E.

    Williams, Ll. (Abertillery)

    Howell, Denis (Small Heath)

    Oswald, Thomas

    Williams, W. R. (Openshaw)

    Hoy, James H.

    Owen, Will

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

    Hughes, Cledwyn (Anglesey)

    Paget, R. T.

    Wilson, Rt. Hon. Harold (Huyton)

    Hughes, Emrys (S. Ayrshire)

    Pannell, Charles (Leeds, W.)

    Winterbottom, R. E.

    Hunter, A. E.

    Parker, John

    Woodburn, Rt. Hon. A.

    Hynd, John (Attercliffe)

    Pearson, Arthur (Pontypridd)

    Woof, Robert

    Irvine, A. J. (Edge Hill)

    Peart, Frederick

    Zilliacus, K.

    Irving, Sydney (Dartford)

    Popplewell, Ernest

    Jay, Rt. Hon. Douglas

    Prentice, R. E.

    TELLERS FOR THE AYES:

    Mr. John Taylor and Mr. Lawson.

    NOES

    Agnew, Sir Peter

    Bullard, Denys

    Eden, John

    Aitken, W. T.

    Bullus, Wing Commander Eric

    Elliot, Capt. Walter (Carshalton)

    Allason, James

    Burden, F. A.

    Elliott, R. W. (Nwcstle-upon-Tyne, N.)

    Arbuthnot, John

    Butcher, Sir Herbert

    Emery, Peter

    Atkins, Humphrey

    Campbell, Sir David (Belfast, S.)

    Emmett, Hon. Mrs. Evelyn

    Barber, Anthony

    Campbell, Gordon (Moray & Nairn)

    Fell, Anthony

    Barlow, Sir John

    Cary, Sir Robert

    Finlay, Graeme

    Barter, John

    Channon, H. P. G.

    Fisher, Nigel

    Batsford, Brian

    Chataway, Christopher

    Foster, John

    Baxter, Sir Beverley (Southgate)

    Chichester-Clark, R.

    Fraser, Ian (Plymouth, Sutton)

    Beamish, Col. Sir Tufton

    Clark, Henry (Antrim, N.)

    Freeth, Denzil

    Bell, Ronald

    Clark, William (Nottingham, S.)

    Galbraith, Hon. T. G. D.

    Bennett, Dr. Reginald (Gos & Fhm)

    Cleaver, Leonard

    Gammans, Lady

    Berkeley, Humphry

    Cooke, Robert

    Gardner, Edward

    Biggs-Davison, John

    Cooper, A. E.

    Gibson-Watt, David

    Bingham, R. M.

    Cooper-Key, Sir Neill

    Glover, Sir Douglas

    Birch, Rt. Hon. Nigel

    Cordeaux, Lt.-Col. J. K.

    Goodhart, Philip

    Bishop, F. P.

    Corfield, F. V.

    Gower, Raymond

    Bossom, Clive

    Costain, A. P.

    Grant, Rt. Hon. William

    Bourne-Arton, A.

    Coulson, J. M.

    Grant-Ferris, Wg. Cdr. R.

    Bowen, Roderic (Cardigan)

    Courtney, Cdr. Anthony

    Green, Alan

    Boyd-Carpenter, Rt. Hon. John

    Craddock, Sir Beresford

    Gresham Cooke, R.

    Boyle, Sir Edward

    Cunningham, Knox

    Grimond, J.

    Braine, Bernard

    Dalkeith, Earl of

    Grosvenor, Lt.-Col. R. G.

    Brewis, John

    Davies, Rt. Hn. Clement (Montgomery)

    Gurden, Harold

    Bromley-Davenport, Lt.-Col. Sir Walter

    Digby, Simon Wingfield

    Hall, John (Wycombe)

    Browne, Percy (Torrington)

    Doughty, Charles

    Hamilton, Michael (Wellingborough)

    Bryan, Paul

    Duncan, Sir James

    Harris, Frederic (Croydon, N. W.)

    Buck, Antony

    Duthie, Sir William

    Harris, Reader (Heston)

    456

    457

    Harrison, Brian (Maldon)

    McLean, Neil (Inverness)

    Roots, William

    Harvie Anderson, Miss

    McMaster, Stanley R.

    Ropner, Col. Sir Leonard

    Hastings, Stephen

    Maddan, Martin

    Russell, Ronald

    Hay, John

    Maitland, Sir John

    Scott-Hopkins, James

    Heald, Rt. Hon. Sir Lionel

    Manningham-Buller, Rt. Hn. Sir R.

    Sharples, Richard

    Henderson-Stewart, Sir James

    Markham, Major Sir Frank

    Shaw, M.

    Hendry, Forbes

    Marlowe, Anthony

    Simon, Rt. Hon. Sir Jocelyn

    Hiley, Joseph

    Marples, Rt. Hon. Ernest

    Skeet, T. H. H.

    Hill, Dr. Rt. Hon. Charles (Luton)

    Marshall, Douglas

    Smith, Dudley (Br'ntf'rd & Chiswick)

    Hill, Mrs. Eveline (Wythenshawe)

    Marten, Neil

    Smithers, Peter

    Hill, J. E. B. (S. Norfolk)

    Maxwell-Hyslop, R. J.

    Spearman, Sir Alexander

    Hinchingbrooke, Viscount

    Mills, Stratton

    Stevens, Geoffrey

    Hirst, Geoffrey

    Montgomery, Fergus

    Steward, Harold (Stockport, S.)

    Hocking, Philip N.

    More, Jasper (Ludlow)

    Stodart, J. A.

    Hollingworth, John

    Morgan, William

    Stoddart-Scott, Col. Sir Malcolm

    Hopkins, Alan

    Mott-Radclyffe, Sir Charles

    Storey, Sir Samuel

    Hornby, R. P.

    Nabarro, Gerald

    Studholme, Sir Henry

    Hornsby-Smith, Rt. Hon. Patricia

    Nicholls, Sir Harmar

    Sumner, Donald (Orpington)

    Howard, Hon. G. R. (St. Ives)

    Nicholson, Sir Godfrey

    Talbot, John E.

    Hughes-Young, Michael

    Nugent, Sir Richard

    Tapsell, Peter

    Hurd, Sir Anthony

    Oakshott, Sir Hendrie

    Taylor, Edwin (Bolton, E.)

    Hutchison, Michael Clark

    Orr, Capt. L. P. S.

    Taylor, W. J. (Bradford, N.)

    Iremonger, T. L.

    Orr-Ewing, C. Ian

    Thatcher, Mrs. Margaret

    Irvine, Bryant Godman (Rye)

    Osborn, John (Hallam)

    Thompson, Kenneth (Walton)

    James, David

    Osborne, Sir Cyril (Louth)

    Thornton-Kemsley, Sir Colin

    Jenkins, Robert (Dulwich)

    Page, John (Harrow, West)

    Tiley, Arthur (Bradford, W.)

    Johnson, Eric (Blackley)

    Page, Graham (Crosby)

    Turner, Colin

    Johnson Smith, Geoffrey

    Pannell, Norman (Kirkdale)

    Turton, Rt. Hon. R. H.

    Jones, Rt. Hn. Aubrey (Hall Green)

    Partridge, E.

    Tweedsmuir, Lady

    Joseph, Sir Keith

    Pearson, Frank (Clitheroe)

    van Straubenzee, W. R.

    Kerans, Cdr. J. S.

    Peel, John

    Vane, W. M. F.

    Kerby, Capt. Henry

    Percival, Ian

    Vaughan-Morgan, Rt. Hon. Sir John

    Kerr, Sir Hamilton

    Pickthorn, Sir Kenneth

    Vickers, Miss Joan

    Kershaw, Anthony

    Pilkington, Sir Richard

    Vosper, Rt. Hon. Dennis

    Kitson, Timothy

    Pitman, Sir James

    Walder, David

    Lambton, Viscount

    Pitt, Miss Edith

    Wall, Patrick

    Leather, E. H. C.

    Pott, Percivall

    Ward, Dame Irene

    Leavey, J. A.

    Powell, Rt. Hon. J. Enoch

    Watkinson, Rt. Hon. Harold

    Leburn, Gilmour

    Price, David (Eastleigh)

    Williams, Dudley (Exeter)

    Legge-Bourke, Sir Harry

    Prior, J. M. L.

    Williams, Paul (Sunderland, S.)

    Lilley, F. J. P.

    Prior-Palmer, Brig. Sir Otho

    Wills, Sir Gerald (Bridgwater)

    Linstead, Sir Hugh

    Proudfoot, Wilfred

    Wilson, Geoffrey (Truro)

    Litchfield, Capt. John

    Pym, Francis

    Wise, A. R.

    Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)

    Quennell, Miss J. M.

    Wolrige-Gordon, Patrick

    Lloyd, Rt. Hon. Selwyn (Wirral)

    Ramsden, James

    Wood, Rt. Hon. Richard

    Longbottom, Charles

    Rawlinson, Peter

    Woodhouse, C. M.

    Longden, Gilbert

    Redmayne, Rt. Hon. Martin

    Woodnutt, Mark

    Lucas-Tooth, Sir Hugh

    Rees, Hugh

    Woollam, John

    McAdden, Stephen

    Renton, David

    Yates, William (The Wrekin)

    MacArthur, Ian

    Ridley, Hon. Nicholas

    McLaren, Martin

    Roberts, Sir Peter (Heeley)

    TELLERS FOR THE NOES:

    McLaughlin, Mrs. Patricia

    Robertson, Sir D. (C'thn's & S'th'ld)

    Mr. Whitelaw and

    Robinson, Sir Roland (Blackpool, S.)

    Mr. Michael Noble.

    Mr. Glenvil Hall: I beg to move, in page 23, line 10, at the end to add:
    Provided that such increase shall not apply to any organisation recognised as a building society and registered under the Acts relating to building societies.
    The Chairman: I suggest that it would be for the convenience of the Committee if we discussed, at the same time, the following two Amendments:
    In page 23, line 10, at the end to add:
    Provided that this increase shall not have effect in relation to a building society.
    (2) In this section the expression "building society" has the same meaning as in the Building Societies Act, 1960, save that it also includes a society which is, or for the purposes of the Building Societies Acts. 1874 to 1960, is deemed to be, registered in Northern Ireland or any such unincorporated society as is mentioned in section seven of the Building Societies
    458
    Act, 1874, and has its chief office or principal place of business in Northern Ireland.
    In line 10, at the end to add:
    Provided that as and from the first day of April, nineteen hundred and sixty-one, profits tax on any recognised building society shall only be charged on that proportion of the profits that arises from special advances as defined in the Building Societies Act, 1960.
    Mr. Glenvil Hall: This Amendment seeks to exempt building societies from the additional 2½ per cent. Profits Tax which the Chancellor is imposing in the Bill. The other Amendments go a good deal further. They would exempt building societies from all payment of Profits Tax. Needless to say, I agree with that, but the Amendment I am however moving is a great deal more modest.
    I have no doubt that the Chancellor has noted that these three Amendments

    459
    are not the result of the feeling in one part of the Committee alone. The Amendments that we are discussing, apart altogether from another Amendment which was found to be out of order, have at least twelve names of Conservative Members attached to them in support. It should be noted by the Chancellor and the Committee that we are dealing with a matter which is not the concern of one party only but one in which members of all parties take an interest and seek to obtain change.
    This is a modest proposal. All that those of us who have put our names to it are asking is that, if the Chancellor will not abolish the major injustice, he will not add to it by seeking to impose this additional 2½ per cent. This is not the first time that this matter has been ventilated in discussion on a Finance Bill. Like the Amendment dealing with co-operative societies, which has just been disposed of, the question whether it is right and proper to impose this tax on building societies has come up almost yearly. I put it to the right hon. and learned Gentleman that when hon. Members on both sides of the Committee feel so strongly about a matter there must be something in their view and an injustice which needs redressing. Hon. Members on both sides would not have co-operated in this way if there were not sound reasons for their so doing.
    What are the reasons why some of us wish, if we can, to obviate the increase of 2½ per cent. now and why many of us would like to see the tax abolished altogether from building societies? The first point I make, which has often been made before, was made—possibly with less reason—when we were dealing with co-operative societies. It is that building societies do not make profits, and Profits Tax is a tax on profits and not on anything else. Individuals do not pay Profits Tax; only companies and organisations of that kind do. I think that it is established beyond dispute therefore, that building societies do not make profits. Not only do they not make profits, but they do not distribute any dividend or give any bonus at any time. They are in a peculiar and particular position. Not only do they not seek to make profits, but their surpluses go to
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    strengthen, and are for the benefit of, the building societies concerned.
    The first point that I would make therefore, is that building societies are in a peculiar and a particular position. Sir John Simon himself, when he was Chancellor of the Exchequer, over twenty years ago, recognised this fact. What he said then has been quoted many times and I will not weary the Committee by quoting it again. He said that building societies were in a class apart as far as tax was concerned. Proof of this, if proof is needed, is that they were brought specially within the ambit of this tax.
    An ordinary trading concern is not mentioned by name in Finance Acts when Profits Tax is dealt with, but building societies actually had to be brought within the terms of the Acts as building societies, so that the tax should apply to them. There is a belief among some people that building societies do not pay Income Tax. It is a fairly widespread belief arising from the fact that those who lend money to building societies receive the interest on their money apparently tax free. It is only when, and if, they pay Surtax that the Inland Revenue deducts any tax from the interest which they receive on the money that they lend to a building society, and then not by way of Income Tax but only for Surtax purposes.
    This does not mean that building societies do not pay Income Tax. They compound with the Inland Revenue for a special rate. This is fixed each year, and at the moment, I think, the agreed rate is about 5s. 5d. in the £. I have yet to learn that this does not cover adequately the amount of Income Tax for which they are liable. This is an arrangement which undoubtedly suits the Inland Revenue and, administratively, I have no doubt, it suits the building societies.
    It arises from the fact that a very large number of people who put their money into building societies are small savers who, in any event, are not liable for Income Tax. This arrangement saves the Inland Revenue from receiving an enormous number of small claims for the repayment of tax. Building societies pay Income Tax under this arrangement and there is not the slightest doubt that the Inland Revenue does not lose by it.

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    For sixty years, and until comparatively recently, building societies did not pay income Tax. They pay it now, of course, as I have said, and, in addition, in comparatively more recent times they have also paid Profits Tax. As we have already been reminded this afternoon on an earlier Amendment, in 1958 a change was made on the basis of Profits Tax. In that year the old differential rates were abolished, the 3 per cent. tax on undistributed ploughed-back profits was got rid of, as, indeed, was the 30 per cent. levied on distributed profits, and a flat rate of 10 per cent. was instituted instead.
    Even the distributed rate of 3 per cent. which was previously charged to the co-operative societies was not charged to building societies. Even then it was recognised that building societies were in a different category even from co-operative societies. They paid at a flat rate of their own of 2 per cent. Many people thought that this was a favour to building societies and that they should have been very grateful for it. In fact, it was no favour at all because, as I think many of us know, although they only had to pay at the rate of 2 per cent. they were not paying this on the net but on the gross.
    5.15 p.m.
    When assessed, building societies were not allowed to deduct the interest which they paid on what they had borrowed from those who invested with them. Building societies, of course, function by borrowing money at fixed rates of interest and lending it to those who wish to buy their homes. This borrowed money is, therefore, their raw material, without it which they could not exist.
    An ordinary trading company is allowed to deduct its expenses on the cost of the material from which it makes its profits, but up to 1958 building societies were not allowed to do so. The result was that they paid far more tax than they should have done or that an ordinary trading concern in fact paid. During the years 1953–54 to 1957–58, building societies paid in this way over £6 million in tax instead of £1,700,000, an excess of over £4¼ million.
    For several years attention was drawn to this matter in the House and attempts made by hon. Members on both sides to remedy the injustice. But the Chancellor
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    of the day would not accede to the request. It was not until three years ago, when the basis was altered and a flat rate introduced, that the then Chancellor, the present Lord Amory, at last agreed to allow assessments to be made on the net rather than on the gross. At the time, many thought that this was a triumph for reason and justice. At the same time, however, the Chancellor turned round and gave building societies a slap in the face because, instead of the 2 per cent. tax which they had been paying on the gross, he made it 10 per cent. on the net. This, of course, made a very great difference to building societies. It made a difference to the co-operative societies, too, as we have heard, who were also treated in the same way.
    It is sometimes asked why building societies which perform a useful function in the State should be treated in this way. A little while ago I heard someone say that he had formed the opinion that there must be someone in the Inland Revenue who, at some time had been refused a mortgage by a building society and had decided, at every possible opportunity, to take it out of building societies. That is probably untrue, but what the reason is I do not know. Perhaps the Minister will let us know. There obviously is a reason, but many of us are quite uncertain as to what it is.
    What is the position today? It is that this year building societies collectively will have to find Income Tax at the composite rate of 5s. 5d. in the pound amounting to £31 million. In addition, they will have to find Income Tax at the standard rate on their surpluses equal to £9 million, making £40 million in all. If we add to that the Profits Tax at the present rate of 12½ per cent., the Chancellor will take a further £3 million, and if we add the 2½ per cent. now proposed making 15 per cent., there is another £750,000 added to this figure, making altogether, Profits Tax £3¾ of million, making, in total, nearly £44 million from building societies for the current year.
    It might be said by some that if building societies pay at this magnitude, why should any of us worry very much if they have to pay another £¾ million. If some hon. Members argue that way—I hope that none will—I think that they must still agree that a halt must be called at some

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    time, that this kind of thing has gone progressively upwards during the last three years, and that no one can see what the end will be. But there is a more serious aspect to the matter and one to which many of us desire the Chancellor to direct special attention. It is the effect of this mounting burden on reserves.
    I would remind hon. Members—I hope I may be forgiven for doing it, but it is part of the case which has to be put—how building societies function. First, they have to borrow money. In doing that, they have to pay interest to those who lend it. Often, as I have said, and as we know, the lenders are quite small savers. The building societies re-lend such money to house purchasers, and, naturally, as they have themselves to live, they have to lend it at a higher rate than they are paying. The difference between these two rates is what is called the "surplus". The Chancellor would probably call it a profit, but it is known among the building societies as the surplus.
    Out of that surplus the building societies have to find certain things. First, they have to find the interest to their lenders. Second, they have to find their management expenses. Third, they have to meet taxation. What is left over they want, naturally, to put to reserve.
    The interest to lenders is to a certain extent, in fact very largely, outside the control of a building society. The building societies have to pay what rates will attract the money which they need. They are, naturally, in competition with other people who are also offering rates of interest in the same way. Therefore, they cannot borrow at too low a rate. The have, indeed, to pay the market rate for the money which they borrow. Management expenses are extremely low, relatively. Building societies are very efficiently managed and carry on in an economical fashion.
    Those payments having been met, the mortgage rate has to be high enough to meet taxation and reserve provision. What shall the mortgage rate be? Naturally, the building societies like to keep their mortgage rates as low as possible because their job is to help people to own their own homes. The Government will tell us that they desire people
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    to be home owners, and we all like to think that this country is rapidly becoming a nation of property owners, but it is impossible for small people to own their own home if the cost of buying their home is too high. An integral part of what they have to pay in buying their home is the rate of interest on the mortgage to the building society.
    The matter thus resolves itself quite simply, so it seems to some of us, into a question of how little taxation can be imposed on building societies so that the mortgage rate shall be as low as is practicable and feasible and yet adequate reserves can be built up. It is essential that societies should each year place an adequate sum to reserve. The whole structure of the building society movement, and of building societies in particular, is based on and anchored to adequate reserves.
    The question then arises as to what percentage of its total assets a building society should place to reserve. I freely admit that this is a matter of opinion. The United States, for example, does not charge tax on building societies until their reserves have reached at least 12 per cent. In this country at the moment the building societies aim at a level of 4·4 per cent., but they have nowhere near touched that, and, if the present burden placed on them in this way continues, they never will.
    The 4·4 per cent. to which the building societies look as an adequate percentage of reserve is equal to 8s. 9d. in each £100. Actually, with taxation as it is, they are able only, particularly if the 2½ per cent. is imposed, to put aside a reserve equal to 5s. 9½d. per £100. This is a shortfall of the amount which they think adequate of about 3s. The burden of Profits Tax on building societies at the moment is equal to 2s. per cent. Therefore, of the 3s. shortfall at least 2s. is accountable for by the fact that Profits Tax is levied.
    I will summarise briefly what I have been trying to say. First, building societies do not make profits. They do not pay dividends. They make no distribution whatever to any individual shareholder or other person. They are not trading companies in the ordinary sense of the term. They perform—I need not stress this—a very useful function in the State. Because of this the rates

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    should be kept low to help as far as possible the small man. The stability of building societies has been endangered by the penal taxation which has been imposed on them. This kind of taxation is relatively new and it is only in recent years that taxation at this level has been levied on them. In view of these facts common justice surely dictates that a change should be made, and made soon.
    When the previous Amendment was under discussion I noticed that the Chancellor was making copious notes, and I thought that meant that he would intervene in the debate. However, the Economic Secretary replied, and it may well be that he will reply to this debate. I have not the slightest doubt that he already has his brief and that it will contain a quotation from the Royal Commission. I should like the hon. Gentleman to know, before he reads it, that the building societies were not called upon to give evidence before the Royal Commission. Indeed, the Royal Commission gave nobody an opportunity to put the case for the building societies. It is true that the Royal Commission made the observation to which the hon. Gentleman alluded, but I think that most people who read it and who know anything about building societies realise that it was a grossly unfair inference to make and that building societies should not be lumped in with trading concerns, as would happen if a flat rate was imposed.
    It cannot be said—this was one of the arguments used by the hon. Gentleman—that building societies are competing against anyone else. The hon. Gentleman made a strong point of that when referring to the position of co-operative societies. That may or may not be true about co-operative societies, but it is certainly not true of building societies. They are, as Sir John Simon said many years ago, in a class apart. They are quite willing, I am sure, to be taxed justly. What they object to is the injustice of the present penal burden which is placed on them, which they should not bear and which prevents their fulfilling properly, as they would wish to do, their function in the State.
    5.30 p.m.
    Mr. Nigel Fisher: In supporting this Amendment I should, perhaps, declare an interest, as I have
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    often done before, in that I am both a director of and an investor in a building society. The right hon. Member for Colne Valley (Mr. Glenvil Hall), in what, if I may say so, was an excellent and very comprehensive speech, quoted the late Lord Simon, at that time Chancellor of the Exchequer, and we should realise, as Lord Simon even then did, that building societies stand in a class very much by themselves.
    They are not engaged in trade. They are not investment companies. They do not make profits in the commercial sense; and there are no equity shareholders to whom profits could be distributed in any form, either as dividends or as capital gain. They are in a category of their own as savings organisations. They are quite different from anything else.
    Any surplus cash they may accumulate is retained as reserves and invested in gilt-edged or local government securities. That being so, to give total exemption from the whole 15 per cent. of Profits Tax, though it would technically cost the Exchequer over £3 million would not really cost that at all. The £3 million would go into Government stock, with the result that the real cost to the Exchequer would be only the interest on that sum and not the £3 million itself.
    In this Amendment we do not even go as far as that. Indeed, with a moderation that almost astonishes me, all we ask for is exemption from the new rate of Profits Tax, and not from all of it. We ask my right hon. and learned Friend to mark the distinction which I think everybody in this Committee realises exists between building societies and ordinary trading organisations, by leaving building society Profits Tax at the present level—although we object to it—of 12½ per cent.
    Technically, that would cost the Exchequer about £1 million but, again, it would actually cost the Exchequer only the interest on £1 million. In terms of money, therefore, this would be a very modest concession to make. I suggest that it would not in any way affect the anti-inflationary aspect of my right hon. and learned Friend's Budget. It would not make the smallest dent in the large above-the-line surplus of £500 million.
    I recognise, as I think all hon. Members do—certainly those on this side—

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    the importance of the Chancellor's anti-inflationary policy this year, and if the concession for which we ask were likely to have any inflationary effect on the national economy, I for one would not be asking for it. But it does not. The proceeds of any remission of Profits Tax will not be distributed to anyone. They will be saved, and invested in Government stocks—which are sadly in need of market support at the present time.
    There is one claim that I do not propose to make in helping to argue this case. It cannot with truth be said that the recently-announced rise in the rates of interest charged by building societies to their borrowers is due primarily to the proposed increase in Profits Tax. That is, of course, a contributory factor, but I do not think that it is the main one.
    The reason for the rise in interest rates—which is well understood in this Committee but which, judging from my mail, is not always understood outside—is that there has been a falling off in investment, due to relatively low rates of interest to lenders and an increase in withdrawals as a result of higher rates of interest being offered elsewhere. That is taking place at a time of almost unprecedented demand for mortgages. The combination of the two factors has meant that the societies have simply not had enough money to lend to borrowers.
    The only way to get more money to lend is to pay a higher rate of interest to investors, and the only way to do that is to charge a higher rate of interest to borrowers. It is as simple as that though, as I have said, the higher rate of Profits Tax is a contributory, even if not the principal, factor in this state of affairs—
    Mr. Donald Chapman: Would not the hon. Gentleman agree that the general amount of taxation of building societies—the whole taxation paid to the Chancellor—is causing unduly high rates having to be charged to borrowers?
    Mr. Fisher: That is a very fair statement to make. The composite rate of Income Tax and Profits Tax taken together does put a very heavy burden on the building societies which is, in the end, reflected in the rates charged to
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    borrowers. That is a fair enough argument.
    I agree with the right hon. Member for Colne Valley that an even more serious aspect of this taxation is its effect upon the societies' reserves. Even before this Budget, taxation was such that the present ratio of reserves to assets—which is none too high, even now—cannot possibly be maintained at the existing level, and with the higher composite rate of Income Tax and higher Profits Tax now proposed the ratio of reserves to assets will inevitably fall still further. That is a rather serious position because, over the past thirty years, the surplus going to reserves, as a percentage of total assets, has already been almost halved.
    In my view and, I think, in that of many other hon. Members, we should, in equity, exempt building societies completely from Profits Tax. It is not a suitable tax for them. It is for them an unjust tax, which came into existence only because of an historical accident, and it was never intended at any time to be a permanent feature of our fiscal system. This is also quite an inappropriate tax, and in the whole set up and circumstances of the building society movement it seems to me to be a totally irrelevant one.
    So we think that it should be abolished, but we recognise that we cannot get blood out of a stone—and my right hon. and learned Friend has been rather stony in his response to many pleas for concessions in this Finance Bill—probably rightly; I do not criticise that. I merely say it in explanation of the fact that we are being very realistic and very modest. We are not by any means asking for the impossible. We are asking for a relief, as a gesture, the cost of which amounts to the interest on £1 million a year. In the context of the present national income and expenditure, that is so trifling an amount that I submit that my right hon. and learned Friend cannot with justice assert that it really makes any difference at all to the theme of his 1961 Budget. I hope, therefore, that he will be disposed to accede to our very modest request, and accept this Amendment.
    Mr. Donald Wade: The right hon. Member for Colne Valley (Mr. Glenvil Hall) referred to the

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    Royal Commission's Report, and in previous debates Government spokesmen have always quoted from it. I hope that today the Treasury Bench will not shelter behind some statement in that Report I am, of course, well aware of the tendency of hon. Members to quote the Royal Commission's Report when it appears to be favourable to them and to ignore it when it is not so favourable, but in this case I do not think that we should put too much weight either one way or the other on the observations in the Report.
    The right hon. Gentleman has pointed out that the Commission did not ask for any evidence from the building societies, and that no such evidence was offered to it. I suppose that it was assumed that in considering profits, the Royal Commission would not be considering certain building society surpluses that are not strictly profits. It is true that the Commission, in its Report, drew attention to some anomalies in the basis of calculation, but I do not think that these special circumstances of building societies were fully considered.
    If one is looking into the past, one must go into the history of just how it came about that building societies' surpluses were treated as profits and subjected to tax. The Chancellor will be aware, of course, that when the revised National Defence Contribution was introduced in 1937 a special rate was imposed on building societies, but it was intended only as an exceptional levy for a period of five years though, like so many of these exceptional levies, it lasted very much longer than was originally intended.
    In 1947, when the National Defence Contribution was replaced by Profits Tax, building societies were again included. Having once been caught in the net, it was difficult for them to escape, though I believe that in 1947 they protested. The principle of treating these surpluses as Profits Tax has never been established and, I think, has never been really justified. Therefore, when we consider the latest increase in Profits Tax to 15 per cent., we must again consider whether this particular levy should be imposed at all.
    No one questions the obligation to pay tax in respect of the interest paid by the building societies to those who
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    invest. This is accounted for by the building societies to the Treasury by means of the composite rate, and that is perfectly right and proper. But what is in question is the imposition of a tax, both Income Tax and Profits Tax, on the surpluses which are necessary to maintain adequate reserves.
    Several references have already been made to the importance of maintaining adequate reserves, and I do not intend to repeat them. But this is not just an academic question. If there were no tax on surpluses I believe that the latest increase of ½ per cent. on interest charged to borrowers would not have been necessary. The amount of tax imposed has a direct bearing on the amount of interest which borrowers who are buying their houses have to pay.
    I do not suggest—and I do not think that any hon. Member would—that the increase of 2½ per cent. in Profits Tax is the sole cause of the latest increase of ½ per cent. in mortgage interest rates charged by building societies, but it was no doubt a contributory factor in the decision to increase the amount to be charged. There is the other factor of the fall in value of gilt-edged securities and the value of reserves of building societies and, for these reasons, it is right to consider whether this imposition is desirable.
    I do not think that anyone would deny the importance of the rôle of building societies in the savings movement. Indeed, the nearest competitor to the building societies is the National Savings movement. It was suggested in a debate a year or two ago that a building society is comparable with an investment trust or an investment company. The point was made by the present President of the Board of Trade on 1st July, 1958—I shall not quote it but, for those who are interested, it appears in column 1108 of the OFFICIAL REPORT of that date—where he contended that building societies were comparable with investment companies, but I do not really think that that is a fair comparison. I do not think that we can regard them as competing with any industrial concern with equity capital. The fairest way to approach this is to say that if a building society had equity shareholders or if a building society competed with some

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    trading concern—for example, some concern dealing in the retail trade—then in either of those cases there might be some argument for imposing a tax on its surpluses.
    But neither of those conditions applies. There is no shareholder to whom profits can be paid and the building societies do not compete with any trading concern. It would seem, therefore, that the only possible justification or argument that could be put forward is that it is Government policy to make home buying more difficult. That might be logical, but it would be regettable and it is, of course, a matter for the Chancellor to decide.
    5.45 p.m.
    The task of building societies is certainly affected by the ruling interest rate and by Government policy towards interest rates, but I think it unreasonable that their task should be further aggravated by a tax on surpluses. If it is the object of Government policy deliberately to restrict and to make home buying more onerous, as part of the economic policy necessary at the present time, then the Chancellor should say so—and not contend that this tax can be justified on any merits as such.
    If it is not part of the Government's policy to make home buying more difficult, surely the least they can do is to relieve the building societies from this additional increase of 2½ per cent. It may not be entirely logical to relieve the societies from this 2½ per cent. only. It would be more logical to relieve them from Profits Tax altogether, and as a long-term solution I would abolish both Profits Tax and Income Tax on the surpluses.
    Having made these criticisms, I wish to put forward a constructive alternative. If the existing tax on surpluses—and I mean both Income Tax and Profits Tax—were abolished, I think that there would be a case for a reserves distribution tax. The building societies should be allowed and encouraged to reach an agreed reserves ratio, that is, between free reserves and total assets, and then it might be right to impose a tax on anything over and above the amount necessary to achieve that ratio. I believe that this is in operation in America and Canada.
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    I quote from an interesting article by Sir Bruce Wycherley in the Building Societies' Gazette in June of this year. Sir Bruce writes:
    "As a result of the Budget proposals, societies would have to pay away more of their surplus in taxation than they would place to reserve. In a full year, for every £1 of surplus, no less than 10s. 9d. would be taken in taxation, placing an appalling burden upon the business of building up adequate reserves."
    He points out that to secure trustee status, building societies must achieve a certain reserve ratio. Sir Bruce then refers to conditions under the Act recently placed on the Statute Book and adds:
    "…it must be realised that this sets a hard and fast limit upon overall expansion by the building society movement, unless margins become more flexible than at present. It is obvious that mortgage demand is not similarly contained. What is the solution? The simple way out is undoubtedly for Income Tax and Profits Tax relief to be granted on reserve appropriation. A society might be permitted to enjoy this concession until its reserve ratio reached a prescribed upper limit—perhaps 5 per cent.—above which appropriations would be taxed normally."
    May I interpose my own view here? I think that 5 per cent. is too low. I would suggest 10 per cent. or, at any rate, 7 per cent., but I agree with the principle contained in this suggestion.
    I conclude the quotation:
    "The Exchequer would forgo some revenue but get in return a correspondingly higher inflow of funds into gilt-edged; bearing in mind the new Trustee Bill, this might not be unacceptable."
    Whatever the Chancellor decides today—and I hope he will decide in favour of the Amendment—I hope that he will also consider this long-term solution on the lines of a reserve distribution tax.
    There is very little further to be said that has not already been said by other speakers. It must be remembered that the building societies are required by statute to invest these reserves in trustee securities. They are, in fact, debarred by statute from investing in anything except first mortgages and trustee investments. So this in effect is a tax on potential reserves. The Government have already recognised in the Building Societies Act the importance of maintaining an adequate reserve ratio. It seems illogical that the Government should make it more difficult to maintain this reserve ratio and by their taxation policy take away from the building

