BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 12 April 1962 vol 657 cc1511-631

3.41 p.m.

Mr. Douglas Houghton (Sowerby)

We are coming to the end of the debate on the Budget Resolutions, but before I make further remarks on the Budget I should like to congratulate the hon. Member for Manchester, Moss Side (Mr. F. Taylor) and my hon. Friend the Member for Pontefract (Mr. Harper) on two excellent maiden speeches. My hon. Friend gave us a racey account of a lock-out at Featherstone in 1893, which, a statue in the Central Lobby tells me, was the year in which Gladstone died. My hon. Friend also referred to the position of old-age pensioners and those on National Assistance, which is a matter very near to the hearts of my right hon. and hon. Friends in this debate.

Mr. J. Grimond (Orkney and Shetland)

The Liberal Party has many difficulties to put up with, but killing off Mr. Gladstone five years too early is one of those which we ought to dispel.

Mr. Houghton

I am obliged to the right hon. Gentleman. I must have misread the date.

I was saying that the position of retirement pensioners, the widowed, and the sick is something that we must keep very much in our minds in debates on taxation. By contrast, the Chancellor's speech on Monday left us all flat and uninspired, including, I think, Members opposite. [HON. MEMBERS: "No."] I noticed no great enthusiasm or inspiration when the right hon. and learned Gentleman sat down. I am sure that Members opposite felt, as we did, that this was not the tonic and bracer the nation needs.

We are still to have the curb on home demand. Restraint on personal incomes is reaffirmed. We are not, it seems, out of the wood, and the Chancellor is still looking for a footpath with the aid of his guiding light. He has now appointed the National Economic Development Council to help him find the way. This Budget has very little to do with the economy of the country and a lot to do with taxation. For that reason, I propose to deal mainly with the fiscal provisions and aspects of the Budget, and I shall also make some reference to what I believe to be the politics of the matter.

To begin with, I strongly deprecate the thoroughly bad practice of making forward promises of substantial tax reliefs and of changes in the tax system. They are equally undesirable whether they are promises of favours to come or threats of wrath to come. The motives behind what the Chancellor did last year, and is doing again this year, are open to question.

Last year, the Finance Act contained reliefs for Surtax payers for this year. He need not have done that last year. He could have done it this year. But twelve months ago he put a charge of over £80 million on his estimated revenue for 1962–63. This was a forward charge on the Revenue, made without regard to the possible conditions in which his promise to Surtax payers would have to be redeemed. This year's Budget cannot, therefore, be fully or properly judged unless we realise that £80 million of tax reliefs to the Surtax payers is just as much part of it as if the Chancellor had announced them along with the tax on toffee last Monday.

Scarcely was the ink dry on last year's Finance Act when the right hon. and learned Gentleman introduced his "little Budget". He then increased indirect taxation on a wide range of things we all need. Increases of prices made it harder for pensioners, the widowed, the sick and the disabled. He imposed a strict pay pause on millions of public employees, and urged private employers to do the same. In the public sector, he put the arbitration tribunals in chains.

When we on these benches demanded that he should reconsider and repeal the Surtax concessions, as being entirely out of keeping with the worsened economic situation and the sacrifices that he was asking the country to make, the right hon. and learned Gentleman refused. His excuse was, first, that the Surtax payers would get no relief until the 1st January, 1963, and, secondly, that he badly needed this incentive to extra effort and initiative from Britain's top men to pull our country round.

We have not seen any signs of that. Anyone in touch with trade unions and industrial relations knows well that what he did last April appeared even more outrageous last July, and added greatly to the resentment that the workers had towards the pay pause. So far. I believe that the country has lost more from the ill-will of millions of workers of all kinds than it has gained from the incentives that he has given to their bosses. At any rate, the Surtax reliefs were set out in last year's Budget, but we must now relate them to this year's Budget, to which they truly belong.

What do these reliefs look like now in the context of the present situation? Not a single penny of Surtax relief has yet been given. It will be operative from 1st January next year, and we still have eight months to go. Would the right hon. and learned Gentleman have included these Surtax concessions in his Budget statement last Monday? Could he conceivably have done so? Would he have risked wrecking his incomes policy completely by doing so? Yet this year he must make room for a drop in revenue of over £80 million for Surtax reliefs. Allowing for the increased tax on higher incomes, the net fall in Surtax yield for the coming year will be £36 million—which is just about the amount to be raised by the new tax on sweets and soft drinks. But for the Surtax concessions made in last year's Budget this new tax would not have been necessary. It is just about as simple as that.

Now I turn to another forward promise, or threat—depending on the point of view from which one looks at it—made last year. This was made not in April, but in July. The Chancellor promised to bring forward measures for the taxation of certain short-term speculative profits and to bring them within the scope of the existing system of taxation. The Committee will remember that in April last year he demurred, but that by July he made a firm promise.

The Chancellor also went as far as to say that there was a prospect of introducing special legislation in advance of the Budget and of the Finance Bill this year. Why did he say this last July? Why did he hold out hope of special legislation to introduce a new tax in advance of the Budget this year? It was because he wanted to smooth the way for the pay pause. He also began to talk planning—so one can see how bad things were. I think that perhaps what dissuaded him from bringing special legislation before the House was that he was afraid of the meal which the House would make of the mouse. Anyhow, we are to get it in the Finance Bill now.

In the meantime, there has been a period of uncertainty, guesswork, gossip and forecasts about this new tax. All that would have been quite unnecessary had the Chancellor held his peace, and, when he decided to do a thing, said that he was going to do it, instead of announcing it six or eight months in advance. The truth about the so-called capital gains tax is that within three months of what was acclaimed as a good Tory Budget last year the Chancellor was looking for an alibi for the Surtax reliefs, and this so-called capital gains tax was it.

This year we have another forward promise—that of Schedule A tax on owner-occupiers which the Chancellor says will go—but whether all at once, or by instalments, he cannot say. At least, he is holding himself free to decide whether to do it in one go or by instalments according to the state of affairs next year. But why has the Chancellor considered it necessary to make a statement now? The reasons he gave are, to my mind, quite unconvincing. Owner-occupiers already know, or could be assured, that there is no statutory or automatic link between rating assessments and Schedule A assessments. That was made plain enough in 1956, when most rating assessments went up somewhat, whereas Schedule A assessments stayed where they were.

Clearly, the future of this tax has to be reconsidered before long, though I think that it should still be borne in mind that any change in Schedule A tax or in the level of assessments requires the express and specific sanction of this House. Until the House decides what change there should be, Schedule A goes on as it has and the assessments stay as they are. They cannot be raised without a revaluation. There has not been a revaluation for twenty-five years, and there cannot be one now unless the House says so.

In my view, there is really no need for the Chancellor to make any forward promise except to say that he would not in any case raise the Schedule A assessments to the level of the new rating assessments on owner-occupiers and that, therefore, they need not fear that the new rating assessments would be reflected in the Schedule A values. I do not want to prejudice the merits of this matter at all—we shall be debating them on the Finance Bill this year, or certainly next year—but I think that, however desirable it is to wind up the Schedule A tax, it is undesirable to make a forward promise, a forward commitment and a forward charge upon the Revenue and upon the resources that the Chancellor has at his disposal a year earlier than he need have done. We should see the shape of the Budget for 1963 as a whole and at the time before making promises of this kind.

I notice, in passing, that no forward promises are made to the old-age pensioners. If we ask what the Government are going to do in this respect, they say that it would be very wicked indeed to hold out false hopes, or that it would be improper to announce improvements in advance lest the parlous position of retirement pensioners should lead them to press for an earlier operation of the promise made. They just sit and wait, but very important sections of the taxpayers can be told a year in advance what is coming their way. Of course, the news about Schedule A is welcome to those concerned, and we can rejoice in it because we have already sought some relief for owner-occupiers but up to now have been voted down. We shall be able to discuss the merits of this matter, as I say, very shortly.

I would, however, remind the Chancellor of the Exchequer that last year he had a thought for tenants, and that, I think, is something which is bound to come into our minds when dealing with redistribution of taxation. The Chancellor, deploying the arguments for and against, said: We have 6½million owner-occupiers and 9 million tenants. If this concession were made, there would be a strong demand for a rent allowance. There is quite a strong view, honestly held, that if this concession were made it would be difficult to hold out against such an allowance. For me, in my unpleasant position as controller of the public purse, a rent allowance would mean over £100 million"— of revenue of itself, and we should have to add on the other cost on Schedule A, which would bring the total up to about £150 million. I must keep that sobering consideration in mind."—[OFFICIAL REPORT, 20th June, 1961; Vol. 642, c. 1353.] Is that no longer a consideration? I am sure that the 9 million tenants will want to know.