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    societies part of the money which would otherwise be invested as reserves. If the Government wish to encourage saving and maintain the flow of funds into gilt-edged securities, it is surely in the interests of the Treasury that no steps should be taken which would make this more difficult and so deplete the reserves.
    I recognise that the request that has been made, namely, for relief so far as the 2½ per cent. is concerned, is not all that the building societies would wish for, but it would go some way towards meeting their plea, and I hope that we shall have a favourable reply from the Chancellor.
    Sir Cyril Black: I ought to begin by declaring an interest in building societies, having been a director and a shareholder of a building society for some twenty years past. But although I am interested in the building society movement, which is one to which I have devoted a great deal of time over a good many years, I am bound to say that I find myself in almost complete disagreement with the three hon. Members who have so far addressed the Committee. I do not see how the Government, if they are going to adhere to any principle in this matter at all, could possibly make the concession which they are being asked to make by this Amendment.
    I have always felt that there is little logic in favour of complete exemption from Profits Tax in the case of building societies, but in my view there is no logic at all in the suggestion that they should be charged at the rate of 12½ per cent. at a time when all other businesses are being asked to pay a rate of 15 per cent. What we shave been listening to, if the case put to the Committee is analysed, is really a form of special pleading, and I do not think we ought to adopt special pleading in preference to what I hope I may be able to show is sound principle.
    It may be helpful if I could clear up one preliminary point on which I think a good deal of confusion has been caused as a result of an article which appeared in the Financial Times on this matter and which I am certain quite unwittingly contains what I believe to be a serious inaccuracy. The article was reprinted in other papers and has been given wide publicity, and I think that
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    in one important respect it has misrepresented the facts of the case.
    This is what the article said:
    "Three years ago, the basis on which the societies are assessed for Profits Tax was changed and the result was to put them on exactly the same footing as trading companies and to increase their liability significantly."
    The last part of that statement I believe to be quite incorrect. I believe it to be the fact that the new basis of assessing Profits Tax on building societies adopted in 1958–59 relieved them of a good deal of the burden which they formerly carried and that as a result of that new Basis then adopted, they were required to pay in 1958–59 a much smaller sum in the aggregate in respect of Profits Tax than they would have paid if the basis had not then been changed.
    It seems to me that there are four main arguments which have been advanced on behalf of the building societies in favour of either exemption from Profits Tax or a reduction in the rate to be charged. Perhaps I might mention those four arguments quite briefly and then say a little about each of them. The first argument is the one that has been mentioned by several speakers today, that building societies do not earn profits in the normal sense; secondly, that building societies provide a vitally important service to the public; thirdly, that building societies will not be able to maintain their reserve ratios if Profits Tax is levied at the proposed rate; and fourthly, that building societies will have to increase their rates to borrowers if Profits Tax is levied at the proposed rate.
    Mr. Chapman: If one wanted, one could demolish all of those four arguments but, in fact, none of them has been advanced in this Committee today.
    Sir C. Black: With the greatest respect to the hon. Member, these arguments have been advanced—
    Mr. Chapman: No.
    Sir C. Black: —and the first argument particularly has been developed at considerable length. It is the argument that building societies do not earn profits in the normal sense. I suggest that none of these arguments is valid in the connection in which they have been used. Of course, some, at any rate, of these arguments could be used with quite equal

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    force in support of a similar concession for other kinds of business activity, and my view is that in equity and in logic it would be quite impossible for the Government to make this concession to building societies without extending it to other somewhat similar and kindred types of business activity.
    I should like briefly to examine the four arguments. I do not for one moment accept the argument that building societies do not earn profits. One may call the profits a surplus, a balance or by any other name, but, however one views the matter, using words in their ordinary sense, building societies earn a sum over and above their outgoings, including the interest paid to depositors and their shareholders, and that surplus is, of course, profit on which Profits Tax is levied.
    While I may risk the displeasure of some Members who have already spoken, I feel that it is relevant in this connection to refer to what the Royal Commission said on this point at paragraph 563:
    "The second principle that we advocate is that profits themselves ought to be arrived at by the usual objective tests and that artificial definitions of profits which depart from these tests do not serve any good purpose…"
    6.0 p.m.
    If it could be established that the surplus, the balance, the profit of a building society was not the kind of profit which ought to bear Profits Tax, that argument would go further and could be equally well advanced to urge that the surplus ought not to bear Income Tax. If we accept the view which is, apparently, accepted by all who have spoken in the Committee so far, that the surplus is properly chargeable to Income Tax at the standard rate, it cannot in logic be argued that Profits Tax also ought not to be levied at the standard rate charged at the time.
    I accept the second argument, that building socieies provide a vitally important service to the public. I need not spend time on that. But, of course, so do people employed in the export trade. So do a great many other business activities. If the Chancellor of the Exchequer had to try to classify various kinds of business activity and decide that some were more beneficial than others, that some rendered more important service
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    than others, and there had to be a system of graduating the tax burden according to that decision, he would have very much the same problem in regard to Income Tax and Profits Tax as he has to some extent in regard to Purchase Tax. It seems to me to be quite impossible to charge the Government with the responsibility of trying to grade businesses for tax purposes according to the extent of the service they render to the public.
    The third argument was that building societies will not be able to maintain their reserve ratios if Profits Tax is levied. This, of course, is inherent in any system of high taxation. The argument applies to a great many businesses other than building societies—that the present rate of taxation does not permit them to build up their reserves to the extent that they wish. I have sympathy with them, building societies and others, in that respect, but the remedy is to try to reduce further the general burden of taxation falling upon business and not to think that we can insulate one type of business transaction from the ordinary run of taxation burdens.
    The fourth argument was that building societies will have to increase their rates to borrowers if Profits Tax is levied.
    Mr. Fisher: I hope that my hon. Friend will not set up this ridiculous skittle merely in order to knock it down. No one in the speeches made so far has said that at all. In my speech, as hon. Members who were present will recall, I specifically said that it was not part of our argument and it was not a principal factor in the increase of mortgage rates. There is no point in arguing that one. No one questions it.
    Sir C. Black: I have not confined myself to points which have been made in the debate today. I said that there were four main arguments, as I knew them, which had been advanced on behalf of building societies. This is one of them. As I have been pressed on the matter, I will read from the official publication of the Building Societies Association, May, 1961, in which, with reference to the increased Profits Tax, this sentence occurs:
    "We are therefore forced to the conclusion that, if the burden of taxation continues to increase"—

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    that is in special reference, of course, to the Profits Tax—
    "the working margin will have to be expanded. Under present conditions this could only be achieved by some upward adjustment in mortgage rates."
    That is exactly what I have said.
    Mr. Fisher: No.
    Sir C. Black: With all respect, the words may be different but the sense is precisely the same. What I wanted to say in that connection is that it seems to me most extraordinary for the Building Societies Association to have built up a case against the Profits Tax on the argument that, if the increase is levied, the rates to borrowers will have to go up, and then, in the week immediately preceding the occasion when the matter is to be debated in the House of Commons, to advise all its members to increase their rates without waiting to see what the outcome of this debate and the decision of the Committee would be. That is a rather extraordinary way of proceeding.
    Mr. Fisher: Another skittle.
    Sir C. Black: A good deal of scorn has been poured on what the Royal Commission said about this matter, but—I hope I shall not incur my hon. Friends' displeasure in saying this—I find what the Royal Commission said to be singularly compelling and convincing. I shall read only a short passage from paragraph 562 of its Final Report which, in my view, sums the matter up very well and confirms me in my view that it is right for building societies to bear the normal Profits Tax burden. The Royal Commission said:
    "The main principle we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and those formed to serve private purposes."
    As I understand the matter, since 1959 that has been the principle on which the Government have worked. It is a principle which commends itself to me by its logic and its reason.
    I must refer now to two other matters contained in the statements on this matter submitted to hon. Members by the Building Societies Association. One statement is that
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    "It is understandable, therefore, that the Royal Commission could not know of the convinced view of all building society men that societies were wrongly brought within the ambit of the Profits Tax provisions at the commencement, nor of the other relevant matters concerning the special position of building societies."
    That statement seems to me to go far beyond anything that can be justified. How can the Building Societies Association say that that is the convinced view of "all building society men"? It is not my convinced view. My convinced view is quite to the contrary, and a great many people with whom I am in touch in the building society world are certainly not of the opinion there stated by the Association.
    Mr. Douglas Houghton: Is the Temperance Building Society of which the hon. Member is chairman a member of the Building Societies Association?
    Sir C. Black: Certainly, it is. The Building Societies Association is aware that in a former debate on a similar Amendment I expressed views directly contrary to the views advanced by the Association. Nevertheless, the Association sends a circular to Members of Parliament saying that it is the convinced view of "all building society men" that this relief from Profits Tax ought to be given. There are hundreds of building societies which do not belong to the Association. I do not understand how any organisation could make a sweeping, all-inclusive statement like that.
    Further, the Building Societies Association in its circular says:
    "In the year 1954–55 the amount paid by building societies in respect of Profits Tax was estimated to be £1¼ minion, and by 1958–59 it had risen to about £2 million."
    I have no doubt that those figures are correct, but, of course, they mean nothing by themselves, if we are not told—and the circular does not tell us—what was the amount of profits in those two periods on which the Profits Tax was levied.
    It is like an individual saying, "I have a great grievance. In 1954–55 I was required only to pay £100 Income Tax. In 1958–59 I was required to pay £500 Income Tax." Whether the grievance is valid or not depends entirely on how much the individual's income, on which the tax was levied, had gone up between 1954–55 and 1958–59. To give

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    figures in that way, without giving any information as to the growth of the assets and profits of building societies in those four years, is to present figures which may be accurate, but which are, in fact, meaningless when standing by themselves.
    As a building society man, I should naturally like to see some relief to building societies in respect of taxation. I am perfectly convinced on that matter, but I suggest that we do not look at the matter from that point of view. We are not Members of this House as building society directors or building society investors. We are Members of this House representing the public and the nation at large. What we are being asked to do in this Amendment is something for which there is no logical foundation and which cannot be justified within the general framework and pattern of the tax system of this country.
    Mr. Chapman: As the hon. Member for Wimbledon (Sir C. Black) said, this is the second time that he has delivered this same sort of speech in Committee on a Finance Bill and this is the second time that I have followed him in making that speech. While I respect the integrity which is needed to make a speech like that, when one is the leader of a building society, nevertheless it does not prevent, and I hope that it will not prevent, any of us from attacking the hon. Gentleman for his remarks.
    When the hon. Gentleman talks in his lordly way, of building society men, he talks of them as if they were tycoons of industry. He should have said less about the men who run the building societies and more about the people who are borrowing from them and are paying the rates of interest on their houses. The whole trouble with the hon. Gentleman is that he regards building societies as businesses. That is his word, which he used all the way through. He said they were no different from any other businesses, that they were part of private enterprise and of the whole system of commerce and business. The difference between the hon. Gentleman and my hon. and right hon. Friends on this side of the Committee, and with other hon. Members on his own side as well, is that we do not believe that that is the correct description of a building society.
    Sir C. Black: I am quite sure that the hon. Gentleman wishes to be accurate. The phrase I used about "all building society men" is not my phrase. It is a phrase which I quoted from the circular which has been sent to hon. Members by the Building Societies Association. If the hon. Member does not like it, his quarrel is with the Association, and not with me.
    Mr. Chapman: I am not worried. The hon. Gentleman was talking about the running of building societies as if it is the gentlemen in charge who matter. I say that he must look at the bottom, instead of the top, in making his judgment.
    Viscount Hinchingbrooke: Part of the Welfare State.
    Mr. Chapman: It is not part of the Welfare State. I will come to what I think is the correct description, but I want to refute right from the start the whole attitude of the hon. Member for Wimbledon. He is not a worthy representative of the building societies in making these remarks. He is an isolated member of the Building Societies Association, and he is in splendid isolation on matters like this. He is talking totally against practically every other member of the Building Societies Association, and I can only wish that his own society, and any others with which he is involved, will be democratic enough to call him into question over some of the remarks he has made here and perhaps give him a little less power in the building society world. Democracy can operate outside this House, as well as inside it. Nevertheless, I concede again that it takes integrity to make remarks like those, and I respect the hon. Gentleman for having the courage to make them.
    As has been said, what we are debating is the nature of building societies and the nature of their profits. What we are trying to advance on this Amendment is the argument that the building society movement is unique, and that, because of the quality which differentiates it so clearly from ordinary forms of business, to use the hon. Gentleman's own words, it should be classed differently when it comes to tax matters. We know from the years of debate that

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    we have had previously that the Government's case is based upon the findings of the Royal Commission. Other hon. Gentlemen have read out the point in paragraph 562 which states that the principle should be that a tax on the profits of corporations should apply to all profits. That is the general recommendation of the Royal Commission.
    It was with regard to the surpluses of building societies that the Government's case was best put, in my view, by the present Minister of Health, who was then Financial Secretary to the Treasury. Speaking on 2nd July, 1957, he said:
    "The point has been made several times that the surplus forms the necessary reserves of the building societies, but so, of course, do the profits subject to Profits Tax of all businesses go to form the necessary reserves of those businesses, whatever may be their character."—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 955.]
    I think that these are the twin pillars of the Government's case and the case of the hon. Member for Wimbledon, but we suggest that this is not a fair description of building societies. As distinct from the four points which the hon. Gentleman raised and knocked down for his own convenience, let us make two or three of the more important points which building society men are making on behalf of the building society movement.
    6.15 p.m.
    The first, and it is quite different from that which the hon. Gentleman made, is that it is not that they are performing, as he called it, special services. That is a meaningless phrase of his, and one upon which no one could erect a case for the remission of taxation. What we say is that building societies are doing a special, non-profit-making service in the present state of home purchasing. It is non-profit-making in the sense that there are no equity shareholders to whom the profits are distributed. There is no trading, and no distribution of the actual surplus.
    The case is not just that they are performing a special service, but that they are performing a special service which is not in the normal run of business and commerce, is not profit making, and without equity shareholding, in the accepted sense in which those terms would be understood in commerce and business. It is that special difference, which the hon. Gentleman hardly ever mentioned, let alone even discussed,
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    which is the key to the first point in the case for the building societies.
    The second point in their case would be that they are formed not merely to facilitate the making of profits, but, in a way, although the word may be almost a dirty word to some hon. Members opposite, to do some form of social service. Because they do not make profits and have no distribution, in the end they perform a vital service in facilitating the surge of small savings through the building societies into the purchase of houses. It is our view on this side of the Committee, at any rate, that this is a second feature which enables us to differentiate the building societies from the normal run of commerce and business.
    The Royal Commission never considered a point like this. It was considering in academic rigidity the simple definition of profits. It had not to take into account the social objectives of any Government. When we realise that building societies are not ordinary commercial organisations but have a social objective, the case for exempting them from normal commercial taxation is thoroughly made.
    Let us consider the present position. People will very soon be paying an interest rate of 6½ per cent. I do not know what the saving on that would be if the building societies were relieved of taxation. My guess is that it would be about ¾ per cent., although it is a very difficult calculation to make. We can, at any rate, say that to relieve building societies from taxation would make a noticeable contribution to the cheaper purchase of houses and a smaller monthly mortgage burden on borrowers.
    Mr. Glenvil Hall: Total taxation on building societies is £44 million.
    Mr. Chapman: I know that it is about £50 million. I am trying to work out the difference which exemption would make with a 6½ per cent. interest charge to borrowers.
    Mr. Wade: A distinction must be made between tax in respect of interest paid to depositors and the tax imposed on surpluses. I assume that the hon. Gentleman was referring to the remission of all tax on surpluses.
    Mr. Chapman: Yes. This is a very difficult calculation to make, as I am sure the hon. Gentleman would agree.
    Sir Harmar Nicholls: In view of that intervention, does the hon. Member say that the figure of tax collected from building societies is £44 million or £50 million?
    Mr. Chapman: The saving on interest charges is a very difficult calculation to make. All that we can say is that the remission of taxation on building societies would make a significant difference to the interest which would need to be charged to borrowers.
    People who are going into the housing market specially need relief. What is happening as a result of the high price of land? I suggest that in the last four or five years the price of a newly-built small house has risen by anything from £500 to £1,000 as a result of the high price of land. Therefore, one is bound to ask the simple question: do the Government really believe in the protection of house purchasers from the full rigours of their difficulties?
    When the present Minister of Health was at the Treasury, at the time of the credit squeeze, we used to receive letters about the high rate of interest charged by building societies. We used to send these letters to the Financial Secretary for comment. I can paraphrase the reply which was given in every case. It was, "It is not the policy of the Government to protect particular classes of borrowers from the effects of high interest rates". This is what we on this side want to know: do the Government believe in private home ownership and the purchase of houses by ordinary working people strongly enough to say that the business of buying a house ought to have more protection than is afforded in the normal way of commerce and business? Is it right that building society money should be subject to tax in the way that it is?
    Is it right, moreover, that interest charges should fluctuate in the way that they do? Should not the interest on money borrowed for home purchase be kept at a set figure, as we in the Labour Party advocated at the General Election? And at a time when land prices are rising so rapidly, is it right that a further burden should be added to the cost of borrowing?
    This brings me back to the difference between the hon. Member for Wimbledon and most of the rest of us in the
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    Committee. We believe that the private purchase of small homes should be protected in the ways that I have indicated. We believe that the building society movement should be exempted from the definition of business and commerce, in contradistinction to what the hon. Member for Wimbledon said. We believe that this can be recognised as a social service in a small way quite separate from the normal workings of private enterprise and commerce. We say to the Government that it is time that they stopped following the hon. Member for Wimbledon, who is a lone voice in the building society movement and does not describe it as it wishes to be described. It is time that we found a basis of taxing building societies, if taxation is needed at all, on a unique basis which accords with its unique features as a movement.
    I applaud what the hon. Member for Huddersfield, West (Mr. Wade) has said. If the Government still believe that, in present circumstances, they must found their case on the findings of the Royal Commission, let them examine the suggestion that he made, namely, that the Government should agree that they will consider in some future year the special problem of taxing building societies and will come forward with new ideas based possibly on the amount that they have in reserve and the free money which is available to them. That would be a good way of looking at the problem in a fresh light.
    Mr. Barber: In view of the way in which the hon. Gentleman has castigated my hon. Friend the Member for Wimbledon (Sir C. Black), will he say whether he has any interest in the sale of houses with the assistance of building societies?
    Mr. Chapman: Certainly. I thought that it was well known. I declared my interest last July, when we debated the price of land. My interest is well known. If I did not again declare it, it was only because I thought that it was well enough known. It was repeated several times upstairs during the Committee stage of the Building Societies Bill. But it does not alter my general view, nor make any difference to me. I am not dependent on that kind of business. That sort of intervention—although I think that it was made in good

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    faith—underlines the fact that the Economic Secretary is not willing to discuss this issue on its merits. He must be willing to examine the nature of the building society movement and tell us whether he believes, with his hon. Friend the Member for Wimbledon, that it is merely part of business or commerce, or believes, with us, that it is a unique institution which needs unique protection from the full rigours of taxation.
    Mr. John E. Talbot: This is the first time that I have taken part in a Finance Bill debate. I claim to do so not from my knowledge and ability as an economist, but because I have twenty-five years' practical experience of the subject before us as manager of a small provincial building society. As such, I am paid and, therefore, I declare an interest.
    I am concerned about this Amendment. I have listened with interest to what has been said. In my view, the problem before the Government is one not of logic, but of deciding whether the diminution of building society reserves by taxation has reached the point of danger, or whether they can continue to add burdens to building societies.
    I listened with great interest to the speech of my hon. Friend the Member for Wimbledon (Sir C. Black). I regret that I cannot wholly agree with him. However, I follow him to this extent, and here I dissent from what was said by some hon. Members earlier. A building society is an institution carried on for profit. I should like to define it by combining, if I dare, the views of the hon. Member for Birmingham, Northfield (Mr. Chapman), with mine and to say that it is a profitable philanthropy. In other words, it seeks to make a profit of such a type as will discharge its purposes and enable its service to the public to be given at as low a rate as possible.
    6.30 p.m.
    That, the building society movement has succeeded in doing. I remember that when I first started in it, before the war, we managed on a 1 per cent. differential between the interest paid to investors and the interest charged to borrowers—4 per cent. and 5 per cent. respectively. What is the position today? Immediately before this Budget the margin had widened to 2½ per cent. We were
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    paying interest to investors at 3½ per cent. and charging 6 per cent. to borrowers.
    Whether or not it be the view of the Committee that the increase now threatened in mortgage interest rates is the direct result of this taxation, it is certainly the cause of this widening of the margin by ¼ per cent., which is the recommendation of the Building Societies Association, a recommendation to which I personally cannot see that there can be the slightest objection. In terms of the figures, that extra ¼ per cent. coming, for the most part, from young working men and women, will be required to pay this additional taxation.
    This Amendment is designed to obviate the growing and, in my view, the anti-social erosion into building society reserves. It is illogical that Profits Tax should be imposed on organisations that are not profit-making in purpose. As I have sought to show, a building society is profit-making only in the sense that it seeks to cover its taxation and its administrative costs, and to put to reserve an adequate sum which will justify public confidence in it.
    What is the good of issuing a certificate of trustworthiness to a building society if, when a shrewd accountant examines it, the balance sheet reveals that the reserves are not adequate? That, in an increasing number of cases, must result from present taxation.
    A building society is a means of exchange whereby money is collected by an organisation to lend to the purchasers of property. Essentially, its stock-in-trade is cash. It is quite distinguishable from a public trading company, where the amount of cash is often an insignificant feature in relation to the real property of the company, its stock-in-trade and everything else which goes to make up the balance sheet of a company.
    A building society is also open to competition in a very acute way from other forms of saving. It must budget for its administration costs, of which taxation is by far the greater item. Only then can it dictate what it can charge for the use of its money. In that respect it must proceed rather like the Government, by finding what it has to spend and then saying that that is the necessary amount

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    which must be found. Before the war, a building society ran on a margin of 1 per cent. Now it has widened to 2¾ per cent. To what extent will this margin be increased if we have not yet reached the end of taxation on the societies?
    This extra tax is being paid in two ways. First, by the reduction of reserves and secondly, by increasing charges to borrowers. The former method is a direct attack on the soundness and solvency of the movement. There is a shortfall of nearly one-third in the amount that is available and which the Building Societies Association thinks proper that societies ought to put to reserve, having regard to their ever-increasing liabilities.
    To increase charges to borrowers is directly inflationary and is an addition to the cost of living. It is a tax second-hand on those members of the community who most need relief—young people buying their own houses. Therefore, it is wholly inflationary and will stimulate demands for higher wages, which I foresee being made in the near future.
    I wish to quote figures to the Committee which do not come from my own society, but from a society doing extensive business in my constituency, the Brierley Hill and Stourbridge Incorporated Building Society. I wish to illustrate to the Committee the vast increase in taxation which has been taking place in the last few years. In 1956, this society paid £14,000. In 1960, it paid £20,000. In the same period its Profits Tax rose from £935 to £1,649. How can a movement go on being bled by taxation to the extent that those figures show and still expect to remain solvent and continue to render the service which it is giving to the community?
    In my view, the Conservative Party has not been famous for its logic. I consider that our success has depended on the scientific and brilliant empiricism with which we approach problems and find solutions which are not confined in political strait-jackets. Despite what has been said by my hon. Friend the Member for Wimbledon, with his cold and forceful logic, I feel that there is a case for appealing to the Government to look at this problem from the point of view of what is to happen and where
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    we are going. If the Government are satisfied to continue to impose this liability and to weaken a movement which is doing a valuable national service, let the risk be on their own heads. But I hope that they will not, and I sincerely beg them not to do so.
    Even if they are not prepared to give us an answer today, I hope that the Government will think about this matter for a little longer and enable the building society movement, which is a successful combination of businesslike organisations, to go on giving this great service to the community without risk of danger to its reserves or peril to its financial position.
    Mr. Harold Davies: I think that the case has been made and I hope that the Chancellor will listen to the appeal voiced by the hon. Member for Brierley Hill (Mr. Talbot). I do not know whether I agree about the brilliant scientific empiricism of the Conservative Party to which the hon. Member referred, but I do know that the party gathered a lot of votes at the last election by promising to double the standard of living in twenty-five years. One of the first-class election cries of the party opposite, on which I congratulate it, is that it would build a property-owning democracy.
    Let us lift that expression—"a property-owning democracy"—out of the common politics of the hustings for a moment and discover what is the truth. It is that young men and women all over Britain are turning to the building societies to help them to acquire their own homes. In a well-informed Committee such as this, comprising hon. Members on both sides who know all the facets of the argument, I do not desire to discuss the economics or to try to be didactic. I wish to touch upon one or two imaginative points. A little imagination is what is needed in Britain at present.
    Looking at it from the imaginative point of view, I can see the demand increasing for all kinds of organisations which can lend money to young people or sometimes to middle-aged people and occasionally to old couples moving from a larger house to a smaller one. There is still a need for some organisation which would provide the necessary money. I hope that one day the State will have the courage to organise some form of

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    lending which may even be in competition with the building societies. The situation today is, in my opinion, a betrayal of the cry we heard at the General Election about a property-owning democracy.
    I hope that the Chancellor of the Exchequer will not make it necessary for the Committee to have a Division on this Amendment. I do not know how much the proposal would cost or whether the right hon. and learned Gentleman knows. In my constituency we have a virile and an excellent building society. In that part of Britain there are thrifty people with a lot of common sense. There the building society grew from very small beginnings. It was created by men and women who had no high-falutin' ideas about being tycoons of industry. They wanted to serve the local community, so that there would be a chance for ordinary people to own their houses.
    Why cannot the Chancellor of the Exchequer apply to these people and these arguments, which have been advanced from both sides of the Committee, that brilliant scientific empericism about which we have heard. If ever there was a need for a little empiricism and a little imagination it is now upon this matter. I sincerely hope that the appeals which have been made from both sides of the Committee will have effect, because those who have spoken know of the housing problems which there are, and the pathetic letters which Members on both sides receive about housing problems. If there is any chance for human beings in Britain to find accommodation to ease the burden on local government building and on the problem of finding shelter, no Government should institute a kind of taxation which would impede that progress.
    I sincerely hope that we shall not be given a direct "No" but that a promise of some kind will be made that this Amendment will be looked at. The Government could save a Division if they would give a concrete, constructive, imaginative answer to both sides of the Committee.
    Mr. William Clark: I am sure that the hon. Member for Leek (Mr. Harold Davies) will not object if, in following him, I point out that the State does advance money for the acquisition of houses. It does
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    so through the Small Dwellings Acquisition Acts, so that point of his has been met.
    I cannot agree with my hon. Friend the Member for Wimbledon (Sir C. Black) that a building society is a business. I do not think that one can say that it is, although, of course, the building societies have done a tremendous amount of work during the years of their history. I was rather surprised that my hon. Friend said that there should be no special pleading for building societies. I make no apology that I am making a special plea for building societies, although I have no interest in them whatsoever. If my hon. Friend says that we must not have special pleading for building societies, would he advocate the abolition of the composite rate for building societies?
    Let us consider the amount of interest paid in 1960 by building societies which are members of the Building Societies Association. The gross amount paid was £125 million and the tax on that was £31 million, just about 5s. in the £ deduction, a tax at a compounded rate. If we did not have special pleading for building societies and increased that rate to the standard rate of 7s. 9d. the investors in the Temperance Building Society or any other building society would get much less money than they do at the moment.
    Sir C. Black: I want to make it quite clear that the argument which my hon. Friend is developing is based on an illusion. There is no concession made by the Treasury, as I understand the position, with reference to the composite rate. The composite rate is the average for which the investors in building societies would be liable allowing for those at the top who are liable to the standard rate at 7s. 9d. and those at the bottom who are liable for nothing at all.
    From the point of view of the Treasury, under the arrangement it gets all the tax that it would get if the tax were charged at the standard rate, but it avoids the trouble of dealing with many hundreds of thousands of repayment claims with which it would otherwise have to deal. There is no concessionary element, to my mind, in the composite rate.
    Mr. Clark: One can always argue that in averages there is no concession. If we work out the average investment in building societies, some at the composite rate of 5s. and some at the standard rate, I am sure that the result must be an advantage to the building societies because they are delighted with the arrangement, and even if the taxation angle were not compounded the administrative work of the building societies would increase and that would increase the margin which, as my hon. Friend the Member for Brierley Hill (Mr. Talbot) pointed out, has increased over the past few years.
    6.45 p.m.
    I said that I had no apology to make for making a special plea for building societies. I think it is generally agreed on both sides that building societies are doing social work in this country in that they are borrowing money at one rate and lending it out at a higher rate and enabling ordinary people to buy their houses in this country. In doing that work they are performing a service to the nation, and I hope that the Financial Secretary who, I think, will reply to the debate, will be able to say something helpful and give us some helpful assurance for the future of building societies.
    The question of the reserves in building societies has been raised. The total reserves of building societies in the Building Societies Association total £142 million; that is, on an asset basis of just over £3,000 million, roughly 4½ per cent.
    In 1960 the amount of interest received by building societies belonging to the Association was some £149 million, and they paid out £94 million in interest to investors, but in addition to that they paid out £43 million in tax, £31 million at the compounded rate, £9 million was Income Tax or Surtax and £3 million was Profits Tax at 12½ per cent.
    I do not suggest for one moment that the abolition of Profits Tax would necessarily mean an immediate reduction in building society rates because if we work out the figures, even on the Building Societies Association's statistics, we shall see that a reduction of £3 million would mean only ⅛ per cent.; the mortgage rate instead of being 6½ per cent. would be 6⅜ per cent. That is all the difference which Profits Tax abolition would make.
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    I and some of my hon. Friends had down an Amendment which was not called, and I regret that it was not called because the Amendment which has been moved is for the abolition of Profits Tax only at the increased rate of 2½ per cent., which is, to my mind—and here I agree with my hon. Friend the Member for Wimbledon—quite illogical. I think that if we are going to deal with Profits Tax to give building societies any concession then we should abolish Profits Tax altogether on building societies.
    In saying that, however, we must remember that building societies have two types of business. They have the owner-occupier business and they have some commercial business, because under the Building Societies Act, 1960, a building society can lend a certain portion of its available money for special advances. Those special advances, are, to my mind, ordinary commercial business, and in that sense the building societies are competing with the rest of the money market throughout the country. To be logical, I would except any profit which a building society makes on special advances.
    I hope that my hon. Friend will give some hope, if not for this year then for the future, because building societies should get relief. Again I make no apology for making a special plea for building societies, for I do not think that building societies are in the same class as any other business, and I hope that something will come out of this Amendment.
    Mr. Maurice Macmillan: I support the Amendment. I apologise to the Committee and to the Chair for not having heard the whole of the debate, but I assure hon. and right hon. Members that this will not lead me either to repetitive argument or to detaining the Committee for long.
    I have no expert knowledge of the building society movement, and in view of what has been already said, perhaps I ought to add that I have no interest in it and only the most tenuous connection with any building society. Such connection as I have with the movement has led me in the past, in a debate on the House Purchase and Housing Act, to develop arguments which were opposed not only to the Government, but the Building Societies' Association.

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    Now, all I wish to do is to tell the Chancellor that on this occasion I am supporting the Amendment and that the support for it is not confined entirely to those building societies which are members of the Building Societies' Association. It is supported, also, by a very large society which is not a member of that Association. That is my point and, therefore, there is no need for me, as the Member for Halifax, to pursue the specialist arguments which we have already heard.
    I hope, however, that my hon. Friend the Economic Secretary can at least give us some assurances. My right hon. and learned Friend the Chancellor of the Exchequer, in his Budget speech, hinted at future reform of the taxation system. I hope that he will consider separate corporation and personal income taxes and also a single-tier corporation tax. If he does, these reforms surely will provide a fine opportunity for considering the whole position of building societies in the taxation system and for considering pleas such as those made by my hon. Friend the Member for Nottingham, South (Mr. W. Clark) to abolish Profits Tax on building societies, which we are not asking for tonight.
    Meanwhile, the least that my right hon. and learned Friend can do is not to increase the Profits Tax in this Budget, to admit the problem, and to say that it is time to have a standstill. We cannot deal with all this now, but there is no need to exacerbate the problem and make it worse for the future, especially if the Chancellor seriously intends to carry out these reforms. I hope, therefore, that we shall hear not only about the present, but about the future from the Economic Secretary.
    Mr. Geoffrey Hirst: We have had many debates in my time as a Member on the subject of building societies. I have taken part in a great many, but never have such strong persuasive arguments been put forward from all parties represented in the House, with the one exception of my hon. Friend the Member for Wimbledon (Sir C. Black). Were I in the unfortunate position of agreeing with my hon. Friend I should know that I must be emphatically wrong, because he seemed to put up one Aunt Sally after another only to knock it down. I should not be surprised if my hon. and gallant
    494
    Friend the Member for Barkston Ash (Sir L. Ropner) has not already gone out to see whether my hon. Friend the Member for Wimbledon might not be appointed to the directorship of a skittle-alley.
    Last night, shortly before midnight, I was giving my hon. Friend the Economic Secretary some bouquets. Now I stick some pins in him in advance, because I am not sure whether he intends to meet our views. My hon. Friend the Member for Nottingham, South (Mr. Clark) has said to my hon. Friend the Member for Wimbledon that it is illogical to argue that building societies should be assessed at 12½ per cent. instead of 15 per cent. Obviously, that Amendment can only be taken as designed to secure a gesture towards a final solution of this problem.
    The case has been put year after year but we, by Government policy, are making the position more acute. The Conservative Party, for good reasons or bad, has increased Profits Tax by 50 per cent., which is an enormous amount. As my hon. Friend the Member for Brierley Hill (Mr. Talbot) said, in an able and forceful speech, Governments are playing their part in making difficult or eroding the possibility of building up the right amount of reserves that building societies should have. To that extent, Government action has had an effect on borrowing rates.
    It has been argued that abolition of Profits Tax on building societies would mean a reduction of ⅛th per cent. in mortgage rates. My hon. Friend the Member for Nottingham, South is obviously a mathematician, but it is accepted that it would represent about £3 million. One thinks of the years daring which building societies have been paying this tax when they could have been adding to their reserves and, possibly, could have had more funds for lending. We are, of course, playing some part in eroding the social purposes for which building societies exist. No one would accept that ridiculous Royal Commission recommendation, based on hopeless premises for which no evidence was offered or given, that one can honestly compare the functions of building societies with ordinary commercial business.