The facts are that the demand that we have heard for the abolition of Schedule A tax has become louder and louder as the victims of house purchase have found themselves in the jaws of the property sharks and have had to contend with high interest rates. This is a plea for relief from the burdens of house purchase in present circumstances where land values are exorbitant, building costs are high, mortgages are difficult to get and the rate of interest upon them is 6½ per cent.

House purchasers share hardship with tenants. Tenants are being fleeced as well. In 1957, the Government opened the doors of many homes in Britain to let in the rapacious landlord. Owner-occupiers, I am sure, will not wish to take tax reliefs which mean imposing additional burdens on people less well off than themselves. I think that all of us who are owner-occupiers feel that we enjoy peace of mind which is the envy of the harassed tenant in a decontrolled house on a short lease and in the hands of an exacting landlord.

I now turn to another feature of the Budget which, I think, also calls for attention. I refer to economic regulators. Last year, the Chancellor introduced two economic regulators. One proved so unpopular that he has never used it and is now proposing to drop it. The other he did use—that of the surcharge imposing additional taxation over a wide range of goods and services What he proposes now is, first, to allow last year's surcharge regulator to lapse; secondly, to impose additional taxation over much the same field by much the same amount; and then, having wiped the slate clean, to ask for another regulator, the same as last year's, to start all over again.

This is surely an abuse of the whole idea and purpose of these regulators. They were intended to give the Chancellor the economic weapons to combat excessive pressure on home demand to meet an emergency. They were not intended as a sly method of increasing taxation by the back door and for good. What the Chancellor is doing will, I think, bring discredit upon this useful and novel device.

Emergency taxation should be seen to come off, just as clearly as it is seen to go on. It would have been preferable to have continued the regulator for a further period and not get it mixed up with sundry manipulations and extensions of indirect taxation of this kind. But the Chancellor is in a hurry to pave the way to the introduction of a sales tax. He is undoubtedly moving away from the principles and structure of the Purchase Tax which, he complains, distinguishes arbitrarily and probably unjustifiably, in his view, between one class of articles and another.

I am sure that the Chancellor has in mind to move quite definitely towards an extension of the field of indirect taxation and a flattening out of the rates of taxation. Many things now free of tax are likely to come into the field of taxation if the Chancellor's plans are what I think they are. That is a matter which will need very careful consideration. On the whole, we on these benches are against indirect and regressive taxation as a means of raising a disproportionate amount of revenue. We know all the objections to direct taxation and all the arguments about disincentives, but there is nothing which we have which is as fair and as accepted as progressive direct taxation as a means of fitting the burden to the shoulders which have to bear it.

We were very pleased to see that the Chancellor has introduced a proposal to give a lift to the limit for age exemptions and for small income relief, but why did not the Chancellor do this last year, when we asked him to do it? We brought to his attention last year the emergency which had arisen for many people because a rise in retirement benefits had pushed them over the limit for age relief with the consequence that the marginal rate of taxation was excessive for the small increase which they had got. We gave him examples in a long debate which took place on this matter in June of last year, but he refused to do anything. We are very glad to see it done now.

I want to pass to business expenses, on which the Chancellor said something both last year and this year. He seems now to be relying on a new form which has been introduced to give him a great deal of additional information which he wants about the nature and the amount of perquisites of various kinds before making up his mind whether further legislation is necessary.

I am sure that many hon. Members opposite, if not on this side of the Committee, have seen this form, and I agree that it is quite searching. It wants to know whether the directors go fishing and shooting on the firm, whether they have their teeth attended to on the firm—I do not know why they are not in the National Health Service—whether they have their house repainted on the firm, whether they get goods on the cheap on the firm.

I have no doubt that the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) would cut it out. I know that nothing annoys him more than a discussion on business expenses. I do not know whether he enjoys the benefit of them, or whether he does not think that we should spend time on this matter, but there is no doubt that a good deal of information which this form will bring in will interest the Chancellor.

Probably hon. Members opposite saw a very amusing article recently in the Statist, written by John Allan May. It was called "Getting even with Potter". This is the Chancellor's way of trying to get even with Potter. Potter rides to work in the firm's car. He has lunch in the directors' flat. He dances the night away at the Savoy on behalf of the firm and the country, and, finally, he goes home to rest in a house which is already paid for. Watson, on the other hand, has to pay for equivalent amenities out of his own income, so that in the game of life Potter starts with a handicap of plus £1,500 a year. That is the contrast between those who are able to get the advantage of these perquisites and those who are not. I hope that the Chancellor's vigilance on this matter means that he will tackle it later. I hope that the Chancellor will have the courage to tax the perquisites of business firms.