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    I have no interest to declare as a director of a building society and I am pleased to say that I have no deposit or share in the Temperance Building Society. I have a little bit elsewhere, in societies which follow a policy more akin to my ideas. I hope that my hon. Friend the Member for Wimbledon will not be put out by that loss of business. People are inclined to speak about the business functions of a building society. I do not feel that they are business functions in the ordinary sense of those words.
    Academically, I could not argue the point. I have not turned up the Oxford English Dictionary or, indeed, studied the Royal Commission's Report very closely on the point, but, obviously, in all our policies, throughout the years it has been clearly indicated that we accept building societies as organisations which perform a great social function, which should have the support of the House of Commons, and which should have greater encouragement in this respect from Her Majesty's Government than they have had over the years.
    I shall be very disappointed if my hon. Friend the Economic Secretary, for whom I have a great regard and respect, has not been impressed by our arguments. We are a futile debating society if every case is answered in advance in a hand-out brief before the debate starts. It would be dangerous to the whole concept of our function in the House of Commons if that was thought by the public to be the case. We are here collectively to advance our arguments and, when those arguments are sufficiently conclusive, to convince the Government that the time has come, partly because of our own regressive taxation policies in this respect, when this matter should have more attention; and the day will come when, if nothing is done, our patience will not be as conspicuous as it has been on this occasion.
    Mr. Barber: This debate takes my mind back to the many hours which the Committee spent in piloting through the 80-Clause Building Societies Bill last year. Many familiar voices from that occasion have been heard again today, including those of the right hon. Member for Colne Valley (Mr. Glenvil Hall), the hon. Member for Birmingham,
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    Northfield (Mr. Chapman), who then played a leading part, my hon. Friends the Member for Wimbledon (Sir C. Black), the Member for Surbiton (Mr. Fisher), the Member for Halifax (Mr. Maurice Macmillan) and, in particular, the Member for Brierley Hill (Mr. Talbot) As a result of the work which we did on that Bill, I am under no illusion about the services performed by building societies.
    The Amendment moved by the right hon. Member for Colne Valley and the one in the name of the right hon. Member for Huyton (Mr. H. Wilson) propose that the 2½ per cent. increase in the rate of Profits Tax should not apply to building societies, which would remain liable at the old rate of 12½ per cent. I say immediately to my hon. Friend the Member for Surbiton that this relief of 2½ per cent. on Profits Tax on building societies, if it could be taken in isolation, would not affect the theme of my right hon. Friend's Budget; but, as I shall have to point out to the Committee shortly, I do not believe that the position of building societies in relation to Profits Tax can be considered in isolation.
    Before dealing with the main points, I should mention the Amendment in the name of my hon. Friend the Member for Nottingham, South which goes further, in that apart from the profit on special advances, under it building societies would be relieved altogether of Profits Tax. I might at the end of my speech, as it is a rather separate matter, deal with that distinctive feature of his Amendment.
    7.0 p.m.
    As the Committee knows, the present system of levying Profits Tax, which has been the subject of criticism this afternoon, dates from 1958. Under the arrangements made in accordance with the Finance Act, 1958, the differential scheme of Profits Tax was abolished and replaced by the flat rate scheme starting at 10 per cent., which was later raised to 12½ per cent. and is now proposed to be raised further.
    Following the Report of the Royal Commission—I will not read it because several hon. Members have done that already—building societies were allowed to deduct their share interest as well as their loan interest in the computation of

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    their profits for Profits Tax purposes. That was a new departure. But, again following the recommendation of the Royal Commission, the profits as so computed were to be chargeable to the flat rate of Profits Tax, which at that time, under the 1958 Act, was 10 per cent.
    The right hon. Member for Colne Valley, in moving the Amendment, referred to the financial effects of the change which was made in 1958. It is very important that the Committee should realise just what the financial effects of that change have been upon the system to which objection is now being taken.
    My hon. Friend the Member for Wimbledon is right in saying that the effect of the two changes made in 1958 was to reduce the building societies' Profits Tax bill by something like £500,000 or £750,000 in 1958–59 and 1959–60, and that it was only for 1960–61, with the increase in the rate of Profits Tax to 12½ per cent., that their Profits Tax bill, at about £3 million, approached what it would have been, calculated on the same profits, on the old basis.
    The liability of the societies to Profits Tax at the new rate of 15 per cent. of their profits in 1961–62 is estimated at £4 million, of which only £700,000 is attributable to the increase in the rate of Profits Tax under Clause 27. That is why I told my hon. Friend the Member for Surbiton that this would have no significant effect upon the general theme of the Budget.
    However, in view of what some of my hon. Friends, particularly my hon. Friend the Member for Shipley (Mr. Hirst), have said, I should like to say that this matter is not one on which my right hon. and learned Friend has lightly made up his mind. As I think some hon. Members know, he saw for the first time—because it is his first year as Chancellor of the Exchequer—a deputation of representatives from the building societies movement—I think it was from the Building Societies Association—and he heard and considered what they had to say. I can assure my hon. Friend and the Committee as a whole that my right hon. and learned Friend considered this matter afresh. Therefore, it is not just a case this year of following what
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    has been said in past years and not having regard to the various arguments which are put forward. As has been pointed out, my right hon. and learned Friend has been glad to be present for a good deal of this debate.
    But I must take issue with what was said by the right hon. Member for Colne Valley and some other hon. Members that building societies do not make profits like ordinary trading concerns and, therefore, should not be subjected to Profits Tax. It is perfectly true that there is no equity interest in their capital, that any surplus which is put to reserves does not enure for the benefit of their shareholders, who are entitled only to a fixed rate of interest, and that that serves to build up the business for the benefit of would-be home owners. All that is true. However, I agree with my hon. Friend the Member for Wimbledon—and I do not think it is irrelevant that the Royal Commission, after careful consideration, came to the same conclusion—that societies carry on a trade or business and that they make surpluses or profits, whichever one likes to call them. The difference between the shareholders of building societies and those of an ordinary limited company has already been recognised in arriving at their Profits Tax liability, because, as I have said, the share interest which is paid by the societies to their shareholders is allowed as a deduction, whereas the dividends paid by a normal trading company to its shareholders are not allowable for deduction in computing profits for Profits Tax purposes.
    As to the surplus or the profit, the amount which the societies put to reserve after deducting all the outgoings by way of expenses and interest is a true profit and recognised as such by the Royal Commission. It is difficult in those circumstances to see why it should escape tax in the case of the building societies on any grounds of principle and logic, certainly as compared with an ordinary company. I do not think that one can lightly dismiss the view of the Royal Commission, but the passage has already been read to the Committee and I do not propose to read it again.
    Before I come to the particular circumstances of building societies and deal with one or two of the points which have been

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    raised, I will ask the Committee to consider for a few moments the repercussions of doing what is suggested in the Amendment. I should be less than frank to the Committee if I did not say that it is impossible to consider the position of building societies so far as Profits Tax is concerned in isolation. As my hon. Friend the Member for Wimbledon said, to concede what is asked for would make it impossible to adhere to any principle. If I may be bold enough to interpret what was behind the recommendation of the Royal Commission, I think that this was the difficulty which the Royal Commission faced and which, I should say on reading what it recommended, inevitably forced it to its conclusion.
    My hon. Friend the Member for Wimbledon has had great experience, and he spoke contrary to his own financial interests. It was obvious that many other hon. Members who are intimately concerned with building societies took a different view. However, I hope that the Committee will at any rate consider that what my hon. Friend the Member for Wimbledon said should carry great weight.
    The point that I want to make is that once a concession was given to building societies it would be virtually impossible to withhold a similar concession from other bodies which have no equity share capital and are not profit-making according to the definition of profit-making which has been assumed by certain hon. Members in the debate.
    Mr. Douglas Jay: What bodies has the hon. Gentleman in mind?
    Mr. Barber: A short time ago we were discussing co-operative societies. I also have in mind the nationalised industries and the public utilities, and also the Post Office, which will be paying Profits Tax under the new set-up. All these would have to be considered. One cannot consider building societies in isolation.
    Referring to what my hon. Friend the Member for Wimbledon said, if there is to be some alleviation in the case of Profits Tax, why not in Income Tax also, because that is also charged in respect of the profits or gains of a trade or business? It is significant that the Building Societies Association has been
    500
    pressing for some years on successive Chancellors of the Exchequer for the exemption of their surpluses from Income Tax as well as Profits Tax.
    I have with me figures to show the possible repercussions under the Amendment of going further and dealing with other bodies. I will not trouble the Committee with the details now, but hon. Members may have them if they wish. I will merely say that even if it is right to provide whole or partial exemption from Profits Tax for building societies—I do not believe that it is—it would be impossible to shut one's eyes to the other claims which would be made on very similar grounds.
    The right hon. Member for Colne Valley and the hon. Member for Huddersfield, West (Mr. Wade) and other hon. Members referred to the adequacy or inadequacy of the reserves of building societies. The first point to note is that, on the basis of the 1960–61 figures, Profits Tax at 12½ per cent. produces only £3 million from the societies, and the increase of 2½ per cent. would produce a further £½ million. When those figures are considered by reference to the total assets of the societies, which amount to something over £3,000 million, and to the total income from mortgages and investments, amounting to £150 million, I do not think that the tax is very burdensome. Of course for the building societies it would be desirable if it could be reduced or abolished, but I do not think that it is as burdensome as all that.
    Mr. Hirst: My hon. Friend is comparing total capital and assets of building societies with one year's Profits Tax, but would he like to give the percentage of the amount of Profits Tax since it was introduced and which would have otherwise been available?
    Mr. Barber: I was giving it in respect of one year because I was leading up to the point—
    Mr. Glenvil Hall: The figures which the hon. Member has given of £½ million and the extra £250,000 are disputed by the building societies, who have their own ways of calculating these things and say that the figures are a good deal more.
    Mr. Barber: I have some figures of reserves which have been mentioned on

    501
    several occasions and which the right hon. Gentleman will not dispute. It is perfectly true that the ratio of total reserves to total assets has fallen in recent years. In 1960, it was 4·3 per cent. as compared with 5·7 per cent. in 1939, but, even so, the figure is little lower than it was in the mid-1930s. While it is perfectly true that it is very difficult to form any decisive opinion as to the amount of reserves which are required by the societies, the figure which is fixed by the House Purchase and Housing Act, 1959, as the minimum required to qualify a society for trustee status and the right of Government advances is 2½ per cent. Most societies, of course, are comfortably above that figure of 2½ per cent. The right hon. Member for Colne Valley said that the percentage of reserves should be about 4·4 per cent.
    Mr. Glenvil Hall Mr. Glenvil Hall indicated assent.
    Mr. Barber: The right hon. Gentleman nods assent. He can challenge me if he thinks that I am wrong, but I am informed that among the 29 societies with assets of more than £15 million, at the end of 1960 the general reserves ranged from 3·4 per cent. to 6·7 per cent. of the assets, while the average for all societies was 4·3 per cent., which was unchanged compared with the previous year despite an 8·9 per cent. increase in assets, and the average level of reserve ratios was broadly speaking, higher for the smaller societies than it was for the larger societies.
    Mr. Glenvil Hall: That is understandable.
    Mr. Barber: The right hon. Gentleman thought that they should aim at a ratio of reserves to assets of 4·4 per cent. Put briefly, my information is that the average for all building societies is 4·3 per cent., and it is somewhat higher for the smaller societies than for the larger. The reserve position of the building societies is not as serious as all that.
    Mr. Wade: It is generally understood—this is my information from the building society movement—that it should not fall below 5 per cent. There is general concern if it does.
    Mr. Barber: The hon. Member himself said earlier that it was very difficult to be decisive about this matter. He says
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    5 per cent. and the right hon. Gentleman says 4·4 per cent. and the facts are 4·3 per cent., or a little higher.
    The building societies are continuing to expand rapidly. One has only to look at the figures. Between 1950 and 1960, total assets increased from £1,256 million to £3,166 million, and in the last three years the increases have been at the rate of 9 per cent., 11 per cent. and 8 per cent. respectively. This is a movement of some strength.
    7.15 p.m.
    So far I have dealt with the general considerations which are applicable to all three Amendments. My hon. Friend the Member for Nottingham, South (Mr. W. Clark) spoke briefly to his Amendment about which I should like to say something. However, first I want to say that my hon. Friend the Member for Wimbledon, who intervened when my hon. Friend the Member for Nottingham, South was speaking, was quite right—and I have made inquiries and confirmed this—when he said that the composite rate did not involve any concession of taxation. I ought to make that clear in view of the misunderstanding which arose.
    My hon. Friend the Member for Nottingham, South proposed that as from 1st April this year, Profits Tax should not be charged on building societies except in so far as their profits arise from special advances as defined in the Building Societies Act, 1960. If I can refer to those many happy hours which we spent on that Measure last year, dealing particularly with the question of special advances, it would not be wise for me to go into great detail about what they are and I need only say that, broadly speaking, they are advances either to bodies corporate, on the security of freehold or leasehold land, or advances in excess of £5,000 made to individuals.
    My hon. Friend was saying that it was possible to divide the business of a building society into two parts. He says that in so far as it makes special advances, a society is carrying on a business which should be subject to Profits Tax and, in so far as it is making what I might call ordinary advances, not exceeding £5,000, it is not carrying on a business in the normal sense of the word and that ought not to come within the

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    scope of Profits Tax because it is really a public service.
    In reality, the profits of a society from its ordinary business do not differ in any material respect from the profits which it makes from special advances. Both parts of the profit, or surplus, arise from lending money on interest, and they should not be dealt with differently for Profits Tax purposes. Another consideration is that special advances form only a small proportion of the total business of building societies, and the cost of the Amendment would not be far off the cost of complete exemption, which is about £4 million.
    The right hon. Member for Collie Valley and my hon. Friend the Member for Surbiton and others referred to the effect of the Profits Tax increase on the rate of interest. My hon. Friend the Member for Surbiton went no further than to say that it was a contributory factor. He said that he did not wish to be misunderstood on that point. I want briefly to explain to the Committee to what extent it is a contributory factor. It would have been necessary for the societies to increase the rate of interest on mortgages only from £6 per cent. to £6 0s. 10d. per cent. in order to cover this increase in the rate of Profits Tax. Such a small increase of 10d. bears little relation to the increase of 10s. which the Building Societies Association has recommended.
    I have tried to deal in some detail with the various factors involved in this series of Amendments. I agree with my hon. Friend the Member for Shipley, that this has been not only a useful discussion, but a discussion in which some very forceful speeches have been made. My hon. Friend the Member for Halifax, asked how building societies would fare in the event of any fundamental changes in the structure of taxation. I assure him that the special position of building societies will most certainly be considered if any fundamental changes are made in the structure of taxation, such as, for example, the amalgamation of Income Tax and Profits Tax.
    I should be misleading the Committee if I ended on any other note than to say that what we have to do at this moment is to consider these Amendments before
    504
    the Committee. In the light of what has been said, and the difficult issues involved which have cut across party, I hope that the Committee will take the view, that in these circumstances, there being differences of opinion, the Government are right to follow the advice of the Royal Commission, and that these Amendments will not be pressed, or, at the worst, that they will not be accepted by the Committee.
    Mr. Houghton: The Economic Secretary has run true to form. He sits there patiently like an inverted Micawber waiting for something to turn dawn. His nostalgic references to the happy hours spent in debating the Building Societies Bill are not reflected in the happiness with which this debate has been conducted for the last few hours, if that is the sort of reply we are to get from the Treasury Bench.
    Throughout the debate there has been only one speech in support of what the hon. Gentleman said, and that came from the hon. Member for Wimbledon (Sir C. Black). I am sure that the Economic Secretary would have wished for a different ally, and more of them. I cannot understand what attracted the hon. Member for Wimbledon to the building society movement twenty years ago if the speech we heard from him today represents his present attitude towards it. There was no feeling whatever in the hon. Gentleman's speech for the people who want mortgages and cannot get them; for the people who want mortgages and cannot afford to pay for them; or for the people who are not investing in building societies at the present time.
    What has the hon. Gentleman to say to people who are asking for mortgages from building societies and are being told that there is no hope of getting them until September, October or November of this year? Yet these are the difficulties which confront the building society movement, and I was shocked at the boardroom speech of the hon. Gentleman. It was a financier's speech, and the hon. Gentleman has financial interests going far wider than the building society movement. I do not want to lose my temper. I had better pass from the hon. Gentleman to something else.

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    Royal Commission's recommendations are no substitute for original thought. There are plenty of recommendations of the Royal Commission which the Government have not accepted and upon which they have not pronounced independent judgment. Besides, the Radcliffe Commission began its work and reported in a different world from the present one.
    My deepest emotions have been aroused by the arid contribution of the hon. Member for Wimbledon. I cannot get over it. This is not a debate on taxation. This is a debate on social policy. I think that what the Government will have to do is to define afresh their attitude to the main source of house purchase in Britain today, because that is what we are doing. I have no interest to declare, except that I am one of 6 million investors in building societies, and I am also one of 2½ million borrowers from building societies.
    This is a matter of great public interest. In view of the recent increases announced in the mortgage rates of building societies, there will be widespread interest in the country today about what the Chancellor is going to do to arrest the difficulties which the building societies have in attracting money, and the prices they have to charge for it to those who wish to borrow money for houses.
    The trouble with Britain today is that it is more profitable to invest in ice cream than it is to invest money in the homes of the people. That is what is fundamentally wrong with society today. It has its values all awry. The Government could be using the instrument of taxation to correct the distortions which misled public opinion is bringing about in some of our main social purposes.
    Another thing which we must not overlook is the purpose of this increase in Profits Tax. No hon. Member said anything about that. What the Chancellor is doing is to drag the building society movement into his gamble of winning the hearts of the business men, because the reason for this increase in Profits Tax is that the Chancellor has decided to promise a higher standard of life to Surtax payers two years from now, and he is levying the additional Profits Tax to pay for it. The building
    506
    societies have been sucked into this though they have no direct interest in the outcome of the Chancellor's adventure.
    We cannot overlook that. What the Chancellor is doing, as it is Ascot week, is to back 400,000 favourites with other people's money, and part of it is building society money. We have yet to see whether the sacrifice which the building societies are asked to make, which means that their borrowers are asked to make, and the Chancellor's faith in his Budgetry strategy, will pay off in several years.
    I think that it stands to common sense that this additional imposition on building societies will be an additional strain on their resources. It is not large, because the increase that we are considering is the marginal increase over and above the basic Profits Tax and Income Tax. But, so long as we follow for ever and ever the principle apparently laid down in the Royal Commissions' Report, wherever there is anything which can be called a profit, wherever there is anything which can be called a surplus, then the tax gatherer must go there and demand that something must be rendered unto Caesar. While that principle is followed, we shall never be able to use the instrument of taxation for the adjustment of social difficulties.
    The Economic Secretary referred to about the daftest application of that principle that I know of, and that is to tax the Post Office as if it were a private business. It is ridiculous for the Government to go on taxing themselves, and it is ridiculous to tax the Post Office consumes to follow a principle of taxation to which the Economic Secretary seems to attach such importance.
    The Government's task is to reappraise the position of building societies in Britain today. Have they anything better to put in its place? If not, let them facilitate the building society movement in the work that it is doing. Let them turn a deaf ear to the hon. Member for Wimbledon who is not a building society man. He is merely a building society director, and that is quite a different thing.
    My associations with the building society movement go back many years, when one had to save up and put money into the movement, and not until one

    507
    had a certain deposit in the movement could one go into the ballot to draw lots to build one's home. That was the origin of the movement. That was where this movement started, and that, in principle, is where it stands today, although its finances are on a much grander scale than they used to be. But to relate taxation to assets in this context is just ridiculous, and I am surprised
    that the Economic Secretary should have attempted it.
    I am disgusted with his reply and my hon. Friends are equally so. I hope that hon. Members opposite are also disgusted, and that they will go with us into the Lobby to show their disapproval.
    Question put, That those words be there added:—
    The Committee divided: Ayes 176, Noes 221.

    Division No. 201.]

    AYES

    [7.30 p.m.

    Abse, Leo

    Hirst, Geoffrey

    Paget, R. T.

    Allaun, Frank (Salford, E.)

    Hocking, Philip N.

    Pannell, Charles (Leeds, W.)

    Allen, Scholefield (Crewe)

    Holman, Percy

    Parkin, B. T.

    Awbery, Stan

    Holt, Arthur

    Pavitt, Laurence

    Bacon, Miss Alice

    Houghton, Douglas

    Pearson, Arthur (Pontypridd)

    Benson, Sir George

    Howell, Denis (Small Heath)

    Popplewell, Ernest

    Blyton, William

    Hoy, James H.

    Prentice, R. E.

    Bowden, Herbert W. (Leics, S. W.)

    Hughes, Cledwyn (Anglesey)

    Price, J. T. (Westhoughton)

    Bowen, Roderic (Cardigan)

    Hughes, Emrys (S. Ayrshire)

    Probert, Arthur

    Boyden, James

    Hunter, A. E.

    Proctor, W. T.

    Brockway, A. Fenner

    Hynd, John (Attercliffe)

    Pursey, Cmdr. Harry

    Broughton, Dr. A. D. D.

    Irvine, A. J. (Edge Hill)

    Rankin, John

    Butler, Herbert (Hackney, C.)

    Irving, Sydney (Dartford)

    Redhead, E. C.

    Butler, Mrs. Joyce (Wood Green)

    Jay, Rt. Hon. Douglas

    Reid, William

    Castle, Mrs. Barbara

    Jenkins, Roy (Stechford)

    Rhodes, H.

    Chapman, Donald

    Johnson, Carol (Lewisham, S.)

    Roberts, Goronwy (Caernarvon)

    Corbet, Mrs. Freda

    Jones, Rt. Hn. A. Creech (Wakefield)

    Robertson, John (Paisley)

    Craddock, George (Bradford, S.)

    Jones, Dan (Burnley)

    Robinson, Kenneth (St. Pancras, N.)

    Cronin, John

    Jones, Elwyn (West Ham, S.)

    Ross, William

    Crosland, Anthony

    Jones, J. Idwal (Wrexham)

    Royle, Charles (Salford, West)

    Crossman, R. H. S.

    Jones, T. W. (Merioneth)

    Shinwell, Rt. Hon. E.

    Cullen, Mrs. Alice

    Kenyon, Clifford

    Short, Edward

    Davies, Rt. Hn. Clement (Montgomery)

    Key, Rt. Hon. C. W.

    Silverman, Sydney (Nelson)

    Davies, G. Elfed (Rhondda, E.)

    King, Dr. Horace

    Skeffington, Arthur

    Davies, Harold (Leek)

    Lee, Frederick (Newton)

    Slater, Mrs. Harriet (Stoke, N.)

    Davies, S. O. (Merthyr)

    Lee, Miss Jennie (Cannock)

    Slater, Joseph (Sedgefield)

    Deer, George

    Logan, David

    Small, William

    Diamond, John

    Longhlin, Charles

    Sorensen, R. W.

    Dodds, Norman

    Mabon, Dr. J. Dickson

    Soskice, Rt. Hon. Sir Frank

    Dugdale, Rt. Hon. John

    McInnes, James

    Spriggs, Leslie

    Ede, Rt. Hon. C.

    McKay, John (Wallsend)

    Steele, Thomas

    Edwards, Robert (Bilston)

    Mackie, John (Enfield, East)

    Stewart, Michael (Fulham)

    Edwards, Walter (Stepney)

    McLeavy, Frank

    Swingler, Stephen

    Evans, Albert

    MacMillan, Malcolm (Western Isles)

    Sylvester, George

    Fernyhough, E.

    MacPherson, Malcolm (Stirling)

    Symonds, J. B.

    Finch, Harold

    Mahon, Simon

    Taylor, Bernard (Mansfield)

    Fitch, Alan

    Mallalieu, E. L. (Brigg)

    Taylor, John (West Lothian)

    Fletcher, Eric

    Mallalieu, J. P. W. (Huddersfield, E.)

    Thomas, Iorwerth (Rhondda, W.)

    Foot, Michael (Ebbw Vale)

    Manuel, A. C.

    Thompson, Dr. Alan (Dunfermline)

    Forman, J. C.

    Mapp, Charles

    Thornton, Ernest

    Fraser, Thomas (Hamilton)

    Marsh, Richard

    Ungoed-Thomas, Sir Lynn

    Gaitskell, Rt. Hon. Hugh

    Mason, Roy

    Wade, Donald

    Galpern, Sir Myer

    Mellish, R. J.

    Wainwright, Edwin

    George, Lady Megan Lloyd (Crmrthn)

    Mendelson, J. J.

    Warbey, William

    Ginsburg, David

    Millan, Bruce

    Watkins, Tudor

    Gordon Walker, Rt. Hon. P. C.

    Milne, Edward J.

    Weitzman, David

    Gourlay, Harry

    Mitchison, G. R.

    Whitlock, William

    Greenwood, Anthony

    Monslow, Walter

    Wilcock, Group Capt. C. A. B.

    Grey, Charles

    Moody, A. S.

    Willey, Frederick

    Griffiths, David (Rother Valley)

    Mort, D. L.

    Williams, D. J. (Neath)

    Griffiths, Rt. Hon. James (Llanelly)

    Moyle, Arthur

    Williams, Ll. (Abertillery)

    Grimond, J.

    Neal, Harold

    Williams, W. R. (Openshaw)

    Gunter, Ray

    Noel-Baker, Francis (Swindon)

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

    Hale, Leslie (Oldham, W.)

    Noel-Baker, Rt. Hn. Philip (Derby, S.)

    Wilson, Rt. Hon. Harold (Huyton)

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Oliver, C. H.

    Winterbottom, R. E.

    Hamilton, William (West Fife)

    Oram, A. E.

    Woodburn, Rt. Hon. A.

    Hannan, William

    Oswald, Thomas

    Woof, Robert

    Hayman, F. H.

    Owen, Will

    Henderson, Rt. Hn. Arthur (Rwly Regis)

    Padley, W. E.

    TELLERS FOR THE AYES:

    Herbison, Miss Margaret

    Mr. Ifor Davies and Mr. Lawson.

    NOES

    Agnew, Sir Peter

    Arbuthnot, John

    Barter, John

    Aitken, W. T.

    Atkins, Humphrey

    Batsford, Brian

    Allason, James

    Barber, Anthony

    Baxter, Sir Beverley (Southgate)

    Bell, Ronald

    Hamilton, Michael (Wellingborough)

    Pilkington, Sir Richard

    Bennett, Dr. Reginald (Got & Fhm)

    Harris, Reader (Heston)

    Pitman, Sir James

    Berkeley, Humphry

    Harvey, John (Walthamstow, E.)

    Pitt, Miss Edith

    Biggs-Davison, John

    Hastings, Stephen

    Pott, Percivall

    Bingham, R. M.

    Hay, John

    Powell, Rt. Hon. J. Enoch

    Birch, Rt. Hon. Nigel

    Heald, Rt. Hon. Sir Lionel

    Price, David (Eastleigh)

    Bishop, F. P.

    Henderson, John (Cathcart)

    Prior, J. M. L.

    Bossom, Clive

    Henderson-Stewart, Sir James

    Prior-Palmer, Brig. Sir Otho

    Bourne-Arton, A.

    Hendry, Forbes

    Proudfoot, Wilfred

    Boyle, Sir Edward

    Hiley, Joseph

    Pym, Francis

    Brewis, John

    Hill, Dr. Rt. Hon. Charles (Luton)

    Quennell, Miss J. M.

    Bromley-Davenport, Lt.-Col. Sir Walter

    Hill, Mrs. Eveline (Wythenshawe)

    Ramsden, James

    Brooke, Rt. Hon. Henry

    Hill, J. E. B. (S. Norfolk)

    Rawlinson, Peter

    Brown, Alan (Tottenham)

    Hinchingbrooke, Viscount

    Redmayne, Rt. Hon. Martin

    Browne, Percy (Torrington)

    Hollingworth, John

    Rees, Hugh

    Bryan, Paul

    Howard, Hon. G. R. (St. Ives)

    Renton, David

    Buck, Antony

    Hughes-Young, Michael

    Ridley, Hon. Nicholas

    Bullard, Denys

    Hutchison, Michael Clark

    Ridsdale, Julian

    Bullus, Wing Commander Eric

    Iremonger, T. L.

    Roberts, Sir Peter (Heeley)

    Burden, F. A.

    Irvine, Bryant Godman (Rye)

    Robinson, Sir Roland (Blackpool, S.)

    Butler, Rt. Hn. R. A. (Saffron Walden)

    James, David

    Roots, William

    Campbell, Sir David (Belfast, S.)

    Jenkins, Robert (Dulwich)

    Ropner, Col. Sir Leonard

    Campbell, Gordon (Moray & Nairn)

    Johnson, Dr. Donald (Carlisle)

    Russell, Ronald

    Carr, Compton (Barons Court)

    Johnson, Eric (Blackley)

    Scott-Hopkins, James

    Carr, Robert (Mitcham)

    Johnson Smith, Geoffrey

    Shaw, M.

    Cary, Sir Robert

    Joseph, Sir Keith

    Simon, Rt. Hon. Sir Jocelyn

    Channon, H. P. G.

    Kerans, Cdr. J. S.

    Skeet, T. H. H.

    Chataway, Christopher

    Kerby, Capt. Henry

    Smith, Dudley (Br'ntf'rd & Chiswick)

    Chichester-Clark, R.

    Kerr, Sir Hamilton

    Smithers, Peter

    Clark, Henry (Antrim, N.)

    Kershaw, Anthony

    Spearman, Sir Alexander

    Clark, William (Nottingham, S.)

    Leather, E. H. C.

    Speir, Rupert

    Cleaver, Leonard

    Leavey, J. A.

    Stevens, Geoffrey

    Cooke, Robert

    Leburn, Gilmour

    Steward, Harold (Stockport, S.)

    Cooper, A. E.

    Legge-Bourke, Sir Harry

    Stodart, J. A.

    Cooper-Key, Sir Neill

    Lewis, Kenneth (Rutland)

    Stoddart-Scott, Col. Sir Malcolm

    Cordeaux, Lt.-Col. J. K.

    Linstead, Sir Hugh

    Storey, Sir Samuel

    Corfield, F. V.

    Litchfield, Capt. John

    Studholme, Sir Henry

    Costain, A. P.

    Lloyd, Rt. Hon. Selwyn (Wirral)

    Sumner, Donald (Orpington)

    Coulson, J. M.

    Longbottom, Charles

    Taylor, Sir Charles (Eastbourne)

    Courtney, Cdr. Anthony

    Lucas, Sir Jocelyn

    Taylor, Edwin (Bolton, E.)

    Craddock, Sir Beresford

    Lucas-Tooth, Sir Hugh

    Taylor, W. J. (Bradford, N.)

    Critchley, Julian

    McAdden, Stephen

    Thatcher, Mrs. Margaret

    Cunningham, Knox

    MacArthur, Ian

    Thompson, Kenneth (Walton)

    Curran, Charles

    McLaren, Martin

    Thornton-Kemsley, Sir Colin

    Dalkeith, Earl of

    McMaster, Stanley R.

    Turner, Colin

    Deedes, W. F.

    Maddan, Martin

    Turton, Rt. Hon. R. H.

    Digby, Simon Wingfield

    Maitland, Sir John

    Tweedsmuir, Lady

    Doughty, Charles

    Markham, Major Sir Frank

    van Straubenzee, W. R.

    du Cann, Edward

    Marples, Rt. Hon. Ernest

    Vaughan-Morgan, Rt. Hon. Sir John

    Duncan, Sir James

    Marshall, Douglas

    Vosper, Rt. Hon. Dennis

    Duthie, Sir William

    Marten, Neil

    Walder, David

    Eden, John

    Maxwell-Hyslop, R. J.

    Walker, Peter

    Elliot, Capt. Walter (Carshalton)

    Mills, Stratton

    Walker-Smith, Rt. Hon. Sir Derek

    Elliott, R. W. (Nwcstle-upon-Tyne, N.)

    Montgomery, Fergus

    Wall, Patrick

    Emery, Peter

    Morgan, William

    Ward, Dame Irene

    Emmet, Hon. Mrs. Evelyn

    Nabarro, Gerald

    Whitelaw, William

    Fell, Anthony

    Nicholls, Sir Harmar

    Williams, Dudley (Exeter)

    Finlay, Graeme

    Nicholson, Sir Godfrey

    Williams, Paul (Sunderland, S.)

    Foster, John

    Nugent, Sir Richard

    Wills, Sir Gerald (Bridgwater)

    Fraser, Ian (Plymouth, Sutton)

    Oakshott, Sir Hendrie

    Wilson, Geoffrey (Truro)

    Gammans, Lady

    Orr-Ewing, C. Ian

    Wise, A. R.

    Gardner, Edward

    Osborn, John (Hallam)

    Wolrige-Gordon, Patrick

    Glover, Sir Douglas

    Osborne, Sir Cyril (Louth)

    Wood, Rt. Hon. Richard

    Godber, J. B.

    Page, John (Harrow, West)

    Woodnutt, Mark

    Goodhart, Philip

    Page, Graham (Crosby)

    Woollam, John

    Gower, Raymond

    Pannell, Norman (Kirkdale)

    Worsley, Marcus

    Grant, Rt. Hon. William

    Partridge, E.

    Yates, William (The Wrekin)

    Grant-Ferris, Wg Cdr. R.

    Pearson, Frank (Clitheroe)

    Green, Alan

    Peel, John

    TELLERS FOR THE NOES:

    Gresham Cooke, R.

    Percival, Ian

    Mr. Edward Wakefield and

    Grimston, Sir Robert

    Peyton, John

    Mr. Gibson-Watt.

    Gurden, Harold

    Pickthorn, Sir Kenneth

    Hall, John (Wycombe)

    Sir Harmar Nicholls: I beg to move, in page 23, line 10, at the end to add:
    Provided that profits which have been certified by the auditors of a business and accepted by the Commissioners of Inland Revenue as solely attributable to export earnings shall be excluded from this section.
    The Chairman: It might be convenient to discuss with this Amendment the new
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    Clause in the name of the hon. Member—(Exemption of export earnings from profits tax):
    Profits which have been certified by the auditors of a business and accepted by the Commissioners of Inland Revenue as solely attributable to export earnings shall be exempt from profits tax.

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    and that in the name of the hon. Member for Wycombe (Mr. John Hall)—(Allowance for export market development):
    In respect of that part of the sterling turnover of a business which shall be certified by the auditors of that business in a form acceptable to the Commissioners of Inland Revenue as being goods or services exported to a market to which that business or any of its associate businesses had not exported before the first day of May, nineteen hundred and sixty-one, goods or services to a value exceeding one thousand pounds, the amount of ten per cent. an the net value of such exports shall be granted as an allowance against total profits in the calculation of liability to profits tax.
    Sir Harmar Nicholls: Yes, Sir Gordon. I shall discuss the Amendment and the first of those two new Clauses, and my hon. Friends whose names are added to the other new Clause will no doubt make their own references to that, if they catch your eye.
    I am reminded that in the Budget debate—when we deployed most of the arguments that I have no doubt will be repeated in another form tonight—my right hon. and learned Friend the Chancellor said that if we kept our promise to produce this Amendment, he would look at it, and listen to us with care. I may tell the Committee that the Chancellor has already told me that he and the right hon. Member for Huyton (Mr. H. Wilson) have an engagement that takes both of them from the Chamber for the time being, and it is for that reason, and that reason alone, that he is not present to keep his promise to listen to our argument. I know that he will give careful thought to it when he sees it in print—
    The Financial Secretary to the Treasury (Sir Edward Boyle): If my hon. Friend will allow me to say so, the occasion is the centenary dinner of the Public Accounts Committee, which this Committee may agree might merit the departure for a time of my right hon. and learned Friend the Chancellor and the right hon. Member for Huyton (Mr. H. Wilson).
    Mr. G. R. Mitchison: And, if the hon. Baronet will allow me to say so, the Public Accounts Committee being the Public Accounts Committee, its members are paying for the dinner themselves, individually.
    Sir E. Boyle: Including, if I might say so, the Financial Secretary, who will probably not be able to attend.
    7.45 p.m.
    Sir Harmar Nicholls: It seems clear that the Chancellor is the only one who will not pay for his dinner. I am glad that he is able to go, because my father said that he had missed many a good dinner through not being asked, and I think that the Chancellor should be alert enough to avoid that.
    We all accept—we on this side certainly do—that the effect of the Budget as a whole was completely sound. It has passed the test of all attacks on it by the Opposition, who have not been able to fault any feature in any real way. The purpose of the Amendment is not to criticise what my right hon. and learned Friend has done in the Budget, but something that he has not done. It is a constructive way of drawing his attention to something he should have done in that same sound Budget.
    I believe that the most important words that the Chancellor used in his Budget speech were:
    "The first and obvious need is a marked improvement in our balance of payments."
    He added:
    "It is clear that for the necessary improvements in our balance of payments we must look mainly to the expansion of exports."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 797.]
    I applauded those words at the time. I hoped that they would form the main theme not only of the Budget speech, but of the Finance Bill, but though my right hon. and learned Friend used those words then, there is nothing in his proposals that are designed specifically and specially to help exports. This Amendment is a friendly and constructive attempt to rectify that omission. I really believe that something of this kind is an absolute minimum gesture if the Government are to rectify the impression now current in the business world.
    I say that because in the business world there is a feeling of wonderment and some despondency caused by the absence from the Budget, good though it was as a whole, of anything likely to help our export development. For good reasons—and each reason has been separately explained during our debates

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    in Committee—there are proposals that are actually a disincentive to exports. As I say, good reasons have been given for introducing them, such as the general fiscal policy of the Government being a coherent whole. All sorts of explanations have been given but, at the end of it all, these proposals are a disincentive to exports and represent the reverse of the words I have just quoted.
    The 2½ per cent. extra Profits Tax is bound to be some disincentive to the placing of our exports in world markets. We have the cost increases that will certainly flow from the increased oil duty, and we have the limit of £2,000 placed on the allowance for motor cars used for business purposes. Those are three examples of Budget proposals that are bound in some way to act as a disincentive to the export cycle. I accept the fact that there may be other reasons that justify them but, in terms of expanding export markets, they are disincentives.
    Our need to export is not a passing problem, but something that will be with us for the rest of the century, and we have to start now to pay special, careful and specific attention to the need to help our exports. It is mainly, of course, the manufacturers who must do their job well, to give good deliveries, and so on, but the Government must focus their attention on the whole subject and try to help. This Amendment suggests one of the ways in which the Government can help.
    From the information that we have been able to cull from the financial Press and from other sources, the export trend since the Budget reflects a falling off because, if anything, the balance-of-payments position now is more worrying than when we had an economic debate about three months ago. There is evidence that the export credits facilities, which were well accepted and which carried some hope, have not played any big part so far in bringing about any improvement. Prior to the Budget we had this attempt to prepare the way to improved exports, but there has been no improvement since then.
    The balance-of-payments position today is as it was before the economic debate and before the Budget. It is very worrying, indeed. It has been prevented from becoming really terrifying, not because exports have gone up but
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    because, slightly, imports have gone down. Had there not been that slight fall in imports over the last two or three months, the worrying position about balance of payments would now be really terrifying.
    I want to see exports go up. I am certain that, in the long run, it is only by getting extra exports, by the United Kingdom getting back, in terms of her share of world trade, to the relative position she had a few years ago, that we can be sure of maintaining our present standard of life. I want to see exports increase, and that is what the Amendment is designed to bring about. As far as Government action has anything to do with it, I believe this to be one way in which the Government can play some part in bringing about these extra exports.
    What is the background that we should have in mind in considering an Amendment, and new Clauses such as these? The one that I have in mind, and which I lose no opportunity of asking other hon. Members to keep in mind, is that 30 per cent. of our exports today are done by only 40 firms—yet the Federation of British Industries has about 8,000 members. That statement itself, without any other explanation, shows that there is something wrong somewhere.
    Why do not more of these firms go in for exports? I thing that the clear answer is that the trouble and risk in taking on exports is not worth taking as long as they have a good home market. Historically, United Kingdom industry is not naturally export-conscious. Industry in the Continental countries is export-conscious. We have a big population and were first in the industrial field so that for 100 or 120 years we never had the feeling that there was a need to be in the export market anything like so completely as that feeling in Continental countries. We do not have, as they have, firms which exist purely for export.
    There are the two problems: first, that so long as there is a good home market why should firms take the extra risk and trouble to win export markets? and, secondly, the historical tradition whereby, psychologically, industry is not so keen on getting exports as are our competitors. We have gone a long way

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    in dealing with the second point. We have had exhortation and publicity since the recent speech of the Prime Minister at Church House. That has gone a long way to make small and medium-sized firms more conscious of the need for exports. The historical problem is still with us, but to a large extent the exhortation and publicity have gone some way during the last month to rectify that.
    Exhortation and publicity, however, are not enough to overcome the "trouble and risk" reaction to export trade. We may talk until we are blue in the face telling businessmen where they are to look for success, but we cannot talk the businessman into taking on a miserable deal if there is a good deal around the corner for him. It has to be made worth his while. When businessmen stop thinking in that way it will be a poor day for this country. I am not criticising them for having those views. It has to be an economic proposition which is put before them if they are to look at it. That is as it should be.
    How are we to get over the problem? I believe that if this Amendment were accepted that would be a beginning. The Amendment would relieve that part of a firm's business which was export from 2½ per cent. of the tax. Next year we could follow on with the suggestion which is contained in my new Clause, that the firm should be relieved of all Profits Tax on exports. Then, with the extra inducement, we should get over the problem. What we are putting forward in this Amendment is, I believe, quite clear. It is that that part of a firm's business which, on an accountant's certificate, can be shown to be export business which has earned foreign currency and helped our balance of payments position would not be subject to the 2½ per cent. Profits Tax under the Budget proposals.
    What are the arguments which are put against the Amendment? Arguments have been produced from the Treasury Bench in the Budget debate and in the economic debate. First, it was said that administratively this was an almost impossible thing to do. It was suggested that so many people play some part in a manufacture which is exported that it would not be possible to distinguish who is to have the benefit of the concession. I do not accept that. I am quite certain
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    that it could be confined to the exporter who actually earns the foreign currency. It could be confined to the last one to take the risk of going into the export market.
    If I were manufacturing bicycles, and someone provided the tyres to go on those bicycles, he would not be the one who took the risk in exporting the bicycles. He would merely send the tyres to my assembly point. I would be the one who took the risk. The one who exports the article would have the benefit of the concession. I believe that that should be done.
    Something of the same sort is set out in the Australian scheme which will be coming into operation soon, if it has not already come into operation. I have no doubt that my hon. Friend the Member for Aberdeen, South (Lady Tweedsmuir) will deal with that, as she did in her speech on the Budget. Administratively, it could be done simply. With equity and fairness it could be confined to either the merchant or manufacturer who takes the risk of earning the foreign currency.
    Sir C. Osborne: Surely this could help the vast number of people who make component parts. If, instead of pressing for this minor concession in taxation, my hon. Friend would ask the Board of Trade to take away the tariffs which protect the home market, so that it would be more profitable to sell abroad than to sell at home, he would not only help the direct exporter, but also those who make the component parts. Surely my hon. Friend is fiddling with the matter.
    Sir Harmar Nicholls: I know that this is not the complete answer. This is only by way of a trial attempt, a guinea pig and a very small one. There are many things which my hon. Friend could bring forward on other facets of the problem which would be equally sound. This suggestion, small though it is, would open the way to something worth while in future. The one who earns the export by taking the risk should get the benefit of the concession. It could be carried out easily by administration. It would kill the argument that it is too difficult and complex to administer.
    The second argument put forward against the proposal is that we would be breaking international agreements. I do not believe that would be so. I do not

    517
    believe that to exclude from the 2½ per cent. extra tax in the Budget proposals that part of the business which is export would cut across international agreements. I do not know how Australia has done this if this much smaller proposal would he cutting across those agreements.
    It could well be that the new Clause which I am asking that we should take into account next year could cut across international obligations. That is why I suggest that we should adopt this proposal this year. Because it is a new tax I do not think that it would be cutting across international obligations. We could use the next twelve months to argue through the channels which have to be used in order to get the bigger concession next year when the payment of all Profits Tax by exporting firms would be conceded.
    The third argument used against the proposal is that if we give a tax concession like this, other countries will copy us and that as a result we shall be just where we started with no difference made to the position. I am not impressed at all by that argument. All I want is to get more of our firms into the export market. If these small inducements will get them there, whatever other countries do on an equivalent basis to the concession, we would be more than able to hold our own. I do not suggest that we should give concessions to one particular group of industries, but that we should try to get them all in. The proportion of 40 in 8,000 is not enough. We could use the inducement to get them in and later there would be no need for a tax concession. Once they were there, and found it easier to export, they would stay there.
    The idea is to get them into the export trade. They could earn their profits after that. During the last few years I have taken the opportunity of looking at industry right across Europe and also in America and Canada. I have not been at all frightened by the position. The only country which left me a little nervous on the engineering side was France. I am sure that with our skill we have as good an opportunity of getting a fair share of the market as have Italy and Germany.
    If more of our people could get into the market, they could stand on their
    518
    own. From my knowledge of industry in the Midlands the money saved by way of tax concessions would be spent by adding more which would be paid in Marketing arrangements. If a small firm were to save £5,000 it would be found that a number of small firms could join together to make their marketing arrangements and so double that amount once they had this inducement, this priming of the pump, with which to start. If this will get our people into the export field, then once they have got over the newness of it they will soon earn the reward which this country must have if we are to have a healthy balance of payments position.
    8.0 p.m.
    There is evidence to show that more and more considered thought is being given to this way of thinking. Before the Budget, an ex-Chancellor, the present Lord Amory, said:
    "I would even be prepared to look again at the most difficult question of a possible variation in Profits Tax related to the turnover of export businesses; though I am deeply conscious of the great difficulties of doing that, and it is a course of action that has never been favoured by the representative organisations speaking for industry. So, though I should be prepared to look at it again,…"—[OFFICIAL REPORT, House of Lords, 22nd March, 1961; Vol. 229, c. 1203.]
    Lord Amory was well aware of the actions of the F.B.I. and the parts of industry about which my hon. Friend the Member for Kidderminster (Mr. Nabarro) just made some comment—
    Mr. Gerald Nabarro: This is not a question of any part of industry which my hon. Friend alleges I represent.
    Sir Harmar Nicholls: I did not say that.
    Mr. Nabarro: In any case, I represent no part of industry in the House of Commons. I draw the attention of my hon. Friend to the fact that the whole of the Federation of British Industries, the whole of the National Union of Manufacturers and the whole of the British Association of Chambers of Commerce—
    Mr. Jay: And the T.U.C.
    Mr. Nabarro: Yes, and the T.U.C.—are united and unanimous in deprecating any particular instrument of the kind

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    that my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) is advocating.
    Sir Harmar Nicholls: If my hon. Friend the Member for Kidderminster had been here during the Budget debate, and had heard the speech I made then, he would have heard me say what he has just said. Of course, I am aware that the views of the leaders of the National Union of Manufacturers, the F.B.I. and the Association of British Chambers of Commerce are on record. But I warned earlier that we would not only have to lobby the Chancellor; we would have to lobby those organisations as well. I do not think that they fully represent the point of view of all their members. I have not formed the views I am expressing merely as a result of reading the reports of the F.B.I., but as a result of having spoken to members of the F.B.I. and of other organisations.
    When I joined the team to try to sell the need for this special export drive I attended meetings of chambers of commerce and met hundreds of the small firms. It was their questions and comments that have brought me to examine the whole position and to bring forward this Amendment. Whatever has been said by their leaders, I do not think that they necessarily represent the views of all the members for whom they are speaking.
    I believe that we have to use the next twelve months in which to change their point of view. As I have said, I am certain that there is considerable thought and some weight of opinion in favour of the point of view that I am now expressing.
    I have already quoted the words of an ex-Chancellor. Those words were uttered before this Budget and, after the Budget, I was interested to read the speech made by Mr. Tuke, the Chairman of Barclays Bank, who said:
    "If a rough and ready formula were desired, it might be possible to provide for a rebate of Profits Tax in the same proportion as the Company's exports bear to the whole of its production. In other words, if 50 per cent. of a Company's production is exported, it would be relieved of 50 per cent. of its Profits Tax liability. This would probably over-state the amount of profit actually earned from the exports but at the same time it would understate the amount of effort put into the selling of the Company's products overseas"
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    I am certain that he is right. It would be a rough and ready way of doing it, but I am certain that it would encourage more people to enter the export market. I have quoted that extract as an example of considered thought, and not as a means of trying to prove that they are wholeheartedly accepting the arguments I am putting forward.
    Now is the time to get away from the point of view expressed by the F.B.I. and accepted by successive Treasury Benches, whether represented by right hon. and hon. Gentlemen opposite or my right hon. and hon. Friends today. We are at the beginning of a new era and the Government must do something active and constructive that can be seen if we are to get back to a balance of payments position that will leave us healthy.
    I am, therefore, asking the Chancellor to do this now. Goodness knows, exclusion of the extra 2½ per cent. Profits Tax from exports is modest enough, but I believe that it could be an experiment at a most appropriate time. The time is appropriate. I urge hon. Members to remember that when they speak in terms of Germany they should bear in mind that the problems of that country are exactly the opposite to ours. There is no fear that if we give a tax concession that she would in any way follow it. As I say, her economy and problems are opposite to ours, although I realise that in three or four years' time the position may be different. But now is the time to try this as an experiment, as far as Germany is concerned.
    In twelve months or two years it may he seen that the theoretical administrative problem was not there and then would be a good time to think of taking the next step contained in my new Clause. I am asking for a promise from the Treasury that my right hon. Friend will look at this whole matter again. Whether my hon. Friends and I will want to think of pushing this to a vote depends on how the debate goes. I do not think that that will be necessary, for this is not the sort of thing that can be settled after a short debate, like other items in the Finance Bill. Therefore, if I get a promise that the Chancellor would be prepared to look at this again, that he recognises the special problems of the minute, and that he wishes to get industries to play an

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    enthusiastic part in the export drive, we shall feel satisfied.
    Lady Tweedsmuir: I support the Amendment so ably moved by my hon. Friend the Member for Peterborough (Sir Harmar Nicholls), and also the new Clauses. My hon. Friend dealt with this matter in detail, and I will be brief, because I know that we are running late.
    I feel that the arguments which lie behind the new Clauses are not arguments that the Front Bench are likely to accept now. They go very far, because they ask for the relaxation of Profits Tax on all export earnings. What might be possible is that the Government would really seriously consider what is, in a way, really only a minor concession but one which would have a considerable effect, particularly on the smaller firms, which are hesitating whether to enter these difficult export markets. The proposal is that the extra 2½ per cent. Profits Tax shall not he imposed on these firms if they can show audited accounts to satisfy the Inland Revenue Commissioners that their business is going in exports.
    The main argument against any kind of hidden subsidy for exports has always been that we have spent a great deal of effort over the years trying to persuade other countries to remove hidden or open subsidies of this kind. But I think that the point put to the Committee by the hon. Member for Peterborough was very significant, for we should be asking ourselves—and I use the words of my hon. Friend—why 30 per cent. of our export business is due to forty firms.
    That situation cannot possibly be right. It shows that any inducement we can give is much more likely to help the smaller firms than the larger ones. One reason why the Federation of British Industries and other organisations have been against this proposal is that it is much easier for the larger firms.
    The hon. Member for Peterborough mentioned that during the Budget debate I referred to some export stimuli which are about to be introduced by the Australian Government. Australia is one of our best customers, and also by tradition one of our oldest friends. I should like to ask how it is that Australia, for example, can introduce this kind of help and inducement to her exporters, bearing
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    in mind international agreements and, indeed, the whole moral question of whether one should have a hidden or an open subsidy at all.
    At the moment there is an 8s. in the pound deduction in Australia on the total amount spent by firms on export promotion. On 1st July this year that amount is to be doubled; it will be 16s. in the pound. Incidentally, this might interest the Financial Secretary. On 1st July also, if it is shown that between 1958 and 1960 a firm has increased its exports by an average of more than 8 per cent. of the total sales that firm will be given a total remission of the payroll tax.
    I know that we have concluded a long discussion on this question, but that goes to show that some countries at present think it worth while to give inducements to their export industries. Australia is an interesting example because she is one of the old primary producing countries and is now becoming very quickly one of the greatest industrialised countries in the world. The only way in which Australia can hope to settle the enormous number of emigrants who are going to her shores is by increasing the potential capacity of her export earnings. Therefore, the Australian Government feel that any inducement that they can give to their exporters is worth while.
    I do not think that it is generally realised what is being done in the export field. In Scotland the total export trade at this moment amounts to £320 million and the Scottish Council is hoping by various means to double this amount. That is good. Even in my own city of Aberdeen, which, like many other areas in Scotland, has struggled with unemployment, during the last year over 3,000 export documents were certified by the Chamber of Commerce, a 10 per cent. increase over last year. As hon. Members know, not all countries require these certified documents. It might well be said by those on the Government Front Bench that that only goes to show that no kind of export stimulus is required. But I would say exactly the apposite. I think it shows that there is a desire to export, and that we really must examine the problems of the smaller firms.
    I was in New York last autumn and I had the chance to visit the Scottish

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    Council offices there. I was told that the competition in that city from Continental countries to try to get business in America was stupendous. There was no question of the Scottish Council trying to promote the interests of Scottish exporters only. It had to promote the interests of British exporters, and that was very difficult. The smaller firms cannot possibly afford to send representatives to the big cities in places like Canada, to set up offices and travel from one side of that vast continent to another.
    What we are suggesting in the Amendment, which, after all, is only one form of inducement to our exporters, is that small firms should not be given an active discouragement in the form of having to pay an extra 2½ per cent. Profits Tax. If we could relieve the smaller firm of this extra tax, it might make all the difference when a firm was wondering "Shall we leave this easy home market and take the risk and difficulties of the export market?" I make this plea for the small firm more than for anything else.
    The whole object of this Budget, which we have debated for so many weeks, has been to do all we can to improve our balance of payments position. As has been said over and over again, the chief way of doing this is to encourage our export trade, and I believe that if we could give this concession this year, bearing in mind the example of other countries, we should give real and definite encouragement to the small firm to leave the easy home market and to enter the difficult export market.
    8.15 p.m.
    Mr. John Hall: I confess that I was taken a little by surprise, entirely through my own fault, I am sure, when I learned that the new Clause standing in my name—(Allowance for export market development)—was selected for discussion with this Amendment. Therefore, I crave the indulgence of the Committee if I do not cover in detail all the points that I might otherwise have brought to the attention of the Committee had I been given a little more notice.
    Like my hon. Friend the Financial Secretary, I also should be at the dinner of the Public Accounts Committee, but
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    I hope that, all being well and with any luck, I shall get there in time for the coffee, so it will not be quite so expensive for me as it will be for him.
    My hon. Friend the Member for Aberdeen, South (Lady Tweedsmuir) said that in her view the Budget was designed to help our balance of payments position and to help to increase our exports. One of the reasons that I put down this new Clause was that I found nothing in the Budget which was designed to help exports in any way at all. In fact, most of the provisions of the Budget make export more difficult and more expensive. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) drew attention to some of the taxes which make export more expensive—the fuel-oil tax, for example—
    Lady Tweedsmuir: Perhaps I did not make myself clear. I said that the purpose of the Budget was to improve our balance of payments position, and it was just for the reason that the Profits Tax did exactly the opposite that this Amendment was moved.
    Mr. Hall: I thank my hon. Friend for that correction. I misunderstood her.
    The taxes to which my hon. Friend the Member for Peterborough referred—the fuel-oil tax, the possible imposition of a payroll tax, though that now seems a little uncertain, and even the vehicle excise duty—can hardly be regarded as an incentive to export. These things do not increase the chances of exporting. Indeed, they make it a little more difficult.
    The Clause to which I have put my name is a little different from the Amendment and the proposed new Clause in the name of my hon. Friend the Member for Peterborough—(Exemption of export earnings from profits tax)—in so far as I am only asking for an allowance for export market development. I am being a little more modest than my hon. Friend. I am not asking for a special tax concession or incentive for all exports. I am asking for it only for these exports in new markets, and I do that for a very good reason. I appreciate that the Clause is loosely drafted, that one can shoot all sorts of holes in it and that it needs tightening up in many respects, but I put it on the Order Paper to give an opportunity for the subject to be debated.

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    It has been said that those firms which find it most difficult to export are the medium-sized and small firms which we wish to encourage to export. I do not think that there is any difficulty about the major industrial firms in this country. They have their own established markets and their own agencies, though I appreciate that they have their problems, including the problem which faces all British industry, and that is to produce goods at the right prices, in the right condition and on the right delivery dates. But for the small and medium-sized firm it is very different. It is a very difficult business to develop an export trade, especially in a market where the firm concerned has not been previously represented. If a medium-sized firm enters a market with no previous connections there, it has to look forward to a period of three to five years before it can make any headway or any money.
    If I may quote some experiences of my own in this respect, I can think of a medium-sized company which started exporting at the behest of the Government because it was considered its duty to do so. For more than three years it had a struggle and a loss each year. But for the determination of that company to go on exporting until it made a success, it would have dropped that export business and concentrated on the much easier and more profitable home market. But it went on and, in time, managed to build up a reasonably good export business which is now reasonably profitable.
    Many firms will not do that. Why should they? They find it much easier to sell on the home market. They know that, if they try to divert part of their production to export, they will upset their production facilities for meeting the home demand, which is very large, and they will do themselves a certain amount of harm at home by being unable to meet their home delivery dates in their efforts to meet export dates instead, and, at the end of the day, they may well be very little better off. Although it is true that, if they persevere, they may be able to establish a profitable market, many think that it is not worth while. I suggest, therefore, that we should make a special concession along the lines of the new Clause to which I put my name for those companies
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    which are developing completely new markets.
    It is not a very large concession for which I ask. I do not think that it would necessarily be very expensive. I do not ask for it necessarily in the form in which I have put it down. I hope that the principle will be accepted that, if a company is going into an export market to the detriment of its efforts and profitability on the home market, that should be recognised in some way.
    I am sure that many of my hon. Friends, together, I hope, with hon. Members opposite, will add their voices in support of the effort we are making in this direction. I hope that the Minister will give very serious consideration to what we suggest particularly at this time, not only for the reasons given by my hon. Friend the Member for Peterborough but because the Budget by itself contains no incentive or encouragement for export at all.
    I do not accept the view that the Surtax concessions, welcome though they are and welcome as evidence of overdue fiscal justice, will by themselves do very much to improve our opportunties and chances in the export market. I hope that the Minister will try to find some additional way of giving tangible encouragement to make the effort to those companies which do not now go in for exporting.
    Mr. R. Gresham Cooke: I have changed my mind on the subject of export incentives during the last two or three years. Previously, I took the view of the big battalions, of the F.B.I. and the National Union of Manufacturers, that we ought not to compete in incentives with foreign countries. Two factors have made me change my mind. First, there is the present disastrous fall in our invisible earnings. Shipping is now costing us more than we earn by shipping. British tourism, I think, earns less than British tourists spend overseas. There is the great fall in our earnings of interest from overseas. All this means that we must do more for direct exports from industrial production.
    Secondly, after having seen it from the point of view of the big firms which make successful efforts, I have, during the last year or so, seen this matter from the point of view of the smaller firm. I

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    have been trying to do some exporting for one or two of them, and extremely difficult it is. One can easily spend £1,000 in a market before one succeeds in selling any exports at all.
    The major argument against having international competition in incentives is that we are bound by certain agreements not to embark upon it. It should be remembered that Germany and France, and Italy, I think, have a turnover tax and exporters in those countries receive a rebate of the turnover tax for successful exports. In my view, that is a direct incentive. It has been said that we have the Purchase Tax in Britain and when a company exports it does not have to pay Purchase Tax, and that has much the same effect. I do not regard that as a fair analogy at all. In the first place, the Purchase Tax is paid by the customer. In the second place, the Purchase Tax does not enter into costs, whereas the turnover tax does. When a German exporter has the rebate of part of his turnover tax, that is a contribution towards his profits which is not given to exporters in this country by the rebate of Purchase Tax.
    I agree with my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) when he says that a step forward ought to be taken. I associated myself with the new Clause spoken to by my hon. Friend the Member for Wycombe (Mr. John Hall) because it is intended to provide a small incentive to firms which have not yet made a large contribution in any export market—it being governed by the limit of £1,000—to induce them to go into new markets where they have not yet made the attempt.
    The time has come for us to reconsider this matter. Whatever the F.B.I., the T.U.C. and the big bodies have said in the past, we ought, in this Committee, to say that our smaller and medium-sized firms which go out into the world seeking new markets should have some incentive, even the small incentive provided for in the new Clause to which I have referred.
    Mr. Nabarro: This has been an intractable problem for the last fifteen years. It is well known that the Labour Government a year after the end of the war examined, with all the best advice available in the Treasury, the prospects for
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    offering direct tax incentives to exporters. Not only did the Treasury examine it meticulously. Every major representative body in industry was consulted. With the strain on our balance of payments during the last twelve months, exactly the same process has been combed over again.
    In my judgment, it is really valueless in this Committee to laugh off as insignificant the combined opinions of senior industrialists and business men in the grand council of the Federation of British Industries, the executive committee of the National Union of Manufacturers, the appropriate committees of the Association of British Chambers of Commerce, the Institute of Directors and many other representative bodies and agencies which voluntarily have been co-operating with the Chancellor of the Exchequer and the President of the Board of Trade throughout the country to try to devise a formula which would give the kind of fiscal incentive suggested by my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) and, what is much more important—my hon. Friend did not use the word once in his speech—give it in equity, among manufacturers.
    Mr. Gresham Cooke: Will my hon. Friend admit that the institutions he mentions and the councils thereof are largely dominated by the big firms, for which this is really not a very great problem?
    Mr. Nabarro: On the contrary, my hon. Friend is not right.
    Mr. Gresham Cooke: The F.B.I.?
    Mr. Nabarro: My hon. Friend refers again to the Federation of British Industries. It is true that the grand council of the Federation of British Industries includes several representatives of large firms, but the National Union of Manufacturers represents 6,000 to 7,000 medium and small firms, and the constituent members of the Association of British Chambers of Commerce cater largely for the smaller firms. The Institute of Directors, with 35,000 members—[Interruption.] Does the hon. and learned Member for Kettering (Mr. Mitchison), who always sneers at a company director, wish to intervene, while sedentary?
    Mr. Mitchison: I said, and I say again, that I regard the Institute of Directors as a joke.
    Mr. Nabarro: I am sorry that the hon. and learned Member should do that. He happens to be a barrister. I regard defunct barristers as a joke. When the hon. and learned Member has his photograph taken for The Times election handbook, wearing full-bottomed wig, he is a bigger joke than ever.
    8.30 p.m.
    If I may now return to my dissertation on the representative bodies of industry, what has troubled all of them in examining this matter is how to secure equity as between firm and firm. It is true, as my hon. Friend the Member for Peterborough said, that the company that goes out and sells the goods abroad, finances them over long periods and accepts all the risks involved in selling in different parts of the world should primarily benefit from any tax rebate that may be given in this country under financial statutes. But only a relatively small number of firms directly export. My hon. Friend is a product of the Black Country. He knows hundreds of firms there, as I do, which produce castings, forgings and components in a huge and diverse variety, all of these goods contributing, directly or indirectly, to the production of finished goods that are subsequently exported.
    As an example, let us take the famous Motor Corporation, the board of which my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) adorns. He knows very well that that company manufactures practically nothing itself. [Interruption.] I am sorry; let me finish. It manufactures practically nothing itself. It buys nearly all the components for its motor cars, puts them together and assembles them. The firms which actually produce those components, the tyres, the wheels, the lamps, the starters, the electrical equipment and a large number of the components of these motor cars, may not themselves directly export but they contribute to the finished motor cars, a percentage of which cars, one-third or two-fifths, is subsequently exported.
    The difficulty, and it has been an eternal difficulty, which has baffled the Treasury and every representative body in industry and the T.U.C. is how to give effect, in equity, to these few words
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    which my hon. Friend so carefully puts into his Amendment—I am not talking about the new Clause, but the Amendment of my hon. Friend the Member for Peterborough—those words which say:
    "Provided that profits which have been certified by the auditors of a business and accepted by the Commissioners of Inland Revenue are solely attributable to export earnings."
    That is the problem, how to give effect, in equity, to those words.
    A company produces its accounts at the end of the year. To take an example, it has produced £1 million worth of engineering components, and has sent these components to 20, 30 or 40 customers. These customers will use these components for assembling into finished products, will export part of the finished product and sell the remainder on the home market. How can any accountant give us a figure which can be agreed with the Inland Revenue as to the percentage of the components from the originating firms, and of the profits from them, which is even more difficult, which shall rank for that relief referred to in this Amendment?
    Sir Harmar Nicholls: My hon. Friend is being very fair, and one understands the problem as he puts it, but it is because the F.B.I., the Treasury and all the others have got bogged down in that sort of detail in the past that they have not been able to find the answer. I am saying that the firm or agent or stockholder who earns the foreign currency is the one who should get the tax concession. What my hon. Friend says about the component manufacturers is true, but they would not have taken the trouble and risks of exporting, and it is only the ones who earn the foreign currency who help the balance of payments position. These are the ones who, for the very reasons my hon. Friend outlined, I wanted to help.
    Mr. Gresham Cooke rose—
    Mr. Nabarro: May I indicate, Mr. Hynd, that I have given way to my hon. Friend the Member for Peterborough, and that I am now giving way to my hon. Friend the Member for Twickenham? I should not like you to think that I had concluded my dissertation.
    Mr. Gresham Cooke: Is my hon. Friend aware that the component manufacturers in the motor car industry, to

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    take an example, have actually agreed to the direct exporters receiving this benefit, because the components manufacturers realise that they will get an indirect benefit in increased turnover which otherwise they would not get?
    Mr. Nabarro: Perhaps my first example is not as apt as it might have been. It illustrates the difficulty. Take the case of the British farmer who produces the wool from the sheep's back, the wool that goes into a carpet manufactured in Kidderminster, where it is dyed and woven into one of those beautiful carpets which is subsequently exported. Is the producer of the wool from the sheep's back to require an auditor's certificate to the effect that as part of his total product has finished up in export goods he ought in equity to have the concession?
    Sir Harmar Nicholls: That is another argument.
    Mr. Nabarro: It is not another argument. I listened to my hon. Friend very quietly, with only one intervention. My argument is that taxation must be equitable and that we should not seek to discriminate between producer and producer, manufacturer and manufacturer, passionately anxious though I am to find some means of twisting or attuning our fiscal system to the needs of British exports with a view to furnishing a greater incentive. I do not think that my hon. Friend has the right formula. I know that my hon. Friend the Financial Secretary, in the purity of his fiscal sense, will support my view.
    Sir E. Boyle: My hon. Friend the Member for Kidderminster (Mr. Nabarro) has put the case so well and from such a wealth of first-hand experience that there is not very much that I need add. It is always a matter of regret to me that my hon. Friend, when he is in one of his more rampaging moods, to use no more controversial a word, tends to have a crowded Chamber and is very well reported in the Press. Often his most valuable and constructive speeches are made on quiet occasions like this.
    Mr. Nabarro: Read the Daily Telegraph tomorrow morning.
    Sir E. Boyle: I will indeed. I should like to congratulate my hon. Friend on
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    having made an informed and excellent contribution to the debate.
    Before I come to the detailed argument of my hon. Friend the Member for Kidderminster, there are two important preliminary points that I should like to make. First, I stand by what I said in the Budget debate. When we are talking about the balance of payments and what we can do to help our exports, do not let us lose sight of the fact that the balance of payments of any country depends ultimately on its competitive performance over the whole field. I make that point because it is very important to remember the number of firms which make an essential contribution to our balance of payments, even if they do not themselves literally earn foreign currency.
    The second point that I wish to make is this. A number of hon. Members have said that they feel that the Government have done nothing in this Budget and Finance Bill to help our export effort. Like my hon. Friend the Member for Aberdeen, South (Lady Tweedsmuir), they have gone on to say that one of the difficulties is that so many smaller firms are tempted away from going after exports by the lure of an easy home market. Whatever faults may be found with the Government, no one can say that this year the Government have neglected that problem. As we have explained again and again, in the Budget debate and when replying to the reasoned Amendment on Second Reading, the whole purpose of my right hon. and learned Friend's Budget surplus and of the two regulators is precisely to ensure that the home market does not become too easy.
    My hon. Friend the Member for Peterborough (Sir Harmer Nicholls) has shown tonight and on earlier occasions in a number of vigorous speeches how strongly he feels on this subject. I appreciate his sincerity and obvious concern for the success of Britain's export effort. But I do not wish to mislead him or the Committee; for the reasons I am about to give, I cannot advise the Committee to accept the Amendment. I must say to my hon. Friend that, like Lord Amory, my right hon. and learned Friend and I have thought about this matter again, but I think that it is extremely unlikely, to say the least, that my right hon. and

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    learned Friend will change his mind on this matter.
    In the first place, my hon. Friend's proposal is contrary to the Government's policy and obligations in the international field. It has long been the policy of Her Majesty's Government to work towards the elimination of export subsidies and other artificial incentives to exports. I am not sure that it is always realised in this Committee that this policy has achieved a considerable amount of success.
    For instance, let us consider the two main European competitors of the United Kingdom. Western Germany allowed her export promotion law to lapse at the end of 1955, and since then she has had no tax incentive scheme. In France, direct subsidies on exports of manufactures were finally brought to an end in February, 1958. I think that is significant. I think it fair to say that there has never been in France quite the same tradition as in many departments in this country of what one might call an almost religious reverence towards the principles of nineteenth century free trade theory. So far as I am aware, no open subsidy or incentives are now given in other European countries to help the exporters of manufactured goods.
    Mr. Gresham Cooke: Would not my hon. Friend agree that the turnover tax in Australia is a form of incentive?
    Sir E. Boyle: I have noted the point made by my hon. Friend, and I feel that in some respects it is a disadvantage that I am not a Board of Trade Minister and able to answer the detailed points about the Australian turnover tax and other points which have been raised. But I will try to discover the answers and write to my hon. Friends as soon as possible.
    I was going on to say that there is the further point, which I think important, that we have to consider our obligations to O.E.E.C., to E.F.T.A. and to G.A.T.T.; and I will take each in turn. A decision of O.E.E.C., renewed as from 1st January, 1961, prohibits among other "artificial aids to exports"
    "The remission calculated in relation to exports of direct taxes or social welfare charges on industrial or commercial enterprises."
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    The E.F.T.A. Convention contains a similar prohibition, in relation to exports from one member State to another. Members of G.A.T.T. agreed last November to take steps towards putting into full effect a ban on export subsidies, including the export aids banned by O.E.E.C. on industrial goods. This ban is expected to come into force later this year.
    Sir Harmar Nicholls: It was precisely on those grounds that I suggested that this would not out across international agreements. Before something can be remitted it has to be taken. I am suggesting that the 2½ per cent. extra tax is never taken. Therefore, it cannot be remitted.
    Sir E. Boyle: I heard what was said by my hon. Friend and I think that if he looks at the OFFICIAL REPORT tomorrow at what I have said on the question of the O.E.E.C. decision he will see why I cannot, with respect, agree. A discriminatory remission of Profits Tax, or even of part of it, would be contrary to that decision.
    I am quite certain, for reasons which I will explain in a moment, that Britain has been right to take this initiative towards the banning of export subsidies. I know that my hon. Friend has suggested on other occasions, and tonight, that we should move in exactly the opposite direction. But then we should find ourselves threatened by a subsidy race from which, in my view—this is the important point—Britain could not hope to benefit.
    Quite apart from the loss of Exchequer revenue, I find it impossible to believe that a subsidy race would be likely to improve Britain's trading position. The reason is, as successive Presidents of the Board of Trade have pointed out in this Chamber, that Britain is more dependent than other countries on maintaining a high level of exports relative to our national income. We export such a large proportion of what we produce relative to nearly all our competitors that we could only gain from a free-for-all if, in order to subsidise exports, we were prepared to sacrifice revenue to a far greater extent than any hon. Member would consider reasonable. That is why I believe that the broad lines of the international

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    policy which this Government have always supported have been the right ones.
    I come now to some of the practical difficulties of my hon. Friend's proposal. The Amendment proposes that the relief should extend to
    "profits…solely attributable to export earnings."
    It makes no attempt to define this phrase except as the amount certified by the auditors and accepted by the Commissioners of Inland Revenue.
    In actual practice, in the case of those large numbers of manufacturers or dealers who sell both at home and abroad, it would be a matter of very considerable difficulty for them to divide their total profits between home and export. I recognise that some large concerns might be able to produce accounts of sufficient accuracy to allow a division to be made. But in many cases—here I am thinking especially of the large numbers of small or medium-sized firms mentioned in the debate—the requisite information simply would not be available, and the amount ranking for relief could only be a matter of more or less enlightened guesswork. I would indeed say to my hon. Friends that I think that we ought always in this Committee to think very hard before we suggest any reform which would put an extra administrative burden, and complicated administrative paper work on many hundreds of small firms.
    8.45 p.m.
    Thirdly, as my hon. Friend the Member for Kidderminster quite correctly said, I think that hon. Members should consider just how far my hon. Friend's proposal is inconsistent with the generally accepted principle of the impartial incidence of direct taxation. I am bound to say that I think his proposal would lead to a great deal of ill-feeling in the business world. It would cause dissatisfaction among those who did not get the relief, and who would in the long run have to pay more tax to make good the loss to the Exchequer. I suspect that there would be a good deal of dissatisfaction amongst some of those who got the relief if they suspected that their competitors were getting a greater benefit. I would also ask my hon. Friend to reflect on this point, that
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    the main benefit from this proposal would tend to go to prosperous, well-established firms with an established market overseas, while a less prosperous concern trying to make its way, perhaps not very successfully, into an overseas market might get little or no benefit.
    A further point, of course, is that a company which both manufactured and sold its products would get relief on the profits of manufacture and sale, in so far as they were attributable to products exported, but if the goods were manufactured by one company and sold by another, as quite often happens, the relief would be confined to the profits made by the selling company. The Amendment confines the relief to the actual exporter and there seem to be insuperable practical difficulties in trying to spread it more widely. But I am certain that, as my hon. Friend the Member for Kidderminster said, there would be immense dissatisfaction amongst sub-contractors and amongst makers of components who supplied exporters but did not export themselves.
    Finally, one has, I think, to consider the repercussions of this Amendment and the claims for extension of the proposed relief which would certainly be advanced. In the first place, there are the invisible exports, highly important, as they can fairly claim, to our balance of payments, shipping, banking, and insurance. Again, the proposed relief would be of no benefit for exporters who are subject to Income Tax and Surtax but not to Profits Tax, and no doubt they would claim some corresponding form of relief as well. Indeed, once we have breached the principle of the impartial incidence of direct taxation, then the claims which might be advanced for other favourable treatment on some ground or another would be very numerous indeed.
    The new Clause put down by my hon. Friend the Member for Wycombe (Mr. John Hall) is being considered with this Amendment. He explained to me that he wanted at least to have coffee at the P.A.C. dinner, and so I shall not speak at length tonight in reply to his specific suggestion, but I think that there are very great practical difficulties indeed about what he proposes. Even on the assumption that it would be practicable

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    for exporting companies to keep records in future in such a way that exports to each market could be readily aggregated, it seems to me doubtful whether they could be made available for the past. Yet it is essential to the whole proposal of my hon. Friend that the markets, exports to which would qualify for relief, must be those to which the concerns have not exported in a past period; otherwise it would be open to any company to refrain from exporting to a particular market in the relevant period so as to Obtain the benefit of tax relief in respect of exports to that market in later periods. There are other great difficulties, as I see it, in his proposal as well.
    For the reasons I have given, I must advise the Committee to reject this Amendment and the new Clauses which are being taken with it. As my hon. Friend the Member for Kidderminster quite rightly said, both sides of industry have long now been opposed to differential taxation of this kind. I can assure my hon. Friends who have spoken tonight that this really is a matter which the relevant Government Departments have gone into again and again. It is a very obvious suggestion—not, if I may so express it, a very sophisticated move, on the chess board of economic argument—to suggest that we should have some special incentive to exports.
    We really have considered this most carefully. I cannot say to my hon. Friends that it is at all likely that the Government will change their views on it, but I have certainly listened to what they have had to say with great interest. I hope that they will forgive me if I say that I will look at some of the detailed points more carefully and write to give them individual answers.
    Mr. Mitchison: I have listened with some amusement to this very full and interesting debate. I find myself in some difficulties. My first difficulty is that I cannot disagree with all hon. and right hon. Gentlemen opposite. Their common disagreement is so fundamental that I am bound to agree with one or other of them. It is a very healthy sign that some of these difficulties, which we well know exist in the Tory Party, are argued out in the open instead of being hidden within the walls of the 1922 Committee or some other place.
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    I am in another difficulty in that I have for once to agree with a very curious combination of people. One of them is the Financial Secretary to the Treasury and the other is the hon. Member for Kidderminster (Mr. Nabarro). When they agree, to have to add myself to the number is indeed difficult. The hon. Member for Kidderminster, who is now leaving the Chamber and whose manners I always regard as considerably worse than his intelligence, seemed to me to put this matter very fairly.
    I entirely agree with what both the Financial Secretary and the hon. Member said. One could add other instances to those which they gave—for example, the spinner and the weaver who contribute to the finished cloth and the dyer and the finisher, and the rest. They are quite obvious, but I should like to take one particular point on which I find myself in complete agreement with the Financial Secretary.
    The Financial Secretary said quite rightly that one can only tackle exports as part of the whole business of production and the increase of trade as a whole. The Government have been singularly unsuccessful in increasing production and in retaining the share which we formerly had of world trade. It is interesting that they should now recognise that it is due to that kind of default that our export trade has become difficult and has fallen back in the race with other countries.
    This is not a matter that could be put right by breaking a number of international agreements, which appear to be the solution suggested by the Amendment and the new Clauses, and I should have thought that it was no answer to suggest that a number of other countries might have broken them. I thought that in this country we tried to keep to what we had undertaken to do, and that one of those undertakings was not to use discriminatory taxation to give an artificial stimulus to exports, which it seems to me is the fundamental principle which it is sought to break. The Amendment and the new Clauses seem to me wrong, foolish and unworkable. I do not know that one can say very much more about them than that.
    I should, however, like to remind hon. Members opposite that although we on this side of the Committee have not done

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    so this year, we have from time to time put forward proposals on rather different lines which, while for the reasons I have given I would not regard as enough, were more workable. They were directed towards investment allowances specially designed to give assistance to manufacture for export. Those who are now so fervently supporting exports voted against us on those proposals when they were made. Such, I suppose, is the party system, and there it is.
    I do not regard this as a matter of dispute between small traders and large traders. Even if it were, I notice that the large traders who have turned down the proposal, on grounds with which I agree, are the very people who would benefit substantially and benefit more than the others from the particular remission of taxation that is proposed. I regard their condemnation of these proposals as having some additional weight for that reason.
    I entirely agree with what has been proposed, but I hope that nothing I have said will serve to heal the rift in the Conservative Party.
    Sir Harmar Nicholls: Before asking leave to withdraw the Amendment—[HON. MEMBERS: "Why withdraw it?"]—for reasons which I explained when I moved it, I should like to make a comment upon the last words of the Financial Secretary, which showed the difficulty. He said that because the proposal was not sophisticated and had no difficuties surrounding it, it was much too simple. It does not strike the Government sometimes that the simple, straightforward proposal may be the right one. Next time we will make one which is more complicated.
    My hon. Friend the Member for Kidderminster (Mr. Nabarro) has been helpful. His point of view represents the official point of view of the F.B.I. and others. It is clear that we have to carry the battle on outside the House of Commons and get in among the F.B.I. and the others, and then they will be giving the sort of advice to the Treasury Bench which I think will be helpful. I want it to be known that for me the battle is certainly not ended. I beg to ask leave to withdraw the Amendment.
    The Temporary Chairman (Mr. H. Hynd): Is it the wish of the Committee that the Amendment be withdrawn?
    Hon. Members: No.
    Amendment negatived.
    Motion made, and Question proposed, That the Clause stand part of the Bill.
    Mr. Nabarro: I should not like the Clause to pass without at least one hon. Member on the Government side criticising the increase, for the second consecutive year, in the Profits Tax. It represents this year a policy of switching direct taxation from industry to the corporation. The corporation or company has no vote in a General Election. There are many individuals who have votes in General Elections, and, there-fore, individuals are generally considered to be more important electorally than corporations.
    But I am genuinely concerned about the continuous heaping of additional direct taxation on industry and the attitude of various Treasury Ministers to this matter. The extent of the increase is apparent when I say that in 1959 the then Chancellor of the Exchequer, the present Lord Amory, consolidated the Purchase Tax at a uniform level of 10 per cent. in respect of both distributed profits and undistributed profits and did not discriminate, as formerly, against distributed profits by a larger rate of Profits Tax.
    In the following year, 1960, Lord Amory, who was still Chancellor of the Exchequer, put up the rate of Profits Tax from 10 per cent. to 12½ per cent., thereby, with the addition of the standard rate of Income Tax at 38¾ per cent., creating a situation whereby for the first time for several years the profits of industry were mulcted as an aggregation of Income Tax and Profits Tax by an amount in excess of 50 per cent. The total rate of direct taxation on industry in 1960 became 51¼ per cent., or a total of 10s. 3d. in the £ of profits.
    This year the Chancellor's proposal in Clause 27 is to raise the level of Profits Tax from 12½ per cent. to 15 per cent. That, when added to the standard rate of Income Tax at 7s. 9d. in the £ 38¾ per cent., gives a total of direct taxation on corporations of 53¾ per cent., or 10s. 9d. in every £ of profits earned.

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    That is an excessive level of corporation taxation. It does not give an incentive to additional exports or to additional earnings, and is at a higher level than at any time since 1955.
    9.0 p.m.
    The Chancellor has represented in earlier speeches on the Budget that the additional Profits Tax would be borne very largely by the equity shareholder, who has done rather well during the period since 1959. I agree that the equity shareholder has done rather well since 1959, but I do not agree with the Chancellor's interpretation that it is primarily the equity shareholder who will bear this 2½ per cent. additional Profits Tax.
    On the contrary, a more correct interpretation of what now happens is that the capital of companies is mulcted by an amount of the additional 2½ per cent., in that the sum of money available for ploughing back into the concern for expansion purposes and for re-investment is reduced by a further 2½ per cent. It flows from that principle that the equity shareholder has his interest diminished, or is further mulcted. But the first consideration in the impact of the Additional Profits Tax, is surely that it is further taxation on the capital of companies, and is therefore to be deprecated.
    I could not vote against the Clause tonight, because the Chancellor has made it perfectly clear that the £70 million additional revenue in a full year which he will derive from the additional 2½ per cent. Profits Tax to raise the level to 15 per cent. represents the increased sinews which have substantially enabled him to abate the Surtax on a scale with which the Committee has already dealt. Clearly, he has to find the money from somewhere.
    I do not approve of his having done it wholly from corporation profits; but I should be out of order if I strayed into the subject of indirect taxation and other possible sources which have been available to him. I would have preferred a system whereby he dealt with indirect taxation, and brought into the ambit of indirect taxation certain things to which I referred in earlier speeches in Committee and which at present do not attract indirect taxation, without placing British industry at the further disadvantage of an added 2½ per cent. direct taxation.
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    The Federation of British Industries, whom I do not represent, although it was alleged a few minutes ago that I did, and the National Union of Manufacturers and other bodies in industry are in no way reticent in shouldering a very substantial burden of taxation and contributing generously to the Chancellor's revenue. But for many years they have been directing their attention to the Profits Tax and it has been a nasty setback to the majority of them that the Chancellor has decided to put up Profits Tax for the second consecutive year.
    Immediately after the Budget, the President of the Federation of British Industries wrote to the Chancellor, on 4th May to be precise, and used this form of words concerning the Profits Tax:
    "Your proposal for a further increase in profits tax raises the tax on company profits to a total of nearly 54 per cent. We do not believe that so heavy an impost can be justified. The discrimination between company and non-company profits will be widened and the capacity of industry to invest in the means of expansion will be reduced. We hope that the reduction of this tax will be given high priority in your future fiscal plans."
    The National Union of Manufacturers used this form of words in its memorandum following the Budget:
    "It is naturally appreciated that any observations of the National Union of Manufacturers are unlikely, at this stage, to influence the Budget provisions, except to a limited extent, but it is felt that the Chancellor should be informed of the views of its members and of the concern which they feel. In particular, they fear that the increase in profits tax must inevitably result in a reduction in the amount of profit which can be 'ploughed back' into more up-to-date machinery and other capital equipment, while the increased taxation on oil and transport is likely to lead to a spiral of rising prices, especially as these increases will affect raw materials and services which are basic to industry."
    The third condemnation of this tax came from Sir Eric Vansittart Bowater, the Chairman of the Bowater organisation, international in character, who used these words:
    "It is difficult to comprehend why a government whose declared policy is to encourage and stimulate British industries should now seek to implement taxes of the nature of the three to which I have referred."
    Of those three, Profits Tax was the last referred to.
    I make a mild protest this evening on behalf of industry, cognisant of the fact that my right hon. and learned Friend has conceded a major relief of direct taxation

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    affecting most industrial and commercial executives by his abatement of Surtax, but I do not believe that he has financed that in the correct way. It should have been done by a widening incidence of indirect taxation rather than by killing the goose which provides all the industrial golden eggs, whether for the export trade or for the home trade.
    Finally, I wish to say a word on reform of industrial taxation, with special reference to Profits Tax. The Chancellor included in his Budget statement a pregnant section dealing with reform of taxation. While he could with justification point to certain operational and administrative difficulties arising from an amalgamation of personal Income Tax and Surtax into a single graduated scale of direct taxation on the individual—and most of us realise those difficulties, and hope that they will be overcome in the forthcoming year—no such difficulties could be envisaged in the amalgamation of Income Tax and Profits Tax into a single corporation tax to be levied per centum on profits of industry as recommended in the Report of the Royal Commission.
    There is no possible objection to doing that, and the representative bodies of industry and commerce generally support it. The Royal Commission was undivided in its view as to the desirability of this reform, and whilst within the context of the relatively narrow Question "That the Clause stand part of the Bill" I shall not stray into wider issues involved in a reform of industrial taxation, I think that this is the appropriate moment to say to my hon. Friend that we hope we shall not have another Committee stage of a Finance Bill in 1962 without this very desirable reform of amalgamation of Income Tax and Profits Tax into a single scale of corporation tax, as recommended by the Royal Commission, being implemented in that Bill.
    Mr. Jay: We ought to welcome back the hon. Member for Kidderminster (Mr. Nabarro) to our debates. I was beginning to fear that the Chancellor's Surtax reliefs had left him feeling that he no longer had any incentive to attend them. I want to make only one comment on the hon. Member's argument that an excessive amount of taxation is
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    now being imposed on company profits, relative to personal income. The hon. Member has forgotten—or he omitted to mention—that both the initial allowance and the investment allowance are still in force, and that these benefit company profits and, in particular, investment by industry, which he apparently feared was being penalised.
    Mr. Nabarro: Those were the very much wider implications to which I referred at the end of my speech, to which I considered it would be out of order to allude. There is a separate argument for offsetting Profits Tax by the withdrawal of capital allowances, but that would have no place in a discussion of the Question "That the Clause stand part of the Bill", when the Clause deals with Profits Tax.
    Mr. Jay: I will not pursue this point, but I thought I ought to mention it so as to get the matter into perspective.
    Secondly, our debates this evening on Profits Tax have shown very clearly how right Lord Dalton was, after the war, to introduce a differential rate of Profits Tax on distributed profits, on the one hand, and undistributed profits, on the other, and how wrong Lord Amory was to consolidate—as the hon. Member for Kidderminster put it—those two rates two years ago. This evening we have had the surprising spectacle of the Economic Secretary having to admit that because the Chancellor wanted to increase Profits Tax on the profits of industry generally he was compelled to impose this extra levy on co-operative and building societies.
    The right hon. and learned Gentleman did not wish to do this. If he had had a doubt rate, as existed before, he could have done what he really wanted to do, which was to raise the tax on industry generally without imposing an unnecessary and illogical extra burden on co-operative and building societies. We have had the extraordinary spectacle of building societies being compelled, since the Budget, to raise their already extremely high interest rates charged to those borrowing money for building or buying houses—and we know what an extremely high burden those people already have to bear. Building societies have been compelled to raise the rate still further, just because the Chancellor wished to increase the tax on industrial profits.

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    The Economic Secretary admitted that the extra £500,000 which he obtained from the building societies was not a necessary part of the Budget. He did not wish to impose it, but he had to because there was no other way of increasing the Profits Tax. It has, therefore, been shown by these years of experience that the differential rate of Profits Tax had two great advantages. First, it was flexible. It was a regulator. It was possible to increase taxation on distributed profits without increasing it on undistributed profits, or vice versa, which the Government can no longer do; in this respect, by amalgamating the two rates they have thrown away a convenient method of regulating the economy. Secondly, the double rate enables any Chancellor to allow for the special position of co-operative and building societies and, no doubt, other non-profit-making bodies.
    A great deal has been said on the question whether the surplus or profits which building and co-operative societies earn should be considered as a real profit and therefore subject to Profits Tax. That is largely a verbal question, but there are two clear distinctions between the ordinary commercial company, on the one hand, and co-operative and building societies, on the other. The dividend paid by the building or co-operative society is limited, and in most cases virtually fixed. That means that the share is in quite a different position from the ordinary equity share of an industrial company, where the dividend is unlimited. Secondly, the share itself is not bought and sold on the market, so there is no possibility of capital appreciation. These are two quite clear distinctions which, In my view, certainly justify the imposition of a lower rate of Profits Tax on the society, or whatever it is, where the dividend is limited in that way.
    Therefore, this year's argument, and the difficulty that the Government have themselves got into with the building societies, show that Lord Dalton's solution was the right one. It is now quite clear that amalgamating these two rates into one, and following, I would say to the hon. Member for Kidderminster, the rather illusory object of simplifying taxation—which very often results in merely diminishing its flexibility and the
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    ability of a Chancellor to do what he wants—have resulted in injustice being done to the building societies and to the co-operative societies.
    Secondly, the Government have deprived themselves of a flexible regulator which they found in their hands. My main feeling about the Profits Tax, therefore, is a hope that one day—and sooner rather than later—we shall return to the differential system, whose value has been proved in the last few years.
    9.15 p.m.
    Sir E. Boyle: I seem to recall that two or three hours ago the right hon. Member for Huyton (Mr. H. Wilson) accused my hon. Friend the Economic Secretary of making a foreseeable speech on the subject of building societies. I am sure that the right hon. Member for Battersea, North (Mr. Jay) will not take it amiss if I say that, having re-read last year's debate on Profits Tax before this present debate, most of his speech tonight could have been fairly accurately anticipated by anyone reading last year's debate.
    I should like to answer one or two remarks made by hon. Members. My hon. Friend the Member for Kidderminster (Mr. Nabarro) raised, perfectly properly, this point: is there any danger that putting up the rate of Profits Tax to 15 per cent. will mean that industry will be short of funds for capital investment?
    I have two things to say on that. As my right hon. and learned Friend the Chancellor pointed out in the Budget debate, in view of the fact that he is retaining investment and initial allowances in respect of expenditure on new assets at their present rates, it is not likely that the increase of Profits Tax to 15 per cent. will have any serious effect on the level of capital investment. The second point that I would make is that, if we look at the general level of company profits, and company dividends and savings for the first four months of 1961, it is quite true that the increase in dividends and savings is less than it was for the corresponding four months last year, but I find it very difficult to believe that industry will be seriously short of liquid funds during the rest of this year.
    I will go so far as to say that in this context I think that the Budget surplus

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    and the very small overall deficit must be a help, because it will mean that pretty well the whole of private saving will be available to finance private investment—
    Mr. Jay: Can the Financial Secretary give a figure for the increase in profits in the first four months?
    Sir E. Boyle: Yes, I can. The increase in profits for the first four months of 1960 was 13 per cent., and for the corresponding period in 1961 it was 13 per cent. also.
    My hon. Friend the Member for Kidderminster quite fairly said that although he would have liked to finance the future Surtax reliefs in a different way, at the same time he realised that my right hon. and learned Friend had chosen this particular method in his Budget. I should like to repeat what the Chancellor said in this connection in his Second Reading speech. He said:
    "I was not prepared to make the cost of the Surtax reliefs for earned income a charge on next year's revenue without taking steps to increase that revenue to an extent broadly equal to the cost. Of the various courses open to me, I am the opinion that this increase in Profits Tax is the least objectionable."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1628.]
    I mention this because, in view of all that has been said about Health Service charges in connection with the Surtax reliefs, I was glad to hear the hon. Member for Sowerby (Mr. Houghton), perhaps accidentally, when we were debating Clause 11 last week, say that he, at any rate, understood clearly that part of the Chancellor's Budget speech.
    Mr. Houghton: It was not accidental.
    Sir E. Boyle: I was very glad to hear the hon. Member.
    I shall not develop the point at any length, but I wish to register my dissent from what the right hon. Member for Battersea, North said about the new form of Profits Tax and the old. I shall not engage in prolonged controversy on the pros and cons of Lord Dalton's action or anything else, except to say that I do not agree that the Profits Tax in its present form is a worse regulator than it was in its old form. There are many real advantages in having a combined rate compared with two separate rates. To
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    my mind, the very heavy discrimination against dividend distribution had great disadvantages for an economy like ours which should be expanding.
    An interesting point was made by Professor Prest, a more recent economist than Lord Dalton, in his recent book on finance, in which he said that the combined rate has the advantage that equity shareholders cannot so easily get their capital appreciation through the growth in the goodwill and undistributed profits of the company. That is a point which should commend itself to hon. Members opposite. In my view, the balance of advantage rests in the new form we have had since 1958.
    Mr. H. Rhodes: I should like to support the hon. Member for Kidderminster (Mr. Nabarro) in protesting about this increase in Profits Tax. This year—[Interruption.]
    Mr. Nabarro: On a point of order, Mr. Hynd. The hon. and learned Member for Kettering (Mr. Mitchison) has an infernal instrument in his waistcoat pocket, which sounds like an alarm clock. As we have many hours to sit as a Committee, could the hon. and learned Member be asked to withdraw with his alarm clock?
    Mr. Rhodes: This is a year of very great difficulty, with many drains on businesses, what with shortening of hours and wages remaining the same, the incidence of time lost and the shorter working week, and the fact that the new contributions have to be paid this year. The fact that the charges have gone on oil and Profits Tax is, for a comparatively small private business which has ploughed the whole of its resources back for forty years in the hope of making itself a fine business, one of the most disappointing things I have experienced in the whole of my life. Since the war, I have been able to equate any inflation in terms of prices of the commodity I make. This year, I am failing for the first time and getting behind in the race with inflation.
    Although hon. Members talk glibly about the investment allowance which may be received, the initial allowance in the case of secondhand machines and the rest, unless one is able to take advantage of the profit one is able to retain, and spend it on new machines,

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    one cannot take advantage of investment allowance or the initial allowance. It seems that the idea in the academic mind is that we can load industry year after year. It is, perhaps, being misled by the sort of financial values on the Stock Exchange and the ratios of dividends to Stock Exchange prices and the rest.
    This is the most dangerous year we have had since the war, and I am speaking from practical experience, as someone who has ploughed back practically the whole of his money earned in the trade. It seems ridiculous that hon. Members can allow small industries to be open to this imposition.
    Mr. Nabarro: A jolly fine speech.
    Colonel Sir Leonard Ropner: In accordance with precedent and custom, I wish to declare my interest in the matter about which I wish to speak. I assure hon. Members that the notes which I hold in my hand have been made so that my speech may be brief, and not to enable me to make a long one.
    I regret that an Amendment which was on the Order Paper in the name of several of my hon. Friends and myself was not selected, although I confess that I was not completely sure that it would be accepted by the Chancellor—at any rate in its present form. I appreciate his difficulties in exempting one industry—and one only—from the increase in the Profits Tax which will result from the passing of Clause 27.
    But shipping is an exceptional industry. I know of no other industry in which such huge capital sums are involved and which is so completely open to world-wide competition. Although, even in that respect, flag discrimination and the trade reservations practised by the United States, and by an increasing number of other nations, is grievously handicapping the British Merchant Navy.
    The Temporary Chairman: I am afraid that the hon. Member cannot use this particular moment to make a speech which he would have made if his Amendment had been accepted. He must speak about Profits Tax in general.
    Sir L. Ropner: I was going to say, Mr. Hynd, that on this Clause another
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    consideration of a major and, indeed, vital importance arises, for while British shipping already pays a high rate of taxation, the ships of other nations flying flags of convenience pay virtually no tax at all. It is true, of course, that while the rates of freights are low and profits of ships of every flag are practically non-existent—and that is the case today as it has been for some time past—the competitive position of British tramps, tankers and coasters is fair enough in so far as taxation is concerned, because no direct taxation is being paid.
    But when rates of freight are high—as they have been and as they will be again—foreign fleets pay no tax, however high their profits, and that gives them an enormous advantage over our own fleet. Their owners—
    The Temporary Chairman: I am sorry, but the hon. Member is speaking specifically about the shipping industry. His Amendment on that point was not selected and we are now discussing whether the Clause should stand part of the Bill.
    Sir L. Ropner: I am talking specifically about the shipping industry.
    The Temporary Chairman: That is just what cannot be allowed at this stage. I am sorry.
    Sir L. Ropner: With respect, Mr. Hynd, I am relating my arguments to the incidence of Profits Tax. Although I do not wish to dispute your Ruling, I have sought advice from a quarter which is usually sound and acceptable and I want to make the point that I am relating my remarks entirely to the question of the increase of direct taxation. I do not think that you will find my speech either out of order or lasting for more than two or three minutes, Mr. Hynd. But my remarks have a direct bearing on the increase in taxation to the industry which I am discussing as an example of its effect on probably many other industries.
    9.30 p.m.
    I was saying that the owners of foreign fleets who pay no taxes at all in good times or in bad, are able to renew their fleets and build up large reserves to an extent which will gradually drive the Red Ensign from the seas. I hope that

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    the Chancellor of the Exchequer read the first leader in The Times last Monday. I feel certain that if he did, he was distressed at what was said. Not so long ago British shipping made a substantial net contribution to the invisible exports of Britain, while last year this nation paid more to foreign shipowners than our shipowners were paid by foreigners.
    The question at the head of the first leader was "What has gone wrong?". That which has gone wrong will be made even worse by the increased incidence of Profits Tax. It will place British ships at an even greater disadvantage in competing with vessels which in good or bad times pay no tax at all, and, in addition, it will place other of our industries at a disadvantage.
    I shall support this Clause in the belief that the Chancellor of the Exchequer has real sympathy for the difficulties of the shipping industry and in the hope that between now and the Report stage he will find means of ensuring that British shipping can compete on more equal terms with its foreign competitors.
    Question put and agreed to.
    Clause ordered to stand pail of the Bill.
    Clause 28 ordered to stand part of the Bill.

    Clause 29.—(STAMP DUTY ON BILLS OF EXCHANGE AND PROMISSORY NOTES.)
    Motion made, and Question proposed, That the Clause stand part of the Bill.
    Mr. Mitchison: On the Second Reading of the Bill, the right hon. and learned Gentleman the Chancellor of the Exchequer said:
    "Clause 29 deals with Stamp Duty on bills of exchange. I think that this is a useful Clause, embodying a change to which, perhaps, sufficient attention has not yet been paid."
    Encouraged by those remarks, I paid a little more attention to the Clause. The Chancellor pointed out that the cost of the proposed concession
    "is not inconsiderable—it is £1½ million in a full year…"
    That, as the Committee will remember, is just three times the burden imposed on the building societies by the addition to Profits Tax. I agree that it is not inconsiderable, but, if I may use the
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    phrase, it is a wizard bit of financing anyhow, because apparently the cost of remitting the duty in question appears to be more than the yield of the duty, and I have never before met a duty like that or a concession of such a remarkable character. I think there must be something wrong somewhere.
    Turning to the 103rd Report of the Commissioners of Inland Revenue, on page 131 the yield of stamps on bills of exchange and promissory notes is given as rather over £1 million for inland ones and rather under £400,000 for foreign ones. The next item, bankers' bills and notes, refers to something different; it only relates to Scotland and I think refers to the banknotes which are current in Scotland.
    The result appears to be that the cost of the concession is rather more than the yield of the duty. That is Treasury arithmetic in excelsis.
    I come now to the reasons for the concession. The Chancellor told us that
    "It has not been the weight of this duty that has caused the trouble".
    I can quite see that. The duty seems to yield about £1½ million, and the annual turnover of bills of exchange in the London market, according to the Radcliffe Commission, is about £1,000 million. It does not seem to be an excessive charge. Moreover, with whom are we dealing? These are the very tycoons of finance. I should not think that they would mind a little thing like this.
    The Chancellor went on to say:
    "…it has rather been the practical difficulty for traders of keeping a supply of bills stamped with the right amount of duty, or a supply of the special adhesive stamps applying to foreign bills, and of ensuring that the right kinds of stamps are used on the different kinds of bill."—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1628–9.]
    That is the only reason for giving these tycoons of finance £1½ million by way of remission of duty.
    I have heard many odd arguments for making tax concessions and many even odder ones for refusing, but I have never yet known a Government give a concession of £1½ million solely on the ground that high grade discount merchants could not keep a supply of bills stamped with the right amount of duty or a supply of the special adhesive stamps applying to foreign bills and could not

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    ensure that the right kind of stamp was used on the different kinds of bill. These are the people who are supposed to make London the financial centre of the world. They are not philatelists, but I should have thought that they could manage to keep the right kind of stamps available, and could have managed to give a lick to the right kind of stamp and stick it on a bill. I should have expected their intelligence to be such that they might even know what was the right stamp to use on the different kinds of bill.
    If they are such extraordinarily careless idiots, as they appear to be from what the right hon. and learned Gentleman said, is that a sufficient reason for giving them £1½ million out of the pocket of the taxpayer? I should like to hear a defence of this remarkable Clause.
    Sir E. Boyle: I quite agree with what the hon. and learned Member for Kettering (Mr. Mitchison) says in so far as there is, of course, a range of stamps available at the Inland Revenue Stamp Office, but, none the less, we were assured by industry—I have no reason to think that it was not true—that the present complicated system and present duty did act as an impediment to business efficiency and, as bills of exchange are used extensively for foreign trade, it was very likely that difficulties were most acutely felt there.
    There have been many accusations from this side of the Committee, and especially from hon. and right hon. Members opposite, that the Budget does nothing directly to affect our balance of payments. Here, in making this quite simple change—I agree that it costs £1½ million in a full year—we had no doubt that we should be giving some direct assistance to exporters. All I can say is that, bearing in mind the first part of the reasoned Amendment which right hon. and hon. Members opposite moved to the Motion for the Second Reading of the Finance Bill, they would be quite remarkably inconsistent with their own declared utterances if they voted against this Clause.
    Mr. Eric Fletcher: I have never heard such rubbish. The Financial Secretary says that he was assured of this, that and the other. The Stamp Act has been in operation for seventy years. It was passed in 1891. Why has it suddenly been found that the
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    whole commercial community, which has never before complained that it had the slightest difficulty in putting the appropriate stamps on bills of exchange, cannot manage to obtain or keep the right range of stamps to put on? It is nonsense for the hon. Gentleman to advance such reasons as justification for giving away £1½ million of public revenue which, if the Chancellor had wanted to make concessions, could have been put to far more deserving causes.
    There is not the slightest justification for that at all. The hon. Gentleman's speech was not only brief, but it was a miserable attempt to justify a completely unjustifiable concession. Anyone who has had the slightest experience of these matters knows that there is not the slightest difficulty in having the necessary pieces of paper or adhesive stamps so that, as has been the case for seventy years, bills of exchange can be properly stamped.
    After all, bills of exchange are a matter of great convenience to the commercial community. They facilitate operations, and it is idle to say that because they cannot get the right stamps to put on the right pieces of paper at the right time, that interferes with our export trade. It astonishes me that the Minister could lend himself to such utter rubbish, and it is grotesque to pretend that our export trade will suffer because exporters have difficulty in getting the right stamps to put on the right pieces of paper at a particular moment. If he descends to that, the hon. Gentleman does not deserve the confidence of this Committee, and I hope that, on reflection, he will accept the view that if the Chancellor has a concession of the order of £1½ million to make there are far more worthy causes which should benefit.
    Mr. Bruce Milan: Like my hon. Friends, I think that we have been given a very inadequate explanation of this Clause.
    I am particularly interested in what my hon. and learned Friend the Member for Kettering (Mr. Mitchison) quoted from the Chancellor's Second Reading speech on the Finance Bill, namely, the reasons given then by the right hon. and learned Gentleman for introducing this Clause—the difficulty of getting the different denominations of stamps and seeing that

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    they were stuck on the right pieces of paper, and so on. If we look at the Chancellor's Budget speech, we find that the reason given in his speech on the Second Reading of the Bill was quite different from the reason originally given in the Budget speech.
    In his Budget speech, the Chancellor said:
    "It has been represented to me that the complications in calculating this duty are an obstacle to trade, particularly the export trade."—[OFFICIAL REPORT, 17th April, 1961; Vol. 638, c. 813.]
    There is no mention there of the difficulty of getting the different denominations of stamps or anything like that; it was purely a question of the complications of calculating the duty.
    The duty on a bill of exchange, apart from the exceptional case of one payable on demand, is calculated as 1s. per £100 and, like my hon. Friend, I simply cannot believe that the people concerned with the calculation cannot do it perfectly easily. Certainly, there is not sufficient difficulty to justify giving £1½ million in tax remission.
    There must be a better reason than that, and I give the Government credit for that. Although we have not heard it yet, either in the speeches made here, by the Chancellor in his Budget statement or in his Second Reading speech on the Bill, it seems to me that, from what we have heard from the Financial Secretary tonight, there must be a better reason. We are entitled to ask, before we pass this Clause, that we should know what this better reason actually is.
    It may be that it is because it is an unpopular duty, as all stamp duties tend to be, and that there has been a tendency on the part of people drawing these bills of exchange to neglect to stamp them. After all, bills of exchange are perfectly valid even if not stamped, and the fact that they are not stamped does not invalidate them if it comes to a question, for example, of founding a legal action on them. It is a question of paying the penalty and ensuring that they are properly stamped.
    9.45 p.m.
    My information is that many people who use these bills of exchange neglect to stamp them. They take a chance that they will not have to fight an action and they do not bother. There may be difficulties when they have to go to the bank to get them negotiated or have to present them, for instance, to the Export Credits Guarantee Department to get proper cover from that Department. But if it is a fact that many people are using these bills and are not stamping them in accordance with the Act, and if the Government take the view that, because many people are in default of the Act, it would be a good argument for getting rid of the duty altogether—that may be the real reason why this Clause is in the Bill—I consider it to be an intolerable argument.
    As has been said, many very good cases have been put to the Government. A very good case was put to them this afternoon concerning building societies, which involved only £500,000. Here, £1½ million is involved. We have had reasons from the Chancellor of the Exchequer and from the Financial Secretary which have differed. None of them has been sufficiently cogent to justify the introduction of this Clause, and, unless we get something much better from the Financial Secretary, the Committee ought to oppose the Clause.
    Mr. Mitchison: The Financial Secretary did not deny that this concession was of such a character that it exceeded the yield of the whole tax. He never suggested that these apparently half-witted tycoons may be supplied either with newer and simpler stamps if they cannot find the old ones, or with some mechanical assistance in working out the sum of 1s. per £100. In those circumstances, we have no alternative but to divide the Committee on this Clause.
    Question put, That the Clause stand part of the Bill:—
    The Committee divided: Ayes 226, Noes 151.

    Division No. 202.]

    AYES

    [9.47 p.m.

    Aitken, W. T.

    Atkins, Humphrey

    Batsford, Brian

    Allan, Robert (Paddington, S.)

    Barber, Anthony

    Baxter, Sir Beverley (Southgate)

    Allason, James

    Barlow, Sir John

    Bell, Ronald

    Arbuthnot, John

    Barter, John

    Bennett, F. M. (Torquay)

    Bennett, Dr. Reginald (Gos & Fhm)

    Harvie Anderson, Miss

    Price, David (Eastleigh)

    Berkeley, Humphry

    Hastings, Stephen

    Prior, J. M. L.

    Biggs-Davison, John

    Hay, John

    Prior-Palmer, Brig. Sir Otho

    Bingham, R. M.

    Heald, Rt. Hon. Sir Lionel

    Proudfoot, Wilfred

    Birch, Rt. Hon. Nigel

    Hendry, Forbes

    Pym, Francis

    Bishop, F. P.

    Hiley, Joseph

    Quennell, Miss J. M.

    Bossom, Clive

    Hill, Mrs. Eveline (Wythenshawe)

    Ramsden, James

    Bourne-Arton, A.

    Hirst, Geoffrey

    Rawlinson, Peter

    Bowen, Roderic (Cardigan)

    Hocking, Philip N.

    Redmayne, Rt. Hon. Martin

    Boyle, Sir Edward

    Hollingworth, John

    Rees, Hugh

    Brewis, John

    Holt, Arthur

    Renton, David

    Bromley-Davenport. Lt.-Col. Sir Walter

    Hornby, R. P.

    Ridley, Hon. Nicholas

    Brooke, Rt. Hon. Henry

    Howard, Hon. G. R. (St. Ives)

    Ridsdale, Julian

    Brown, Alan (Tottenham)

    Hughes-Young, Michael

    Roberts, Sir Peter (Heeley)

    Browne, Percy (Torrington)

    Hutchison, Michael Clark

    Robinson, Sir Roland (Blackpool, S.)

    Bryan, Paul

    Iremonger, T. L.

    Roots, William

    Buck, Antony

    Irvine, Bryant Godman (Rye)

    Ropner, Col. Sir Leonard

    Bullard, Denys

    James, David

    Russell, Ronald

    Bullus, Wing Commander Eric

    Johnson, Dr. Donald (Carlisle)

    Scott-Hopkins, James

    Burden, F. A.

    Johnson, Eric (Blackley)

    Shaw, M.

    Campbell, Gordon (Moray & Nairn)

    Joseph, Sir Keith

    Shepherd, William

    Carr, Compton (Barons Court)

    Kerans, Cdr. J. S.

    Simon, Rt. Hon. Sir Jocelyn

    Carr, Robert (Mitcham)

    Kerby, Capt. Henry

    Skeet, T. H. H.

    Cary, Sir Robert

    Kershaw, Anthony

    Smith, Dudley (Br'ntfrd & Chiswick)

    Channon, H. P. G.

    Leather, E. H. C.

    Smithers, Peter

    Chataway, Christopher

    Leavey, J. A.

    Spearman, Sir Alexander

    Clark, Henry (Antrim, N.)

    Leburn, Gilmour

    Stevens, Geoffrey

    Clark, William (Nottingham, S.)

    Legge-Bourke, Sir Harry

    Steward, Harold (Stockport, S.)

    Cleaver, Leonard

    Lewis, Kenneth (Rutland)

    Stodart, J. A.

    Cooke, Robert

    Lilley, F. J. P.

    Stoddart-Scott, Col. Sir Malcolm

    Cooper-Key, Sir Neill

    Linstead, Sir Hugh

    Storey, Sir Samuel

    Cordeaux, Lt.-Col. J. K.

    Litchfield, Capt. John

    Studholme, Sir Henry

    Corfield, F. V.

    Longbottom, Charles

    Sumner, Donald (Orpington)

    Costain, A. P.

    Longden, Gilbert

    Talbot, John E.

    Coulson, J. M.

    Lucas-Tooth, Sir Hugh

    Tapsell, Peter

    Courtney, Cdr. Anthony

    MacArthur, Ian

    Taylor, Edwin (Bolton, E.)

    Craddock, Sir Beresford

    McLaren, Martin

    Thatcher, Mrs. Margaret

    Critchley, Julian

    McLaughlin, Mrs. Patricia

    Thompson, Kenneth (Walton)

    Cunningham, Knox

    McMaster, Stanley R.

    Thornton-Kemsley, Sir Colin

    Curran, Charles

    Macmillan, Rt. Hn. Harold (Bromley)

    Tiley, Arthur (Bradford, W.)

    Dalkeith, Earl of

    Maddan, Martin

    Turner, Colin

    Deedes, W. F.

    Markham, Major Sir Frank

    Turton, Rt. Hon. R. H.

    Doughty, Charles

    Marples, Rt. Hon. Ernest

    Tweedsmuir, Lady

    du Cann, Edward

    Marten, Neil

    van Straubenzee, W. R.

    Duncan, Sir James

    Mathew, Robert (Honiton)

    Vane, W. M. F.

    Duthie, Sir William

    Maudling, Rt. Hon. Reginald

    Vaughan-Morgan, Rt. Hon. Sir John

    Eden, John

    Mawby, Ray

    Vickers, Miss Joan

    Elliot, Capt. Walter (Carshalton)

    Maxwell-Hyslop, R. J.

    Vosper, Rt. Hon. Dennis

    Elliott, R. W. (Nwcstle-upon-Tyne, N.)

    Mills, Stratton

    Wade, Donald

    Emery, Peter

    Montgomery, Fergus

    Wakefield, Edward (Derbyshire, W.)

    Emmet, Hon. Mrs. Evelyn

    Morgan, William

    Wakefield, Sir Wavell (St. M'lebone)

    Finlay, Graeme

    Nabarro, Gerald

    Walder, David

    Fisher, Nigel

    Nicholls, Sir Harmar

    Walker, Peter

    Foster, John

    Nicholson, Sir Godfrey

    Walker-Smith, Rt. Hon. Sir Derek

    Fraser, Hn. Hugh (Stafford & Stone)

    Noble, Michael

    Wall, Patrick

    Fraser, Ian (Plymouth, Sutton)

    Nugent, Sir Richard

    Ward, Dame Irene

    Freeth, Denzil

    Oakshott, Sir Hendrie

    Whitelaw, William

    Gammans, Lady

    Orr-Ewing, C. Ian

    Williams, Dudley (Exeter)

    Gibson-Watt, David

    Osborn, John (Hallam)

    Williams, Paul (Sunderland, S.)

    Glover, Sir Douglas

    Osborne, Sir Cyril (Louth)

    Wills, Sir Gerald (Bridgwater)

    Gower, Raymond

    Page, John (Harrow, West)

    Wilson, Geoffrey (Truro)

    Grant, Rt. Hon. William

    Page, Graham (Crosby)

    Wise, A. R.

    Grant-Ferris, Wg Cdr. R.

    Pannell, Norman (Kirkdale)

    Wolrige-Gordon, Patrick

    Green, Alan

    Partridge, E.

    Wood, Rt. Hon. Richard

    Gresham Cooke, R.

    Pearson, Frank (Clitheroe)

    Woodhouse, C. M.

    Grimond, J.

    Percival, Ian

    Woodnutt, Mark

    Grosvenor, Lt.-Col. R. G.

    Peyton, John

    Woollam, John

    Gurden, Harold

    Pickthorn, Sir Kenneth

    Worsley, Marcus

    Hall, John (Wycombe)

    Pilkington, Sir Richard

    Yates, William (The Wrekin)

    Hamilton, Michael (Wellingborough)

    Pitman, Sir James

    Harris, Reader (Heston)

    Pitt, Miss Edith

    TELLERS FOR THE AYES:

    Harvey, John (Walthamstow, E.)

    Pott, Percivall

    Mr. Chichester-Clark and Mr. Peel.

    NOES

    Abse, Leo

    Brockway, A. Fenner

    Deer, George

    Ainsley, William

    Broughton, Dr. A. D. D.

    Diamond, John

    Albu, Austen

    Castle, Mrs. Barbara

    Ede, Rt. Hon. C.

    Allaun, Frank (Salford, E.)

    Corbet, Mrs. Freda

    Edelman, Maurice

    Allen, Scholefield (Crewe)

    Craddock, George (Bradford, S.)

    Edwards, Rt. Hon. Ness (Caerphilly)

    Awbery, Stan

    Crosland, Anthony

    Edwards, Robert (Bilston)

    Bacon, Miss Alice

    Crossman, R. H. S.

    Evans, Albert

    Benson, Sir George

    Cullen, Mrs. Alice

    Fernyhough, E.

    Blyton, William

    Davies, G. Elfed (Rhondda, E.)

    Finch, Harold

    Bowden, Herbert W. (Leics, S.W.)

    Davies, Harold (Leek)

    Fitch, Alan

    Boyden, James

    Davies, Ifor (Gower)

    Fletcher, Eric

    558

    559

    Foot, Dingle (Ipswich)

    Mabon, Dr. J. Dickson

    Roberts, Goronwy (Caernarvon)

    Forman, J. C.

    McInnes, James

    Ross, William

    Gaitskell, Rt. Hon. Hugh

    McKay, John (Wallsend)

    Short, Edward

    Galpern, Sir Myer

    Mackie, John (Enfield, East)

    Silverman, Sydney (Nelson)

    George, Lady Megan Lloyd (Crmrthn)

    McLeavy, Frank

    Skeffington, Arthur

    Ginsburg, David

    MacMillan, Malcolm (Western Isles)

    Slater, Mrs. Harriet (Stoke, N.)

    Gourlay, Harry

    MacPherson, Malcolm (Stirling)

    Slater, Joseph (Sedgefield)

    Greenwood, Anthony

    Mahon, Simon

    Sorensen, R. W.

    Grey, Charles

    Mallalieu, E. L. (Brigg)

    Soskice, Rt. Hon. Sir Frank

    Griffiths, David (Rother Valley)

    Manuel, A. C.

    Spriggs, Leslie

    Gunter, Ray

    Mapp, Charles

    Steele, Thomas

    Hale, Leslie (Oldham, W.)

    Marsh, Richard

    Stewart, Michael (Fulham)

    Hamilton, William (West Fife)

    Mason, Roy

    Stonehouse, John

    Hayman, F. H.

    Mellish, R. J.

    Stones, William

    Healey, Denis

    Mendelson, J. J.

    Swingler, Stephon

    Henderson, Rt. Hn. Arthur (Rwly Regis)

    Millan, Bruce

    Sylvester, George

    Herbison, Miss Margaret

    Milne, Edward J.

    Symonds, J. B.

    Hill, J. (Midlothian)

    Mitchison, G. R.

    Taylor, Bernard (Mansfield)

    Holman, Percy

    Monslow, Walter

    Taylor, John (West Lothian)

    Houghton, Douglas

    Moody, A. S.

    Thomas, Iorwerth (Rhondda, W.)

    Howell, Denis (Small Heath)

    Moyle, Arthur

    Thompson, Dr. Alan (Dunfermline)

    Hoy, James H.

    Neal, Harold

    Thomson, G. M. (Dundee, E.)

    Hughes, Cledwyn (Anglesey)

    Noel-Baker, Francis (Swindon)

    Thornton, Ernest

    Hughes, Emrys (S. Ayrshire)

    Noel-Baker, Rt. Hn. Philip (Derby, S.)

    Ungoed-Thomas, Sir Lynn

    Hunter, A. E.

    Oliver, G. H.

    Wainwright, Edwin

    Hynd, John (Attercliffe)

    Oram, A. E.

    Warbey, William

    Irvine, A. J. (Edge Hill)

    Oswald, Thomas

    Watkins, Tudor

    Jay, Rt. Hon. Douglas

    Owen, Will

    Weitzman, David

    Johnson, Carol (Lewisham, S.)

    Padley, W. E.

    Whitlock, William

    Jones, Rt. Hn. A. Creech (Wakefield)

    Paget, R. T.

    Wilcook, Group Capt. C. A. B.

    Jones, Dan (Burnley)

    Pannell, Charles (Leeds, W.)

    Williams, D. J. (Neath)

    Jones, J. Idwal (Wrexham)

    Parkin, B. T.

    Williams, Ll. (Abertillery)

    Jones, T. W. (Merioneth)

    Pearson, Arthur (Pontypridd)

    Williams, W. R. (Openshaw)

    Kelley, Richard

    Prentice, R. E.

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

    Kenyon, Clifford

    Price, J. T. (Westhoughton)

    Winterbottom, R. E.

    Key, Rt. Hon. C. W.

    Probert, Arthur

    Woof, Robert

    King, Dr. Horace

    Proctor, W. T.

    Lawson, George

    Pursey, Cmdr. Harry

    TELLERS FOR THE NOES:

    Lee, Miss Jennie (Cannock)

    Rankin, John

    Mr. Charles A. Howell and

    Logan, David

    Redhead, E. C.

    Mr. McCann.

    Loughlin, Charles

    Rhodes, H.

    Clauses 30 and 31 ordered to stand part of the Bill.

    Clause 32.—(REDEMPTION OF OTTOMAN GUARANTEED LOAN OF 1855.)
    Motion made, and Question proposed, That the Clause stand part of the Bill.
    Mr. Fletcher: I really do not think that we ought to part with this Clause without a word of explanation from the Government, because I think it will be agreed that everybody who has been trying to take an interest in this very extraordinary Finance Bill has been particularly intrigued by the complicated introduction to this Clause dealing with the redemption of the Ottoman Guaranteed Loan of 1855. I really do not think that we should be doing our duty in this Committee if we allowed this important Clause to go by without making some attempt to understand what it is all about.
    The Chancellor skated over it, I thought, very gracefully in his Second Reading speech, but he lifted a slight part of the veil of mystery which surrounds this subject. As I read the Clause it will cost this country £200,000;
    560
    if I am not mistaken it will be very much more. The Chancellor said:
    "This loan has had a long and chequered career".—[OFFICIAL REPORT, 4th May, 1961; Vol. 639, c. 1629.]
    It has certainly had a long career since it has been knocking about since 1855, which is just over a hundred years ago. It remains a mystery, to me at any rate, why it is only now, in 1961, that we are going to do something about this long-outstanding guaranteed loan.
    The Chancellor pointed out, quite rightly, that when this guarantee was given in 1855 there was a "remarkable coalition" against it, embracing not only Mr. Disraeli and Mr. Gladstone but Mr. Cobden as well. It may interest those who are interested in the Ottoman Bank that Mr. Gladstone in 1855 made no fewer than fourteen speeches in this Chamber opposing this guaranteed loan. He was against it. I am not proposing to quote any of those fourteen speeches—[HON. MEMBERS: "Why not?"]—but anybody interested in what Mr. Gladstone said in 1855 will be interested to know that he spent most of his time, as far as I can see, in 1855 opposing

    561
    this guaranteed loan, and, I think, for very good reasons.
    Mr. John Diamond: What were they?
    10.0 p.m.
    Mr. Fletcher: At that time we were engaged in a great European war against Russia. It is very significant that in all other subsequent European wars Russia has been on our side. At that time we were proposing to guarantee Turkey, then called the Ottoman Empire. Our relations with Turkey have undergone a good many transformations in the last hundred years. She was against us in the 1914–18 war but in the last war she was on our side, though only at a belated stage.
    What happened in 1855 was that for some reason, long disputed by Mr. Gladstone, Mr. Disraeli, and Mr. Cobden, the House of Commons eventually agreed to authorise Her Majesty's Government to guarantee a loan of £5 million to be raised for the benefit of the Ottoman Empire, which we now call Turkey. Not only did we guarantee it but France also guaranteed it. It is not clear to me but no doubt the Minister will be able to explain what happened to the interest on the loan the service of which we guaranteed, because for a long period between 1855 and the early part of this century, when of course there was not a vigilant Labour Opposition, nothing was done about it.
    The matter was resuscitated in 1929 when questions on the subject were addressed to the right hon. Gentleman the Member for Woodford (Sir W. Churchill), who was then Chancellor of the Exchequer, and who is, so far as I can discover, the only survivor of the 1929 Parliament who is still a Member of this House. The right hon. Gentleman had a good deal to say about it. He was interrogated as Chancellor of the Exchequer by the then Colonel Wedgwood to know what was really happening about the interest on this loan, whether the British Government had been called upon to pay, whether the French Government as co-guarantors were fulfilling their obligations and whether, as Mr. Disraeli, Mr. Gladstone and Mr. Cobden thought in 1855 when they opposed the Bill, we found that we were not only the guarantors but we were involved in considerable financial
    562
    liability because of default not only by the Turkish Government but also by the French Government and the Egyptian Government. In December, 1929, the right hon. Member for Woodford had said that he would do something about it and that he was engaged in communication with the French Government to know whether they would pay up their liability as to one-half of the expenditure involved.
    As the Chancellor of the Exchequer said on the Second Reading of this Bill, the right hon. Member for Woodford, then Chancellor of the Exchequer, gave in 1929 certain undertakings to do something about it. Thirty-two years have elapsed since then, and I am not quite clear about two things. The first is why nothing has been done for thirty-two years. The second is why it is necessary in this Finance Bill to make the extraordinary provision proposed in the Clause. I do not think that we ought to part from the Clause without some explanation.
    Could the Economic Secretary tell us in the first place, as a matter of history, what has been the cost to this country of this loan made to Turkey in 1855 and Which we guaranteed? Could he tell us how much of our responsibility as guarantors we have been called upon to pay and how far has France, the other guarantor, contributed her share? How far has the agreement made in 1929 with the Egyptian Government resulted in any contribution by the Egyptian Government? Finally, what precisely is the meaning of the provisions in the Clause which appear to suggest that if we take the step now proposed by the Government it will cost the country a payment of up to £200,000 out of the Consolidated Fund?
    If we adopt the suggestions of the Chancellor, can we be assured that we shall still be able to exercise whatever rights of recovery we may have preserved both against our co-guarantors, the French Government, and against the Turkish Government or the Egyptian Government, as the original and principal debtors?
    Mr. Barber: The whole Committee will feel that it is really rather sad that a representative of the Liberal Party is not present this evening to support the ending of this loan which was opposed originally

    563
    by Mr. Gladstone. I hope that, unlike Mr. Gladstone, it will not be necessary for me to speak fourteen times. I hope that it will be sufficient to speak once, twice or thrice to satisfy the hon. Member for Islington, Fast (Mr. Fletcher). When my right hon. and learned Friend answered, at considerable length, a Written Question on the matter on 17th April, I wondered whether it was really a wise thing to do, because it gave all the references which the hon. Gentleman has used. But I will say no more about that.
    Perhaps the most helpful thing I can do at the outset is briefly to give a resume of the chequered career of the loan. There is a good deal of information available, but I will keep it as brief as I can.
    The loan was originally made under an Act of 1855, and it was guaranteed by Her Majesty's Government. That guarantee was limited to the payment of interest at 4 per cent. Payment was also to be made into a sinking fund, to be serviced by the Ottoman Government, which would have finally redeemed the loan by 1900. The interest and the sinking fund payments were charged on the whole revenues of the Ottoman Empire. The Ottoman Government defaulted on the sinking fund payments in 1876, when only just over £1 million of the loan had been redeemed, and on the interest in 1880.
    The British Government had control over sufficient Ottoman revenues from Egypt and Cyprus to meet the payments of interest, but not fully to meet those to the sinking fund due under the terms of the loan. Payments from Cyprus for the service of the loan equivalent to the amount of the tribute formerly due to the Ottoman Government were continued after 1914 until the granting of independence in August, 1960. From the outset, the Cypriot payments, which amounted to £92,800 a year, were grant-aided, and from 1927 onwards payments from Colonial Office Votes covered the full amount of the Cypriot contribution.
    The next occurrence which bears upon the matter was the Treaty of Lausanne, in 1923. By that Treaty, Turkey was released from all the obligations in respect of the loan. This is, of course, not a matter for which I can take responsibility, but I felt that I
    564
    should mention it. The Egyptian liability was subsequently discharged by a capital payment under the Anglo-Egyptian financial agreement of 17th March, 1929, and the future arrangements for serving and ultimately redeeming the loan were, as the hon. Gentleman has said, announced by the then Chancellor of the Exchequer, my right hon. Friend the Member for Woodford (Sir W. Churchill), on 21st March, 1929.
    The hon. Gentleman has referred to the statement by my right hon. Friend the Member for Woodford. I think that all I need say is that these arrangements which were announced by him, whereby, in effect, the interest was paid and a sinking fund built up from Colonial Office Votes, continued until the granting of independence to Cyprus last year.
    The interest payment on 1st February this year was made from the Consolidated Fund under the terms of the original guarantee, but, in the absence at any statutory authority, no contribution was made to the sinking fund. That, of course, resulted from the grant of independence to Cyprus. This change in the status of Cyprus consequently had the effect of reducing by roughly two-thirds the Exchequer contribution to the servicing of the loan.
    It is, however, the intention of Her Majesty's Government finally to redeem the loan at the date which would have resulted from the arrangements which were set out in the statement of my right hon. Friend the Member for Woodford, and consequently to fulfil the undertaking which he gave on that occasion. Accordingly, it is proposed that six months' notice to redeem the loan should be giving on the first interest date when the sinking fund would have been full if the annual payments of £92,800 from the Colonial Office Votes via Cyprus had continued. Until the full redemption, interest payments will continue to be made from the Consolidated Fund under the guarantee. A once-and-for-all payment will be made from the Consolidated Fund at the time of the redemption to meet any deficiency in the sinking fund.
    There are only two other points which I should make; the first concerns the date at which final redemption may take place, and the second the cost to the

    565
    Exchequer. The exact date when the fund would have been full, and when, in fact, notice will be given, will depend on the future price of the stock held in the sinking fund, but, on the basis of the April prices, it could be expected to be 1st August next year.
    I am told that the price of the stock held in the sinking fund is now a little below what it was in April. That, of course may tend to defer the redemption date slightly, but it may easily turn the other way. Consequently, the date of notice coud be either earlier or later. But since it might be as early as 1st February next year, obviously the matter could not be left over until next year.
    As the hon. Member for Islington, East has said, in the proviso to subsection (1) it is stated that the sum to be issued out of the Consolidated Fund shall not exceed £200,000. The amount which will be necessary will depend upon the price of the stock held in the sinking fund. It may well be that the amount which is required will be much less than £200,000, but we thought that we had better take provision for up to that amount so that we would be able to honour the undertaking which was given by my right hon. Friend the Member for Woodford in 1929.
    What it amounts to is that a guarantee was given by Lord Palmerston in 1855; Turkey was released from her obligations by Lord Curzon in 1923; an undertaking for ultimate redemption was given by my right hon. Friend the Member for Woodford in 1929; the Cyprus aspect came to an end as a result of the agreement with Archbishop Makarios last year; this year, my right hon. and learned Friend is seeking powers finally to redeem the debt, probably next year.
    Mr. F. H. Hayman: I feel that we have had a lecture on the history of the British Empire and on certain outstanding people who have created it, such as Lord Palmerston and the right hon. Member for Woodford (Sir W. Churchill). Who owns this stock now? Is it the British Government? Will the £200,000 be paid back to the British Government out of the Consolidated Fund? What is the total amount paid out of the Colonial Vote, presumably to ourselves, during the period? We are entitled to something rather more than the vague phrase, "up to £200,000".
    10.15 p.m.
    Mr. Barber: Unfortunately, I cannot tell the hon. Gentleman who owns the stock. We think that it is owned in the main by United Kingdom residents, but this is a bearer security and, consequently, until the final redemption it is difficult to know who will get the benefit of this.
    As regards the amounts which have been paid on Colonial Office Votes via Cyprus to replace the tribute which was payable by Cyprus to Turkey originally, I can do no more than draw the attention of the hon. Gentleman to the figure which I gave of £92,800 a year, which is the figure which has been paid in recent years. I cannot, without notice, give the hon. Gentleman the total amount involved.
    I ask the Committee to bear in mind that the maximum amount involved in the powers which my right hon. and learned Friend is now seeking is £200,000. There is a very good chance that it will be considerably less than that and, after all, we are merely carrying out an undertaking given by my right hon. Friend the Member for Woodford.
    Mr. J. T. Price: Before we part with this fascinating topic and all the historical references which have been made to it, with large gaps in the story, may I put a more direct question to the hon. Gentleman? It is the sort of question which the Committee is entitled to ask when faced with a highly technical and devious undertaking of this character. Has the Treasury done its homework on this matter? There is some suggestion that it has not, because the hon. Gentleman failed to give a direct answer to the question asked by my hon. Friend. My question, with the greatest good will and courtesy, is how much has this transaction cost the British taxpayer since Lord Palmerston made his famous declaration? Surely the people who are doing the bookkeeping and making these historical researches can produce a simple set of figures in answer to that question?
    I know that it is getting late, and that hon. Members wish to depart. Nevertheless, this brings us up against what may be a minor aspect of colonial policy, but one which has considerable significance in the setting of our present state.

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    When this matter was raised by my hon. Friend, I knew that somewhere at the bottom of the woodpile there was the nigger of Cyprus, if I may use that word in its best sense and not in its derogatory sense.
    Obviously so long as we had sovereignty over Cyprus as security for our loans and disbursements year after year, nothing was done, but, once the sovereignty of Cyprus was conceded to Archbishop Makarios and the new Republic, something had to be done to clean up the untidy lines of this transaction. I therefore ask the Minister how much this transaction cost the British taxpayer on the current account, and what it cost going back over the years when we were holding the baby not only for our responsibility for contracts made with the Ottoman Government of those days, but on behalf of other Powers such as the late Egyptian Government and the French Government? It seems that in this world of international probity so many Powers walk out of their obligations and leave poor old John Bull to pay off the account at the end of the day. Having said that—and I hope that I have not been vindictive or malicious—perhaps the Minister will give us a better explanation.
    Mr. Diamond: I want to raise a serious point which concerns the question of probity to which my hon. Friend referred. I understand that a number of bearer bonds are being redeemed, presumably by notice. I understand that according to the terms of subsection (5), the Act which makes the Government guarantor ceases to have effect immediately after notice of redemption and that, therefore, the British Government will cease to be liable. The assurance that I am seeking is that any bearer bonds which are not presented for payment on the given date will be repaid if they are presented later. All my hon. Friends are with me on this, as ever. If one is making a one-sided renunciation of indebtedness one wants to be absolutely sure that no one is prejudiced as a result.
    Mr. Barber: I have made inquiries with regard to the point made by the
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    hon. Member for Westhoughton (Mr. J. T. Price) following up the remarks of the hon. Member for Islington, East (Mr. Fletcher) about the cost to the United Kingdom of this series of transactions so far, and I hope that, as the matter has been going on now for more than a century, they will be reasonably well satisfied if I inform the Committee that the sum is about £5 million. That is the nominal amount. I will look into the matter further, and if it is possible to provide more information without undue trouble to the officials I will write to the two hon. Members and let them have that information.
    Mr. Fletcher: Can the hon. Member satisfy the Committee that we have exhausted all our remedies against the French Government, as co-guarantor?
    Mr. Barber: I can only say that it is now many years since agreement was reached with the French, since which, under an arrangement made with them, they have made no contribution. They do not enter into the matter at all now. This is past history. I do not know why it happened, or under which Government it was, but I know that latterly they have made no contribution. We are now the sole guarantor. In accordance with the undertaking given it is for the United Kingdom Government to wind up this loan.
    I now turn to the other point—a very important one, which may affect individuals—made by the hon. Member for Gloucester (Mr. Diamond). The position is covered by subsection (2) which provides that subsections (2) to (10) of Section 5 of the 1955 Act shall apply to this loan as they apply to Government stock, and they deal with provisions for the treatment of unclaimed moneys due on Government stock. The answer to the hon. Member's question is, "Yes".
    Question put and agreed to.
    Clause ordered to stand part of the Bill.
    Clause 33 ordered to stand part of the Bill.

    New Clause.—(RELIEF FOR PERSONS OVER 65 WITH SMALL INCOMES.)
    In section thirteen of the Finance Act, 1957 (Relief for persons over sixty-five with small incomes) as amended by section fourteen of the Finance Act, 1958, for the references to two hundred and seventy-five pounds and four hundred and forty pounds (which refer to the income limits for exemption under those sections) there shall be substituted references to three hundred pounds and four hundred and eighty pounds respectively.—[Mr. Houghton.]
    Brought up, and read the First time.
    Mr. Houghton: I beg to move, That the Clause be read a Second time.
    The Deputy-Chairman (Major Sir William Anstruther-Gray): I think it will be convenient to discuss with this new Clause the two new Clauses "Relief for small incomes," and the following new Clauses, "Old age relief," "Relief for persons over 65 with small incomes," "Income limit for relief for small incomes," and "Income limit for old age relief."
    Mr. Houghton: Yes, Sir William. I very much regret that this important group of new Clauses falls to be discussed at this late hour, but I must ask the Committee to soldier on a little longer. Hon. Members on these benches attach great importance to these new Clauses.
    Of the first three new Clauses in this group, the first deals with relief for persons over 65 with small incomes, the second with relief for small incomes, and the third with old-age relief. The cost of conceding the reliefs proposed would be £3¼ million in a full year. I say that at the outset because I want to express my belief that the granting by the Chancellor of these concessions would still be within the general strategy of his Budget. The cost is small enough to leave intact the Chancellor's estimate of a surplus above the line of over £500 million for the present financial year. Because we believe that the concessions can be made without damage to the Chancellor's general budgetary strategy, and because we are convinced of the merits of these proposals, we shall certainly press them upon the Government in the event of an unsatisfactory reply.
    I think that it would be for the convenience of the Committee if I were to argue in detail on the first of these new Clauses and to make briefer references
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    to the other two, because if the Chancellor feels unable to concede the relief proposed in the first one it is very unlikely that he will feel able to concede the other two proposed reliefs.
    The first new Clause proposes to raise the limits for age exemption under Section 13 of the Finance Act, 1957. In its present form, the relief means that a single person aged 65 or over is exempt from Income Tax if his total income from all sources does not exceed £275 a year. If one of a married couple is over 65, both are exempt from Income Tax if their joint total income from all sources is not more than £440 a year. We propose that these limits should be increased, in the case of a single person, by £25 to £300 and, in the case of a married couple, by £40 to £480.
    Before going further, I want to explain that the new Clause makes no reference to marginal relief. The omission is intentional; it is merely to avoid complicating the drafting. It must not be taken as an oversight, or as an implied intention to leave the marginal relief as it is. Quite clearly, if the Chancellor accepted the Clause it would be necessary for the marginal relief to be adjusted to match.
    The case of lifting the amounts for age exemption is that a few weeks ago retirement pensions were increased by 7s. 6d. for a single person and by 12s. 6d. for a married couple. If the present age exemption limits are left as they are many people will have tax to pay, or more tax to pay, which will he a high proportion of the extra income they receive.
    Hon. Members on both sides of the Committee may have received letters from their constituents painting out what the pensions increase means to them in extra tax because the additional retirement pension will push them aver the age-exemption limit. I freely admit that the proposed increase of £25 in the case off the single person is somewhat above the increase in the retirement pension of £19 10s.; and that the proposed increase of £40 in the limit of income for a married couple is somewhat more than the retirement pensions increase of £32 10s. The figures proposed are convenient, round figures, but if the Chancellor would like to pare them down to

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    equate them with the pensions increase exactly, I do not think that we should complain.
    10.30 p.m.
    The age exemption was first introduced in 1957 when the limit for a single person was £250 and for a married couple £400. Then in 1958 there was a 10s. a week rise in the pension for a single person and a 15s. a week rise in the pension for a married couple, and it was then that the Chancellor of the Exchequer raised the age exemption limits to their present levels of £275 and £440 respectively. I mention that particularly because the pensions increase this year seems to us to give rise to a similar adjustment in the exemption limits.
    The next thing I want to make clear is that age exemption gives to old people an advantage over younger people on the same incomes. There can be no doubt about that. That has always been the case right from the beginning. The improvements that are proposed would make no difference to that principle. The change would be a matter of degree.
    To illustrate what the difference amounts to, a single person who is working begins to pay Income Tax after receiving £180 in the tax year, whereas a single person over 65 years of age pays no tax until his income is more than £275 a year. So the Committee will see what a substantial difference there is between the exemption limit far the younger person and the older person respectively. A married person who is working begins paying after £309, whereas a married couple one of whom is over 65 are exempt up to £440. There again the difference is quite apparent.
    But I do not think there is anything to be said against the extension of the reliefs that we propose, having regard to the fact that two things have happened since the present reliefs came into operation in 1958. First, in 1959 there was a reduction of 9d. in the standard rate of Income Tax and a corresponding reduction in the reduced rate of tax. These persons, being exempt from tax, got no benefit from reliefs given to other taxpayers. The second point is that, the pensions having been increased in 1961, there is need for this adjustment in order to avoid what I believe would be a degree of hardship. What we want
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    to do surely is to give these old people a higher living standard and we wish to alleviate any hardship which may be caused by too heavy a rate of tax on the marginal increase in income.
    There is what is known as marginal relief. This is to obviate the jump in tax which would otherwise occur, the moment a person went over the limit of £275 or £440, whether single or married. This marginal relief provides that the tax on incomes just over £275 and £440 respectively shall not exceed nine-twentieths of the amount of income over the limit. Marginal relief in this case does not take care of the hardship which is inevitable, and that is why we are proposing that the exemption limits should be lifted in order to put at least the amounts of pension increase beyond the reach of this increase in tax.
    I can give the Committee an example if it is still able to follow figures a little further. A man on £440 income exactly now, who is at present exempt, receives a pension increase of £32 10s. which gives him a total income of £472 10s. The tax on that which he will now have to pay will be £14 10s. Thus, instead of receiving £32 10s. extra income, he will receive after tax only £18 of the pension increase of £32 10s. That means that he will have only 7s. net benefit from a pension increase of 12s. 6d. a week.
    Mr. Dudley Williams rose—
    Mr. Houghton: I hope that the hon. Gentleman will allow me to continue my examples and then, if he wishes to, make his intervention. He is usually so mischievous that I am reluctant to give way at this stage.
    Mr. Dudley Williams: I do not want to be mischievous at all. Is not the argument on which the hon. Gentleman is concentrating the same as that used by the Scotsman who complained that, when the fares in Glasgow were reduced, he did not save so much money when he walked?
    Mr. Houghton: This confirms what I said a moment ago. I know that it can be argued that, if income goes up, then the person concerned can expect tax to go up with it. But I am dealing here with the specific question of the effect of the retirement pension increase on people with small incomes who are

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    bumping against the ceiling of age exemption. I ask the Committee to answer quite frankly this question: do hon. and right hon. Members wish people on this range of income to be deprived of such a substantial proportion of the pension increase which the House of Commons voted to them a few months ago?
    To put the example I have just given in another way, out of the increase in pension of 12s. 6d. a week, that person will pay 5s. 6d. a week in tax, and 5s. 6d. a week tax out of an increase in income of 12s. 6d. is a very high marginal rate. The comparable example in respect of a single person is that the net increase after tax will be 4s. out of the pension increase of 7s. 6d.
    I have a bundle of cases here of complaints from taxpayers who have written to their local tax officers to find out how they stood and who are appalled at the difference which Income Tax will make to the increase which they were longing for and toping to have the benefit of now that the pensions increase is payable.
    Do we want the old-age pensioners with these relatively small incomes to have the maximum benefit from pensions increases? That is the question. If we do, then we must lift the exemption limits to which I have referred. I think that the Committee will want old-age pensioners on small incomes to be in no worse position, relatively, than before. The extra pension in this range of total income was, or should have been, intended as a net gain in their not-too-high living standards, not to be made a kind of sitting duck for the tax collector.
    I stress that the age exemption of 1957 was designed as some protection against the full force of taxation for those who were too old to share in the benefits of higher earnings and rising standards. We should not take that shield away now. We should not allow it to be lowered, relatively, in face of the pensions increases which we have granted. I hope that the Financial Secretary will have something reassuring to say about this. As far as we are concerned, this is the key new Clause. It is here that we think the Committee should give some attention after having spent so long on reliefs in other directions, upon which I will say nothing more at the moment.
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    To conclude, I wish to refer briefly to the other two new Clauses, the first of which proposes and is entitled "Relief for small incomes". This, though not a relief for persons over 65, is a relief for persons, mostly widows and single women, living on small fixed incomes whose total income at the moment does not exceed £300 a year. They are allowed to treat investment income as earned income and to receive the two-ninths earned income relief on investment income. It is a very small concession and does not exempt them completely from tax. It gives them a slight benefit on their investment income.
    The third of this group of new Clauses proposes "Old age relief" which is usually an accompaniment of age exemption, though not necessarily so. This again relates to people over 65 years of age, and if their total income from all sources does not exceed £800 a year they are allowed to reckon investment income as earned income for the purpose of the two-ninths relief.
    That is the case for this group of new Clauses. I am sorry that the Chancellor is not present. It is always a bad sign when one is asking for anything if the Chancellor is not here. I believe it is traditional that if the Chancellor has anything to give away he does it himself. He leaves his assistants to turn everything down. However, I will not anticipate trouble in case there is not going to be any.
    I want to impress upon the Committee how strongly we feel about this group of new Clauses, especially the one on age exemption and the one on small incomes relief because they both relate to persons on the lowest of incomes. Those who get the benefits of age relief are able to have a somewhat better standard of living and still get earned income relief on investment income. I sincerely hope that the Committee will view these three new Clauses favourably.
    Dame Irene Ward: I am very glad indeed that the hon. Member for Sowerby (Mr. Houghton) started by talking about the very difficult position of those who have had the benefit of the retirement pension. I was very grateful for the concise and careful way in which he put his argument.

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    About a fortnight ago I addressed a Parliamentary Question to the Chancellor which, of course, was replied to by the Financial Secretary. I quite agree that perhaps my Question was not as accurately framed as it ought to have been because, of course, I have not the experience of the hon. Member for Sowerby. But I must say that I was stunned to receive a reply from the Financial Secretary, couched in the most extraordinary terms, saying that he did not understand what my Question meant at all. Therefore, I am waiting with extremely great interest for the answer that my hon. Friend is to give to the hon. Member for Sowerby.
    There is one other point, and I am sorry to have to say this to the Financial Secretary because I find him a very charming young man. I also received some letters and I sent them on to my hon. Friend. In my personal letter to him I particularly underlined that I wanted a quick reply because I wanted to use it as an example and read it out in the debate on these new Clauses. Needless to say, the Treasury takes such a long time about doing anything that I have had no reply. I have not even got my personal letters back. Therefore, I cannot make use of those very suitable letters in support of the argument advanced by the hon. Member for Sowerby. I think that I have been let down by the Treasury, so instead of going on my usual crusade about the charm of the Treasury I shall deliver my attack in quite a different tone.
    10.45 p.m.
    Sir E. Boyle: We have these love-hate situations practically every year on these occasions. But may I say to my hon. Friend that if she wants personal letters back and if she asks me for them, I will see that she gets them. That I promise.
    Dame Irene Ward: That is very kind, but the point is that my hon. Friend must have had the letters for at least a week and I think that I have a legitimate grievance. He knows perfectly well how deeply I feel on these matters. There are very good letters. My hon. Friend might have written to me to say that he was studying them so carefully that he had not had time to read them. [Interruption.]—or he could have let me have them back again.
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    I, too, regret the absence of the Chancellor of the Exchequer. I feel strongly on this matter, and I have taken a lot of trouble over the Chancellor. I try to be as quick on the uptake as possible, but I notice that when I go to the Treasury the Chancellor very charmingly asks whether I mind having my hon. Friend the Financial Secretary in the room when we are discussing the problems of these people on small fixed incomes and—
    The Temporary Chairman (Sir N. Hulbert): Order. I hope that the hon. Lady will now devote herself to the new Clause.
    Dame Irene Ward: I am going to direct myself to the new Clause. I have said a great deal about it and I have a lot of new Clauses to which to direct my attention. But surely I am entitled to repeat a conversation that I had with my right hon. and learned Friend. I think that I have every right to complain because the Chancellor is not present. The hon. Member for Sowerby was allowed to complain about that and I think it a great pity if someone from this side of the Committee cannot complain at the absence of the Chancellor. I feel it much more acutely than most hon. Members.
    When I went to discuss these questions with the Chancellor he always referred them to the Financial Secretary and he gave me the impression regarding the last Finance Bill—I presume that the same applies to this Bill—that all the recommendations to miss out the things I wanted to put in came from the Financial Secretary. The Chancellor has taken no part whatever even in looking at the problem. His absence tonight reveals that he has not looked at the problem. He is not interested in it. His absence also reveals to me that, after having given away all that wonderful amount to Surtax payers, he is not looking at this problem at all.
    I find myself more in agreement with the new Clauses relating to people living on small fixed incomes than with the proposals relating to people who pay Surtax. But that is the way the pattern goes, and it is the same when a Labour Government are in office.
    I want to make this point about the various Clauses with which I am associated, though the main argument, of

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    course, is on the Clause moved by the hon. Gentleman the Member for Sowerby and the related ones. I hope that the Financial Secretary will not refuse them in the usual kind of way, that is to say, get up and give us in great detail all the things which have been done—neither by the present Chancellor nor by himself, but by that Chancellor of the Exchequer who is now Minister of Aviation.
    He was the one who initiated this sort of Clause, this type of exemption, and I am never going to forget that he was the only Chancellor within my recollection to alter the taxation pattern in favour of those living on small fixed incomes. He did it directly. I went to see him. He listened to what I had to say. It was, of course, very exciting for me that the sort of position we are discussing tonight directly flowed from the representations which I and some friends of mine who were interested in this matter made.
    I want to spike the guns of the Financial Secretary by saying that Surtax payers have already had the pleasure of a reduced standard rate of Income Tax, and, therefore, there is no reason why my hon. Friend the Financial Secretary should get up and read out—as generally happens—all the things which have been done to help that section of the community. That has been his attitude and the atttiude of his Minister and the whole of the Treasury through the chief civil servant and everybody else down. They all say the same thing.
    Perhaps my hon. Friend will remember that we are faced with an entirely new situation with the Clauses put down—and at that I am delighted—I think for the first time, certainly almost for the first time, since I began these battles, by the chairman of the Conservative Party's finance committee. He and that committee are supporting me, or I am supporting them. I do not mind which it is. Those Clauses are a great step forward, and I cannot say how proud and glad I feel. That makes all the more reason why the Financial Secretary should accept some of the new Clauses—I do not mind which ones he chooses, but some of them—which will help the people in whom I have a very great interest.
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    That perhaps gets that out of the way and I want now to discuss what happened in the past and why I am concerned with the Clauses which have been put down by the chairman of the Conservative Party's finance committee who is now sitting beside me. I want to put this proposal.
    In the last General Election the Prime Minister made it perfectly plain that in his opinion the whole of the country—the whole of the country: we cannot eliminate the people living on small fixed incomes—was entitled to share in the general prosperity of the country. In other words, that wonderful phrase, "You have never had it so good," was an umbrella for everybody and not just for those who had got on, leaving outside in the wet those on small fixed incomes. I must say, devoted as I am to the Prime Minister, that I have been very disappointed that, any time we have raised the kind of suggestions which are embodied in the various new Clauses we are discussing tonight, the Prime Minister has tried to make out that his election pledge did not cover that section of the community.
    I find that very difficult to take indeed, because, whatever his pledge was with regard to retirement pensions mentioned by the hon. Gentleman the Member for Sowerby, candidates in the General Election certainly referred to the fact that all those living on small fixed incomes, not just those drawing retirement pensions, were to benefit under this all-embracing phrase that everybody was entitled to share in the general prosperity of the country. All I am saying—and I am not going to take any longer than absolutely necessary—is that a pledge is a pledge. Even if the Chancellor is not present I hope that he might think it a rather nice idea to allow his charming Financial Secretary, who is so soon to leave his present post, to give something away on possibly the last time that he will appear at the Dispatch Box as Financial Secretary.
    I am grateful to the hon. Member for Sowerby for quoting what he assumes would be the cost to the Exchequer of his new Clause, but the new Clauses tabled by my hon. Friends and myself are slightly better in their terms than the terms offered by the hon. Member. He seems in his new Clause to be more

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    concerned to maintain the status quo whereas our new Clauses are designed to improve the standards of those living on small fixed incomes and to give a "bump up" as well as to protect the position which so badly needs protecting. I hope, therefore, that my hon. Friend the Financial Secretary will bow to the blandishments on this side of the Committee and so do better than would be the case under the new Clause moved by the hon. Member for Sowerby.
    In any event, I hope that we shall have something. I cannot believe that the expenditure involved could possibly upset the structure of the Budget. I entirely agree with my right hon. and learned Friend's Budget in its main basis and theme. Nobody wants to upset the financial structure of the Budget and the Finance Bill but it is not fair, honourable or decent to leave in their present situation those people with whom I am concerned, many of whom may not live very long. Most of the Surtax payers will live until they receive their remission of tax. At lease I hope for their sakes that they will, but many of those who live on small incomes are not quite in that satisfactory position. Therefore it is all the more important that something should be done for them immediately.
    I wish I had greater words, greater powers of appeal and greater ability to argue the case which I feel so deeply and strongly. I hope that when the Financial Secretary replies he will not come back with those ancient arguments which I am so sick of hearing. If he does, then if I can think of any way of moving my hon. Friend from the Front Bench to this back bench I will do so with great pleasure. I hope that we shall have something on these Clauses. I will not say what I shall do but I feel so strongly about this matter that I cannot believe that the party which I have always supported with such pride and pleasure can be so mean and so frightfully uncharitable to these people who stood by the country in its great need.
    11.0 p.m.
    Miss Margaret Herbison: I am sure that the speech of the hon. Lady the Member for Tyne-mouth (Dame Irene Ward) has delighted all my hon. and right hon. Friends and
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    also quite a number of hon. Members opposite. The hon. Lady said that she will not tell the Committee what she will do, but I know her very well and if the Chancellor does not give way I shall be very surprised if I do not find her in the Lobby with us on the new Clause. I hope also that those who have added their names to the new Clauses on which she has been speaking will accompany us into the Lobby if the Chancellor does not give way.
    In 1957 we had the first action taken by a Chancellor of the Exchequer to help the people on small fixed incomes. That Chancellor, after resigning, is now an important Minister again in the Government. In April, 1957, he said:
    "But I am sufficiently impressed by the case of the old to feel that I should take some action this year."—[OFFICIAL REPORT, 9th April, 1957; Vol. 568, c. 996.]
    He took the action of allowing a single person with an income of £275 and a couple with an income of £400 to be completely free from Income Tax.
    My hon. Friend the Member for Sowerby (Mr. Houghton) showed how in 1958, because of an increase in the retirement pension, the then Chancellor further increased the limit for old people before they became liable for Income Tax. The then Chancellor, who is now in another place, said very clearly that the first two measures in the Income Tax field
    "will affect some older members of the community, who, I think we would all agree, are, in general, having the most difficult time today."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 63.]
    I do not think that there is a single hon. Member who could say that our old people are having any easier a time today than they were having in 1958, and if at that time the Tory Chancellor felt that they needed the kind of assistance that he proposed to give in respect of Income Tax, it seems strange to me that the present Chancellor does not realise that also.
    The hon. Lady made a very great complaint against the Minister for not letting her have back letters which constituents had sent her and she had sent on to the Chancellor. As far back as November one of my constituents wrote to me about this matter. He wrote when the first announcement was made that the Government were going to give an increase in retirement pensions. It may be that

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    that Scots constituent of mine was very clearly ahead of what might happen when the Chancellor made his Budget statement. I sent the letter to the Chancellor in November, and I got back a most sympathetic reply. In spite of what I might think about this Tory Government, I did not feel that even they would have such a great disregard for these old people on very small fixed incomes as it is evident from the Budget and the Finance Bill that they have had.
    In November I also put a Question to the Chancellor urging him to take into account the rise in the pension when he came to frame this Budget so that the limit could be increased for the old people. To that I got the answer which I expected—that, of course, that would be considered with other matters when the Chancellor came to frame his Budget.
    We are not asking for a great deal in these new Clauses. It is true that my hon. Friend the Member for Sowerby showed, as he usually does so carefully with his facts and figures, that the amount for which we are asking is perhaps greater than we need to ask for. But, like the hon. Lady opposite, we on this side want to see the standard of living of the old people raised if we can possibly raise it. I hope that the Chancellor will not say that he is willing to give further consideration to the matter but will meet only that part that the rise in pension would warrant.
    When I compare this miserable treatment of these old people with that given to the very wealthy, it makes me very angry, and its makes all decent thinking people in the country very angry that the Government can find £83 million for those earning over £2,000 a year and particularly for those with over £5,000 a year and yet cannot find £3¼ million to meet the needs of these old people. I do not believe that any Financial Secretary could possibly tell us tonight that the Chancellor is going to be adamant and do nothing further for these old people.
    These old people cannot contribute millions of pounds to the election fund coffers of the Tory Party as the big Surtax payers can. They expect to have on both sides of the House of Commons men and women who look on these matters in the way a Christian, civilised community should, believing that no one
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    should suffer as our old people are suffering today.
    I ask the Financial Secretary to realise that it is his duty to safeguard the interests of the old people and that £3¼ million is very little to ask for to bring some cheer and help to all of them.
    Mr. William Clark: I do not intend to repeat the arguments put forward on the new Clauses in respect of those over 65 and on small incomes or old-age relief. They have all been put in a very moderate speech by the hon. Member for Sowerby (Mr. Houghton). Also, I do not want to get into party politics or indulge in invidious comparisons in relation to this Budget or any other Budget.
    However, I hope that my hon. Friend will not put these older people in a position that their pension increase of £32 10s. will be partially taxed. If he cannot accept the various figures put forward in the new Clauses, it would at least be fair if he would accept an increase on the minimums of, say, £33. I hope that the additional increase in the old-age pension will not result in the old people being penalised by an addition to their taxation.
    Mr. Bruce Milan: I absolutely agree with what the hon. Member for Nottingham, South (Mr. W. Clark) has just said. It is rather a pity that this debate is taking place at this time of night, because this is an extremely important matter and I know that there is a good deal of feeling about it on both sides of the Committee.
    The whole question of the tax position of people with small fixed incomes requires consideration by the Government. It is absurd that, for example, the ordinary single man with an earned income should start to pay Income Tax on a wage of about £4 a week and the ordinary married man should start to pay Income Tax on a wage of about £6 a week. Those figures are absolutely absurd in present-day conditions and with present-day costs of living. When, as in this Budget, considerable sums of money are given away to very well-off people, as in the Surtax concessions, it is all the more appropriate that we should spend some time on this question of the people with small fixed incomes.
    The Financial Secretary may well argue that the reason why we have this

    583
    arrangement is that the personal allowance is fixed at a certain level and that everything else is fixed in relation to the personal allowance. That is true, of course. It is also true that any adjustments of the personal allowance, the ordinary single man's allowance, or the marriage allowance, or the allowances for children, cost considerable slims of money. When we have put down new Clauses or Amendments to increase the personal allowance, the invariable answer from the Government has been that it is an extremely costly operation and that that does not happen to be the year in which it is appropriate, or when the money is available. We have sometimes had to accept that, for these are expensive things to do and we cannot expect to get increases in the personal allowance one year after another.
    But if it is true that it is always difficult to make adjustments in the personal allowance because of the cost, it is none the less more true that that is an extra reason why we should pay attention to the people with small fixed incomes and should not allow their standard of taxation to be determined exclusively by reference to the personal allowance.
    That is what happens with the ordinary wage earner at present and that is why as a single man he starts to pay Income Tax at about £4 a week and as a married man at about £6 a week. It is because he is tied to the personal allowance level, which is absurd. We should look at this matter again and do something far better for the small wage earner.
    There is a considerable case this year for increasing the maximum age exemption limit, because of the increase in old-age pensions. I imagine that the Financial Secretary's argument may be that if one introduces the principle of giving age exemption, which makes an exception for elderly people from the general taxation arrangements, one must expect that in certain circumstances anomalies will arise.
    For example, there is the marginal rate of tax which is needed for the transitional income between the exemption limit and the income at which the ordinary rates of tax have to apply. Because of those transitional arrangements, there has to be a marginal rate, which in the case of age exemption is
    584
    nine-twentieths, or 9s. in the pound. It does not matter at which point the age exemption limit is fixed, for anybody who gets just above that level will have to pay tax at 9s. in the pound—[HON. MEMBERS: "7s. 9d."] No, it is not 7s. 9d., but 9s. in the pound, which is the marginal rate for age exemption. If hon. Members study page 33 of Cmnd. 1258 they will find the details given there. It is 9s. in the pound for the marginal rates for age exemption and that is a great disadvantage to the age exemption provisions.
    With this high marginal rate—it is not essential to have it high and there could be a much smaller transitional rate—the moment one gets over the limit one starts to pay 9s. in the pound until one gets on to the ordinary taxation arrangements. That is undoubtedly a disadvantage and will always be so while we have this age exemption limit. Surely, when millions of elderly people are involved, we can use the increase in old-age pensions as an argument for putting up the age exemption limit. If we are to have these marginal arrangements, and this large marginal rate of 9s. in the pound, surely that is a considerable argument in favour of the new Clauses that we are debating, and in particular the new Clause which deals with raising the age exemption limit.
    11.15 p.m.
    My hon. Friend the Member for Sowerby (Mr. Houghton), in a comprehensive treatment of this, mentioned the example of a married couple with an income of £440 who were paying no tax, but after an increase of 12s. 6d. in the old age pension, had to pay 5s. 6d. a week in Income Tax on that 12s. 6d. Amongst the letters of complaint which I received there was one exactly similar case. It was a text book case of someone who had an income of £440 from the old-age pension and from a superannuation pension. He received 12s. 6d. a week increase in the old-age pension, and then had to pay an extra 5s. 6d. in Income Tax.
    These people do not understand why they should be penalised in this way. If we are to have this age exemption—and I think that it is an excellent thing—we ought to accept the principle that every time old-age pensions go up there should be a corresponding adjustment in the age limit. That is what we are

    585
    asking for. That is what the hon. Member for Nottingham, South (Mr. W. Clark) asked for. I shall be disappointed if the Government do not accept this proposal.
    Sir E. Boyle: I share the regret of hon. Members on both sides of the Committee that we should have to discuss these important new Clauses and the important principle involved in them so late at night. I should also like to express the apology of my right hon. and learned Friend the Chancellor for the fact that he cannot be present for this debate. As I mentioned earlier this evening, he is not present because tonight is the occasion of the centenary dinner of the Public Accounts Committee, and both he and the right hon. Member for Huyton (Mr. H. Wilson) are attending the function. I was invited, but I have been kept here with other duties most of the evening.
    Mr. Houghton: Does the hon. Gentleman know whether the dinner is still going on?
    Sir E. Boyle: I am told by my hon. Friend the Economic Secretary that speeches are still in progress.
    I should also like to say how much I agree with one point made by the hon. Member for Glasgow, Craigton (Mr. Millan), that when we are considering the incidence and nature of our tax system we ought to pay attention not merely to the rate of taxation, but to the whole system of allowances. Much of what I have to say this evening will not be very acceptable to the Committee, but I assure the hon. Gentleman that if the Chancellor were present he would very much agree with the hon. Gentleman in the importance which he attaches to the whole system of tax allowances as a feature of our tax system.
    Before I consider the three proposed new Clauses in detail, I should like to make two general points. First, and I make this point despite what my hon. Friend the Member for Tynemouth (Dame Irene Ward) said, whatever criticisms can be made of the social service and fiscal policies of the Government, it simply is not true to say that they have neglected the special problems of elderly people living on small fixed incomes. It is worth remembering that the income limit for the age relief which we are discussing was £500 in 1951, and
    586
    it is £800 today. When we are considering age exemption, and whether or not the limit for age exemption should be raised, let us remember that there was no provision for age exemption at all in our tax system before my right hon. Friend the Minister of Aviation introduced it in 1957.
    As we are considering the tax needs of the elderly, I hope that I shall not be ruled out of order if I remind the Committee that we are today spending about 90 per cent. more on the social services than we were ten years ago. Many, though admittedly not all, the developments in our social services—and especially the developments in the hospital services—must have proved of direct benefit to elderly people with limited means,
    My second general point—and here I answer the hon. Member for Glasgow, Craigton and my hon. Friend the Member for Nottingham, South (Mr. W. Clark)—is that I cannot accept the argument that the personal reliefs which we are considering, age exemption, age relief, and small income relief, should automatically be revised because otherwise some people will pay more in direct taxation as a result of the recent increase in National Insurance retirement pensions.
    The whole concept of a progressive Income Tax is founded on using the size of a man's income as an indication of his relative ability to contribute to the needs of the Exchequer and the economy. I cannot see anything anomalous about a situation in which an increase of income leads to an increased tax liability, no matter whether the extra income comes from a pension increase or from some other source.
    The main justification for giving old people special tax reliefs is surely that, as a class, they are less able than other people to get a share in rising standards of living resulting from economic growth. The recent increase in National Insurance retirement pensions, in accordance with the pledge which the Conservative Party gave at the last General Election, was explicitly designed to give old people a share in rising standards. When my right hon. Friend the Minister of Pensions first announced the raising of the pension, he made it clear that practically the whole of that increase constituted

    587
    an increase in standards. So it is not unjust that those who are at the margin for tax reliefs should benefit less from special tax treatment as a result of the increase in their pensions.
    I now turn to consider in rather more detail the new Clauses, the first and most important of which—as I was glad to hear the hon. Member for Sowerby (Mr. Houghton) agree—would lift to £300 the exemption limit, which is now £275, for a single taxpayer aged 65 or over, and similarly lift to £480 the corresponding exemption limit, which is now £440, for a married couple at 65 or over. The new Clause in the names of my hon. Friends the Members for Preston, South (Mr. Green) and Eastleigh (Mr. D. Price)—(Relief for persons over 65 with small incomes)—is slightly more generous. Instead of £275 for a single taxpayer and £480 for a married couple, the figures would be £310 and £500 respectively.
    As the hon. Member for Sowerby admitted in his very moderate speech, the raising of the limit and the adoption of the new Clauses would cost about £3¼ million in a full year. According to my figures the cost of the first of the new Clauses alone would be £3¼ million in a full year—but I agree that that is the most costly of the three. Therefore, I do not want to argue about the details of the cost.
    On the ground of cost alone, my right hon. and learned Friend would have felt unable to accept the proposal. But I do not want to base my advice to the Committee on the merits of the Clause purely on grounds of cost; nor do I want to direct my arguments purely to technical considerations. The hon. Member for Sowerby made the quite correct point that the first of the new Clauses does not make provision for marginal relief, and therefore would be unsatisfactory as it stands. I was interested to hear the hon. Member instance the case of a married man who had been exempt on an income of exactly £440 before the pensions increase. During the Second Reading debate he said that when that income rose by £32 the man would have to pay 7s. a week tax. This afternoon he corrected that figure to 5s. 6d. According to my information the correct figure is 5s. 7½d. I make the point, as he raised it before.
    Mr. Houghton: I think that the hon. Member will agree that we can leave the 1½d. out. I am glad that he drew my attention to the other matter. I did intend to refer to the figures I gave in my Second Reading speech; I confused the amount of tax with the amount the man would have left after deduction of tax in respect of the retirement pensions increase. I apologise for that, but I have my figures right this time.
    Sir E. Boyle: The hon. Gentleman so rarely makes a technical error of any kind in his speeches, if I may say so, that I am sure that the Committee will accept that explanation in the spirit in which it was offered.
    Just as I would not wish tonight to take refuge purely on grounds of cost, neither would I wish to take refuge on purely technical grounds. I may tell the Committee that when my right hon. and learned Friend was framing his Budget he considered very seriously the possibility of increasing the age exemption limit but, for two reasons, came to the conclusion that the case was not sufficiently compelling to cause him to take action in a year when, as I have explained, economic considerations rule out any widespread remission of direct taxation—
    Mr. Diamond: How can the hon. Gentleman justify what he has just said when the Chancellor has given £83 million in relief to the Surtax payers?
    Sir E. Boyle: The hon. Gentleman knows perfectly well—and we cannot go over this again—that that does not apply to the current financial year.
    As I have already pointed out, the purpose of age exemption was to ease the position of old people living on quite small incomes which, because of their age, they could not increase by extra earnings. My right hon. and learned Friend thought that it would not in any way be inconsistent with this purpose if an increase of income carried with it a small increased tax liability.
    Secondly—and this is the point I want chiefly to commend to the Committee tonight; it bears very closely on what the hon. Member for Craigton said—we have always to remember that this special relief for old people does treat them more favourably than young

    589
    people with equal incomes who, nevertheless, may have just as many calls on their resources as the old.
    For instance, the present starting point of liability for an elderly married couple, £440, is actually higher than the point, £438, above which the younger married couple with a child under 11 begin to pay tax. Again, the starting point of a single person of 65 years or over—£275—is just about the same as that of the younger single person who maintains a dependent relative.
    Indeed, I noticed that among other hon. Gentlemen opposite, the hon. Member for Wallsend (Mr. McKay)—whose speeches are not always too easy to follow precisely—made the point, as I understood him, that similar exemptions should be given to those under 65. I would agree with the hon. Member for Wallsend to this extent, that I think that there is a strong case for not discriminating further in favour of old people in a year when my right hon. and learned Friend has found it impossible, for economic reasons, to give any general remissions of direct taxation or to make any changes otherwise in our system of tax allowances.
    I will be more brief in dealing with the two other new Clauses that we are now discussing. I confess that the case for raising from £300 to £325 the income limit for the small income person does not, frankly, seem to me particularly strong. I agree that the cost would not be great—about £½ million in a full year—and I recognise that this proposal would help some people who are badly off—for instance, single persons and widows under 65 who suffer ill health and have to live on a small investment income. But I must point out that it would only help those with incomes within the very narrow zone of £300–£325 and, to a lesser degree, those above £325 who have gained from the provision for marginal relief. People with incomes of £300 or below would get nothing out of it and, of course, married couples with incomes not exceeding £300 are already exempt.
    Secondly, we should remember that many of those whom it would help would not be old people, but young people in the early stages of their earning career who have, in addition to their earnings, a small amount of investment income.
    590
    I cannot see that they have any special claim to tax relief.
    One must also remember that the increase in the retirement pension, which clearly played an important part in inspiring hon. and right hon. Gentlemen opposite to put down the first new Clause, has really very little relevance to the present proposal. After all, the retirement pension ranks as earned income for tax purposes. At the age of 65 a taxpayer on a total income not exceeding £800 can claim the age relief, which gives the equivalent of the two-ninths earned income relief on any investment income included in that total.
    At the age of 65 small income relief ceases, in effect, to be relevant. The truth is that in the case of this relief it is its relationship to the basic personal allowances which is of primary importance. My right hon. Friend the present Home Secretary raised the income limit for the small income relief from £250 to £300 in 1955 because the married personal allowance was raised that year from £210 to £240. If the income limit had not gone up, it would only have been £10 above the basic married allowance.
    11.30 p.m.
    I suggest strongly, with regard to the second new Clause, that we should defer consideration of any further improvement of this particular relief until a future year when economic circumstances permit my right hon. and learned Friend to make some improvement in the basic personal allowances. Indeed, I will plead with right hon. and hon. Gentlemen opposite, and even with my hon. Friend the Member for Tynemouth—
    Dame Irene Ward: It is no good.
    Sir E. Boyle: —that they should not press this new Clause to a Division, whatever may be their decision on the first new Clause.
    Finally, I come to the third Opposition proposal, namely, that we should raise the income limit for age relief from £800 to £900. This proposal would cost about £1¾ million in a full year. I must say that I do not think that the case for raising this particular income limit is at all strong. In the first place, the income limit for age relief

    591
    has already been increased handsomely since the present Government took office in 1951.
    The limit had stood at £500 ever since it was first introduced in 1925, but in 1953 it was raised to £600, in 1957 to £700 and in 1958 to the present figure of £800. That is proportionately a considerably bigger increase than that made in any of the basic personal allowances since 1951. Against this background it would surely be hard to justify raising this income limit in a year when my right hon. and learned Friend has found himself unable to give any general tax reliefs.
    When one looks at the general effects of raising this income limit, the case that I have put seems to be strengthened. The maximum benefit would go to those with investment income only. The proposal would only help those with incomes in the £800 to £900 zone which include some elements of investment income, and to a lesser degree those above £900 who were able to benefit from the provisions for marginal relief. Old people with incomes of £800 and below would get nothing out of this third proposal at all.
    Of course, it is true that though the retirement pension ranks as earned income for tax purposes an increase in the rate of retirement pension may bring the pensioner with investment income in addition to his pension over the £800 limit for age relief, and so deprive him of the two-ninths relief on investment income which he previously enjoyed. But I must say that the argument which I advanced earlier—namely, that there is nothing in principle unreasonable about a situation in which an increase of income due to a pension increase leads to an increased tax liability—seems to apply with special force when we are considering not, as we were in the first new Clause, age exemption, but age relief.
    It is surely also worth remembering in this connection that the age relief was originally introduced by my right hon. Friend the Member for Woodford (Sir W. Churchill) in 1925 primarily to help elderly taxpayers who had been unable to qualify for a pension and were living in retirement with income from investments—investments built up over their whole working life, perhaps, as a provision
    592
    for old age. We can all take pleasure and pride in the fact that a far greater proportion of our population enjoy reasonable pension provisions today than was the case thirty-five years ago. But I do not believe we should be justified in reversing the ideas of 1925 almost diametrically in arguing that a pension increase was itself sufficient ground for raising the age relief income limit.
    I have replied to the debate at some length because these are, obviously, matters, especially the first new Clause—(Relief for persons over 65 with small incomes)—on which right hon. and hon. Members on both sides of the Committee will have strong feelings. As I said earlier, my right hon. and learned Friend considered carefully the point raised by the first new Clause, but he came to the conclusion that he would not be justified in accepting the principle of it, partly because of the general shape of this year's Budget and partly because of the importance of not putting one allowance out of line with other personal allowances.
    As to the other two new Clauses—(Relief for small incomes)—and—(Old age relief)—I am bound to say that the case there seems to me far weaker. I regret that I cannot recommend the Committee to accept any of these proposals.
    Mr. Mitchison: We shall, of course, divide the Committee on the first new Clause—(Relief for persons over 65 with small incomes)—as a token that, if time had permitted, we would have divided on each of the new Clauses we have discussed.
    A more callous, complacent collection of mandarins I have never seen than the Government opposite in their attitude to this matter. They are the people who say that economic circumstances do not permit them to make a concession of £3¼ million to the very people who will pay far more than that by way of increased charges for the Health Service. The old and the sick will be the ones who will pay.
    Just a short time ago, the Government gave away £1½ million to a collection of financial tycoons who could not find the right stamps to put on bills of exchange.

    593
    Now, we are told, economic circumstances, unfortunately, forbid them from giving this small amount of £3¼ million to those to whom they are giving with one hand and taking with the other. It cannot be done this year. It will be done
    next year, a bit nearer an election. We propose to divide the Committee.
    Question put, That the Clause be read a Second time:—
    The Committee divided: Ayes 92, Noes 154.

    Division No. 203.]

    AYES

    [11.37 p.m.

    Ainsley, William

    Hamilton, William (West Fife)

    Parkin, B. T.

    Albu, Austen

    Hannan, William

    Prentice, R. E.

    Allaun, Frank (Salford, E.)

    Hayman, F. H.

    Probert, Arthur

    Allen, Scholefield (Crewe)

    Henderson, Rt. Hn. Arthur (Rwly Regis)

    Rhodes, H.

    Bacon, Miss Alice

    Herbison, Miss Margaret

    Robertson, John (Paisley)

    Blyton, William

    Houghton, Douglas

    Ross, William

    Bowden, Herbert W. (Leics, S. W.)

    Howell, Denis (Small Heath)

    Small, William

    Bowen, Roderic (Cardigan)

    Hughes, Cledwyn (Anglesey)

    Spriggs, Leslie

    Boyden, James

    Hughes, Emrys (S. Ayrshire)

    Stewart, Michael (Fulham)

    Castle, Mrs. Barbara

    Hynd, John (Attercliffe)

    Stonehouse, John

    Cliffe, Michael

    Jay, Rt. Hon. Douglas

    Stones, William

    Craddock, George (Bradford, S.)

    Johnson, Carol (Lewisham, S.)

    Sylvester, George

    Crosland, Anthony

    Jones, Elwyn (West Ham, S.)

    Symonds, J. B.

    Davies, G. Elfed (Rhondda, E.)

    Kelley, Richard

    Taylor, Bernard (Mansfield)

    Davies, Harold (Leek)

    King, Dr. Horace

    Thompson, Dr. Alan (Dunfermline)

    Davies, Ifor (Gower)

    Lawson, George

    Thornton, Ernest

    Diamond, John

    Lewis, Arthur (West Ham, N.)

    Ungoed-Thomas, Sir Lynn

    Edelman, Maurice

    Loughlin, Charles

    Wairrwright, Edwin

    Evans, Albert

    Mabon, Dr. J. Dickson

    Ward, Dame Irene

    Fernyhough, E.

    McInnes, James

    Whitlock, William

    Finch, Harold

    McKay, John (Wallsend)

    Wigg, George

    Fitch, Alan

    MacMillan, Malcom (Western Isles)

    Wilcook, Group Capt. C. A. B.

    Foot, Dingle (Ipswich)

    Manuel, A. C.

    Wilkins, W. A.

    Fraser, Thomas (Hamilton)

    Mapp, Charles

    Williams, Ll. (Abertillery)

    Gaitskell, Rt. Hon. Hugh

    Marsh, Richard

    Williams, W. R. (Openshaw)

    Galpern, Sir Myer

    Mendelson, J. J.

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

    George, Lady Megan Lloyd (Crmrthn)

    Millan, Bruce

    Wilson, Rt. Hon. Harold (Huyton)

    Ginsburg, David

    Milne, Edward J.

    Winterbottom, R. E.

    Gourlay, Harry

    Mitchison, G. R.

    Greenwood, Anthony

    Noel-Baker, Francis (Swindon)

    TELLERS FOR THE AYES:

    Grey, Charles

    Oswald, Thomas

    Mr. Charles A. Howell and

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Owen, Will

    Dr. Broughton.

    NOES

    Agnew, Sir Peter

    du Cann, Edward

    Legge-Bourke, Sir Harry

    Aitken, W. T.

    Elliot, Capt. Walter (Carshalton)

    Lewis, Kenneth (Rutland)

    Allason, James

    Elliott, R. W. (Nwcstle-upon-Tyne, N.)

    Litchfield, Capt. John

    Atkins, Humphrey

    Emery, Peter

    Lloyd, Rt. Hon. Selwyn (Wirral)

    Barber, Anthony

    Fisher, Nigel

    Longbottom, Charles

    Barter, John

    Fraser, Ian (Plymouth, Sutton)

    Longden, Gilbert

    Batsford, Brian

    Freeth, Denzil

    Lucas-Tooth, Sir Hugh

    Berkeley, Humphry

    Gardner, Edward

    MacArthur, Ian

    Biggs-Davison, John

    Gibson-Watt, David

    McLaren, Martin

    Bingham, R. M.

    Glover, Sir Douglas

    McLaughlin, Mrs. Patricia

    Birch, Rt. Hon. Nigel

    Godber, J. B.

    Macmillan, Rt. Hn. Harold (Bromley)

    Bishop, F. P.

    Gower, Raymond

    Maddan, Martin

    Bossom, Clive

    Grant, Rt. Hon. William

    Markham, Major Sir Frank

    Boyle, Sir Edward

    Grant-Ferris, Wg Cdr. R.

    Marten, Neil

    Brown, Alan (Tottenham)

    Green, Alan

    Mathew, Robert (Honiton)

    Browne, Percy (Torrington)

    Gresham Cooke, R.

    Mawby, Ray

    Bryan, Paul

    Grosvenor, Lt.-Col R. G.

    Maxwell-Hyslop, R. J.

    Buck, Antony

    Gurden, Harold

    Mills, Stratton

    Bullard, Denys

    Hall, John (Wycombe)

    Montgomery, Fergus

    Campbell, Gordon (Moray & Nairn)

    Hamilton, Michael (Wellingborough)

    More, Jasper (Ludlow)

    Carr, Compton (Barons Court)

    Harris, Reader (Heston)

    Morgan, William

    Carr, Robert (Mitcham)

    Hastings, Stephen

    Nabarro, Gerald

    Channon, H. P. G.

    Heald, Rt. Hon. Sir Lionel

    Noble, Michael

    Chataway, Christopher

    Healey, Denis

    Nugent, Sir Richard

    Chichester-Clark, R.

    Hill, Mrs. Eveline (Wythenshawe)

    Oakshott, Sir Hendrie

    Clark, Henry (Antrim, N.)

    Hirst, Geoffrey

    Osborn, John (Hallam)

    Clark, William (Nottingham, S.)

    Hocking, Philip N.

    Page, John (Harrow, West)

    Cleaver, Leonard

    Hollingworth, John

    Page, Graham (Crosby)

    Cordeaux, Lt.-Col. J. K.

    Hopkins, Alan

    Pannell, Norman (Kirkdale)

    Corfield, F. V.

    Hornby, R. P.

    Pearson, Frank (Clitheroe)

    Coulson, J. M.

    Howard, Hon. G. R. (St. Ives)

    Peel, John

    Courtney, Cdr. Anthony

    Hughes-Young, Michael

    Percival, Ian

    Critchley, Julian

    Irvine, Bryant Godman (Rye)

    Pitt, Miss Edith

    Curran, Charles

    Johnson, Dr. Donald (Carlisle)

    Pott, Percivall

    Dalkeith, Earl of

    Johnson, Erie (Blackley)

    Price, David (Eastleigh)

    Deedes, W. F.

    Kershaw, Anthony

    Prior, J. M. L.

    Leavey, J. A.

    Proudfoot, Wilfred

    Pym, Francis

    Smithers, Peter

    Walder, David

    Quennell, Miss J. M.

    Storey, Sir Samuel

    Walker, Peter

    Ramsden, James

    Sumner, Donald (Orpington)

    Wall, Patrick

    Rawlinson, Peter

    Talbot, John E.

    Webster, David

    Redmayne, Rt. Hon. Martin

    Taylor, Edwin (Bolton, E.)

    Wilson, Geoffrey (Truro)

    Rees, Hugh

    Thornton-Kemsley, Sir Colin

    Wise, A. R.

    Ridley, Hon. Nicholas

    Tiley, Arthur (Bradford, W.)

    Wolrige-Gordon, Patrick

    Roberts, Sir Peter (Heeley)

    Turner, Colin

    Wood, Rt. Hon. Richard

    Roots, William

    Turton, Rt. Hon. R. H.

    Woodhouse, C. M.

    Ropner, Col. Sir Leonard

    Tweedsmuir, Lady

    Woodnutt, Mark

    Shaw, M.

    van Straubenzee, W. R.

    Woollam, John

    Shepherd, William

    Vane, W. M. F.

    Worsley, Marcus

    Simon, Rt. Hon. Sir Jocelyn

    Vaughan-Morgan, Sir John

    Yates, William (The Wrekin)

    Skeet, T. H. H.

    Vickers, Miss Joan

    Smith, Dudley (Br'ntf'rd & Chiswick)

    Wakefield, Edward (Derbyshire, W.)

    TELLERS FOR THE NOES:

    Wakefield, Sir Wavell (St. M'lebone)

    Mr. Finlay and Mr. Whitelaw.

    11.45 p.m.
    Mr. Selwyn Lloyd: I beg to move,
    That the Chairman do report Progress and ask leave to sit again.
    I will not pretend to you, Sir Gordon, that I am exactly satisfied with the progress that we have made either yesterday or today. Nevertheless, one has to bear in mind the feeling of the Committee, which I have been ascertaining. I think that it would be the wish of hon. Members that you should report Progress and ask leave to sit again. I hope that when we resume consideration of the Bill we may make rather more speedy progress than we have made tonight. I therefore move the Motion on that understanding.
    Mr. Mitchison: I support the Motion, but I can assure the right hon. and learned Gentleman that most of the time of the Committee, during his absence, has been taken up by his hon. Friends.
    Mr. Lloyd: May I inform the hon. and learned Member for Kettering (Mr. Mitchison) that during my absence most of my time has been taken up by his right hon. Friend the Member for Huyton (Mr. H. Wilson).
    Question put and agreed to.
    Committee report Progress; to sit again Tomorrow.

  COMMON MARKET
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. E. Wakefield.]
  11.47 p.m.
  Mr. Harold Davies: I apologise for raising the issue of the Common Market once again at this late hour, but to Britain this is probably one of the most important questions with which we
  596
  shall be confronted in this generation. When I first heard it bruited in the House by the Prime Minister I said that I believed it to be of such vital importance to the British people that the electorate should have the opportunity to decide on the question at a General Election. The matter was never discussed during the last General Election campaign. No party put forward a policy. Therefore, I deprecate the possibility of any final decision being made in this Parliament before a General Election.
  A few months ago, when writing a pamphlet, I took the trouble to refer to the question of the Six and the Seven. I said that there was no real unity of purpose in Europe, and that we should like to see such unity. I said:
  "Germany, growing strong, pushed Dr. Schacht's plan for an economic union of Germany with Western European countries. Germany was to be the industrial centre ex-changing machinery and heavy equipment for food and consumer goods. First there was the Schumann Steel and Coal Plan for the Six Countries—West Germany, France, Belgium, Luxembourg, the Netherlands and Italy."
  Then, for the same Six, we saw that the development of the European atomic energy group, Euratom, and, with a lot of organisations in between, they developed this idea of the Common Market.
  What is forgotten is the British Government found their alternative plan for a Free Trade Area for 17 countries of Western Europe turned down. If a plan for the 17 countries was turned down, how, logically, can the Board of Trade or the Foreign Office maintain that the plan for the Six will be better than the plan for the 17? That alone should make people who have not studied this problem suspicious that the grander plan for 17 nations was turned down. And yet, suddenly we find high officials in the Foreign Office and in other Ministries suggesting that our destiny will

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  depend upon our joining the Six. That is complete bunkum.
  When Dr. Adenauer visited Washington—this was some time ago—the then President openly supported the Hallstein plan. I cannot define the meaning of all these phrases, because I have not the time, but the House is well informed. He urged the speeding up of the Common Market. Our Prime Minister then indicated, when he visited the President at the end of March, 1960, that this exclusiveness would increase economic difficulty in Europe and injure free trade. Nevertheless, the United States of America went on supporting the Hallstein plan and Western Germany.
  Now the suggestion is that this seems to be good for Britain. I wish that I had time tonight to quote the Treasury Bulletin for Industry, published in May, 1958, and to give the mass of statistics which show the economic competition between just Western Germany and Britain, but I cannot, because I want to come to the part which the Foreign Office has played in this matter.
  We were told glibly then that if Germany had to rearm she would not be so competitive. We were told that as far back as 16th April, 1948, when 16 nations of Western Europe signed the convention for which there were eulogies in the House of Commons. My party was in power then. I was one of the critics on my side of the House. The Organisation for European Economic Co-operation—O.E.E.C., now O.E.C.D.—was set up. It was to be chiefly for inter-governmental consultation and concerted action It was to bring a new picture in the economy of Western Europe. But they have all tottered; they have all been shattered.
  Now, suddenly, sometimes on both sides of the House, in the trains, in the "pubs", and in the market places, people are saying that we ought to go into the Common Market. For those mass media of propaganda, radio and television, very few people are "signed on" who really have a point of view to put is dynamically opposed to these things. There are half-baked debates which, three parts of the time, hope to pitch Britain into the Common Market.
  Some people say, "A man like yourself, supposed to have a Left-wing point of view"—whatever that means—"where do you stand?" People made
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  fun of my right hon. Friend when he said that he supported the unity of the Commonwealth, but in old Socialist opinion it was not so much Socialist theory to have only a Commonwealth under Britain, but ultimately a Socialist commonwealth in the world. But we have always had in our concepts in the Labour Party that the English-speaking peoples of the old Empire should build up the Commonwealth. That was part of Lord Attlee's act as Prime Minister in giving India freedom, without making the mistakes of France in Indo-China and of the Dutch in Indonesia. To be fair, it must be said that, in the main, that policy was supported by the Conservative Party.
  Now there is the Common Market. What is the Common Market? How does it differ from a Customs union, and why was it that the Lord Privy Seal's argument in the House on 17th May showed that in the main, he had made up his mind in support of the Common Market? If any hon. Member wants to be fully informed, he cannot even obtain a copy of the Treaty of Rome. There are only five copies of the Treaty in the Library. I had to obtain a French copy. Fortunately, I could hammer along with that. I understand that there are 200 copies to come from the Stationery Office. A miserable amount is spent by the House on research for hon. Members and the Estimates Committee talks of cutting even that sum.
  The House of Commons gets less and less information from more and more people who try to bewilder it. We should have copies of the Treaty of Rome and full opportunities for discussion so that debate can be constructive and real. Even if it is contradictory it will be at least an honest effort to arrive at the truth, not getting there by suggestion.
  We know that United Kingdom trade with the sterling area is declining. We hold now only about 29 per cent. of the market where, pre-war, we had 35 per cent. What the Common Market will do for us is suggested in the United Nations Report on the Economy of Europe. I ask hon. Members to take it from me that that Report suggested that if we have an organisation on the lines of the Common Market as now conceived there will be a few huge

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  oligopolies—and oligopolies were talked about in American economics in 1939. An oligopoly is bigger in a way than the old concept of a monopoly. There will be six or seven in Europe dominating completely European life from Greece to the Welsh counties and the mountains of Scotland. The Common Market will be a bonanza for capitalism more intense than any we have seen in our lifetime. The richer areas, says the United Nations Report, will tend to become richer and there will be a tendency for the poorer areas to become poorer.
  There should be only one Common Market in Europe and one viability. As I suggested in a speech this week, that would mean bringing in Poland, Hungary, and Southern and Eastern Europe irrespective of politics. But the Foreign Office is more concerned with the cold war, and Britain will play second string in steel and coal production and in the agricultural industry. People talk about Socialist planning. That will have as much chance as the proverbial snowball in hell.
  Europe is not only divided between the Six and the Seven, but also between East and West. English men and women, whatever their politics, should be trying to remove that division in Europe and trying to bring Europeans together instead of adding to the division by supporting this so-called Common Market. As far as the Foreign Office is concerned, the Common Market will make the solution of the German question almost impossible. I should like hon. Members to note the mysterious Article 227 (4) of the Treaty of Rome which says that
  "The provisions of this Treaty shall apply to European territories for whose external relations a Member State is responsible."
  To what can that apply?
  Dr. Adenauer spoke on the television from Hamburg this week about his Polish ambitions and about Eastern Germany. Does the House remember that there is no Customs union between East and West Germany, so that East Germany is not in the Common Market? What attitude will Adenauer take towards East Germany? There were 350 West Germans at the Leipzig Fair. Thirty-five per cent. of West Germany's trade is with the Soviet bloc, yet we are told not to trade with the Soviet bloc.
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  This is a piece of subterfuge to expand the policies of the cold war. The Common Market is the fruit of big business and a Labour Government would have no power to plan as it now stands. A Conservative Party pamphlet of two or three years ago almost acknowledged that.
  The United Nations Economic Commission revealed some of these facts about the acceleration and the over-industrialisation and centralisation which would result from the Common Market in its Annual Survey, 1956. The strategic weakness of Europe would be increased and would be absolutely appalling, because there would be about six main industrial centres which would be the bulls'-eyes for atomic attack, which we would not be able to resist.
  In 1959, the United States Under-Secretary of State, Mr. Douglas Dillon, was in London, Brussels, Bonn and Paris between 7th and 14th December, running around the European cities. It reminded me of some of the questions I asked during the Geneva Conference in 1954, when Mr. Dulles was running round every capital in Europe trying to undermine the work of the then Prime Minister, Sir Anthony Eden, at the Geneva Conference. It is revealed in Sir Anthony Eden's book, "Full Circle", what a struggle he had because of the attitude of the Americans and Mr. Dulles at Geneva to get some kind of peace in Asia. What was Mr. Dillon doing here? He was a "commercial traveller" to push through the Common Market because the dollar was in danger.
  The Times, on 1st December, 1960, carried a report that the United States Government suggested the co-operation of 18 nations with Canada. The last time I was in Canada intense activity was taking place to drag Canada into the American net. If we go into the Common Market, Canada is bang into the American net. This week, New Zealand has said that if the Common Market comes, she will be forced to trade with the Soviet bloc and that there will be much greater trade with China.
  The Pacific Charter and the five Pacific pacts which were to be a wonderful defence of the free world will collapse because of the economic strife which will arise as a result of Britain pushing out the Commonwealth of Nations and

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  no longer contributing to the building up of a force in the world which would have profound political common sense and be a great force for peace.
  This idea of a Common Market is old-fashioned. In the crucial revolution of awakening expectations which is now on the anvil of history being hammered out in Asia, Latin America and Africa, the markets of those areas—what is the matter with the Conservative Party?—will grow in double geometric progression in the next twenty-five years, because those people will demand a higher standard of life. Here we are quibbling about a market which is in Europe when, with our trade and "know-how", there are these possibilities. We are quibbling about the European market while two-thirds of the world is waiting for our technology, our machinery and our goods.
  By 1970, 50 per cent. or more of the industrial output of the world will be in the Soviet bloc. The places which will follow will be the positive neutralist States like India, the Colombo Powers, Africa and Latin-America, and yet we are to go into this arid and unimaginative plan—they only pretend that it is imaginative—of the Common Market at this juncture in European affairs. Why do we not use the United Nations, the Economic Commission for Asia, and other bodies that we have set up?
  In 1960, our then Foreign Secretary, at a meeting of Western European Union, reiterated his offer to build a closer link towards a Common Market. On 27th September, 1960, the Lord Privy Seal was then against the signing of the Treaty of Rome. He said that to the Council of Europe, but he said that he would investigate the matter. In November, 1960, the Prime Minister met the Prime Minister of Italy and agreed to official talks on how to bridge the so-called division of Europe. We could not make the 16 work in O.E.E.C.
  Why do we pretend that the Six are dynamic and new? The hand of America, more than anything else, is pushing Britain into the Six. We had to get the permission of France, and in January, 1960, the Prime Minister was in Paris for talks with General de Gaulle. He is a "tough nut". As the Observer reported on 22nd January, 1961:
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  "This is the first round towards a Common Market."
  Adenauer has met de Gaulle six times, and all the time we are finding that Britain is being edged into a position in which ten years' hence her voice in world affairs will be less powerful than that of Switzerland because she will not be able to hope for Commonwealth co-operation at the United Nations or elsewhere. This would be a step backwards and the great English people will lose what I consider to be their rightful influence on world affairs at the United Nations.
  I do not accuse the Board of Trade. I accuse the Foreign Office for not having the courage to develop a British policy which would work towards a better understanding between all concerned, rather than a policy which is dominated, not by the American people—they are as peaceful as we are; I know them—but by the military elite and by people who are blinded by the great movement which is taking place in Asia and Africa at the present time.
  12.7 a.m.
  The Joint Under-Secretary of State for Foreign Affairs (Mr. J. B. Godber): I am grateful to the hon. Member for Leek (Mr. Harold Davies) for raising this extremely important topic on the Adjournment. I am also grateful to him for his usual courtesy in letting me know in advance some of the points that he intended to mention. I am sure that he would be the first to agree that this is far too big a subject to try to develop adequately during this half-hour debate, particularly in the few minutes left to me now. However, I will seek to make one or two comments on the points he raised.
  I have listened with care to the points which the hon. Member developed, and it seems to me that his whole case is not so much against Britain's joining the Common Market as against there being a Common Market at all, which is a very different thing.
  Before I answer some of his points, I should make it clear that our position remains as the Prime Minister set it out in the House only yesterday, that no decision has been taken by the Government on this matter. We are still engaged in discussions, including a number of discussions with the Six. We are now to have further discussions with

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  members of the Commonwealth. My right hon. Friend the Lord Privy Seal has been engaged all along in discussions with the Six and with our E.F.T.A. colleagues and is keeping them fully in the picture. It is very important that we should do that.
  Many views have been, and still are being, put forward in relation to Britain's position with regard to the Common Market. The one point on which everyone is agreed—and it is the only one on which there is complete unanimity—is that this is a major decision which must have far-reaching effects, whatever the final decision may be.
  That being so, I suggest that no one should complain—indeed, the hon. Gentleman has not complained—if the Government consider every aspect of it with the greatest care before coming to a decision. There have been those who have suggested that it is just a matter of going in. It is not. It is a very big issue.
  The hon. Gentleman argued that we could not go in. He advanced his argument on both political and economic grounds, though I think that his greatest emphasise was on the political aspect. I suggest that this is something of a minority view, even among those opposed to Britain's seeking to take this step. There are those who oppose our entry because they fear we should not be able to make satisfactory arrangements with the Commonwealth; others feel the same way about our own agriculture, and others are anxious about our position in relation to E.F.T.A.
  On all those we must make satisfactory arrangements if we contemplate membership. Others are afraid of the derogation of sovereignty. I do not under-rate that feeling for a moment; I agree that it is a very important feeling, but I sometimes wish that those who say that would read the Treaty of Rome. If they had, they would see that the derogation of sovereignty is not nearly so great as is sometimes imagined.
  The opposition of the hon. Member, however, is even more fundamental than on the four counts to which I have referred. His opposition is to the whole concept of the Common Market, whether or not Britain is in it. His remarks
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  about Germany would seem to apply to the Common Market as it is, just as much as it would be if we were in it. That being so, I say that we must be realists. The Common Market is there whether the hon. Member likes it or not, and I suggest that it is better—if it is there—that Britain should be in it to seek to guide it in the way in which people in this country would wish.
  If the hon. Member's fears are genuine, there is a great deal to be said—the Common Market having been set up, and looking at the situation purely from his point of view—for this country's taking part. If, in the dim future, we have a Labour Government again, that Government might be able to influence policies in the way the hon. Member would wish. My own view is that, there being a Common Market, we must consider the situation on that basis, and it was on that basis that the hon. Member seemed to rest a great deal of his argument. He said that the Common Market was a disruptive influence in Europe. I do not agree with that view, but even on that argument, if we were in, we might be able to help rather than hinder developments in the way he wants.
  The settlement of the German question is a very large issue, but I would have thought that in the present situation, with West Germany absorbed economically within the Common Market, if there were to be a reunification of Germany—for which we all hope—there would be nothing to inhibit the enlarged Germany taking its place within the comity of the free nations of Europe. But as at this moment, with East Germany still cut off and unable to have free elections, there is obviously no possibility of that. I followed his point with interest when he said that there was no Customs barrier, and, therefore, East Germany might be brought in.
  The hon. Member referred to Article 227 (4) of the Rome Treaty, which says:
  "The provisions of this Treaty shall apply to European territories for whose external relations a Member State is responsible."
  It clearly does not mean that West Germany is responsible for East Germany, having regard to their external relations at present.
  The precise purpose for which this provision was put in, I should imagine—

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  and this is speculation—is to cover small States whose external relations are the responsibility of the States embracing them, such as Monaco, for which France accepts responsibility for external relations, San Marino, within Italy and—if we went in—Gibraltar.
  I think that it is meant purely to cover that type of case, and not the wider aspects to which the hon. Gentleman referred. The hon. Member raised an interesting point, but not one that would apply to those particular States. I am grateful to him for drawing it to my attention, because I agree that it could lead to misunderstanding.
  I would have liked to have made an hour's speech on this subject, because there is so much to be said on the whole aspect of the Common Market. We shall, however, be coming back to it, because I understand that one of his hon. Friends has been fortunate in the Ballot. As a result, we shall be able to debate it a little longer on another occasion. It is very right that hon. Members should debate the subject fully, just as it should be fully debated in the country. The Government will continue their efforts to get clear the basis on which it would be possible to join, and in those circumstances we would, of course, want to take the House and the country fully into our confidence. At present, as the Prime Minister has clearly stated, we are not in a position to do that, and that creates difficulties.
  I would ask the hon. Member and the House to realise that this is such a tremendously big subject that the one thing
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  we should not do is to think in terms of the immediate future. We have to think of what the position will be in relation to this country, and in relation to Europe and the Commonwealth as a whole, in twenty-five years'—possibly fifty years'—time. I am absolutely certain that, while every one of us is at least as determined as is the right hon. Member for Easington (Mr. Shinwell) to safeguard the position of our Commonwealth, this country is of little value to the Commonwealth if it is economically weak. We have to strengthen our position. We must look with the utmost care at the long-term situation, at the future of Britain, at the future of our workers, and of the Commonwealth as a whole. All these matters we have to consider with the very greatest care.
  If we can get proper safeguards under the three headings I have mentioned, we have to look very carefully at the possibility of this closer association to see whether it is not in the long-term interests that I have suggested. I am sorry that I have not had time to go into greater detail but have merely had a few minutes to deal sketchily with the subject. I look forward to debating again with the hon. Gentleman on another occasion.
  The Question having been proposed after Ten o'clock on Wednesday evening and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at seventeen minutes past Twelve o'clock.