Mr. Edward du Cann (Taunton)

Have the hon. Member's researches led him to read the subsequent article in last week's Statist which indicated that the amusing article from which he has quoted in the earlier week gave a somewhat exaggerated picture?

Mr. Houghton

I have it here, and I shall refer to it in a moment.

What I have constantly said on this question is that a mere tightening up of administration will not be enough. What is needed is a tightening up of the law. Some things have to come out of tax relief all together. Some drastic remedies are suggested in the later edition of the Statist, of 6th April. First, there is an article by George Schwartz, entitled "Blitz on Expense Accounts—Et cetera! Et cetera! "This is largely because the form, after asking detailed questions for four pages, leaves a nice space at the back for et cetera, et cetera.

Here are a few suggestions for drastic remedies. "Wycliffe", writing an article, "The Case against Perquisites ", in this issue, says: I would define a special class of 'expense which would never be a permissible charge against profits for income tax or profits tax purposes. The Revenue would be allowed no discretion. I would call this special class of expense 'perquisite' which would mean roughly 'any benefit provided for any individual or class of individuals which could be used or enjoyed by that individual or a member of that class of individuals when not engaged in his office, employment, trade, profession or vocation'. He goes on to say that not only would he disallow expenses on these items as a deductible item from the taxable profits of the firm, but he would assess the money value of these perquisites at standard rate of tax upon the beneficiaries. He would get it both ways. He would disallow it from the firms and tax the recipient. I have never gone as far as that.

Mr. Victor Goodhew (St. Albans)

No doubt the hon. Member has read the remaining part of that article which says that if this is to happen the rates of Surtax must be adjusted so that members of the public can retain sufficient of their income to be able to pay for these things themselves.

Mr. Houghton

What is the hon. Member talking about? Was he not here when I described the £80 million relief which they will get next January? Was he not here last year when we discussed this matter of Surtax reliefs and some of us said that probably now company directors and other Surtax payers would be able to afford their own meals?

Mr. Goodhewrose—

Mr. Houghton

I do not think that the hon. Member has anything to say which would be useful in assisting me in my remarks.

I have not gone as far as this contributor in saying that we should disallow the expense of the firm and assess the money value on the recipient. What I have said is that this range of expenses should be disallowed as a deduction from taxable profits. This matter is as important as ever. This is where all the visible signs of luxury are, and there is no doubt, in a society with a free Press and a widely-read Press, and with long social, gossipy columns telling the workers how the rich live, about the psychological effect of this display of luxury on the great masses of people who have to go to work in the morning and come home at night for an average wage.

Viscount Hinchingbrooke (Dorset, South)

Bunk

Mr. Houghton

The noble Lord will keep on revealing what is in his own mind. It is no good his sitting there saying "Bunk" when anyone who knows how the ordinary folk think about these matters realises what an important effect they have. If he had to deal with angry trade unionists who feel that there is no reason that they should have a pay pause when the expense racket goes on unabated, he would realise that this is an important matter.

Mr. David Price (Eastleigh)

Would the hon. Member assist us by telling the Committee in which profession this practice happens most? Some of us who try to earn our livings outside the House have no personal experience of all these perquisites which apparently are to be had. I should like his advice. My experience is that this happens mostly in the field of entertainment, and not in industry or business, but I hope that he can tell us exactly where I should be able to go—or where any other hon. Member could go—to be able to dance all night and sleep all day at the expense of my company.

Mr. Houghton

It would be of interest to ask the Chancellor in due course to give us a summary of the information that he gets on these forms.

I leave these thoughts with the right hon. and learned Gentleman and impress upon him that on this side of the Committee, at all events, we are not disposed to let the matter rest at the mere issue of this form. He is being very slow about this. Last year, he made a reference which hinted that he was prepared to consider legislation if necessary. Now he says that he must see what comes out on the form. Undoubtedly, further delay will occur.

I now pass to tax avoidance. I do not like bringing up these controversial matters on a nice, pleasant afternoon, but they go to the root of many attitudes in the Chancellor's Budget statement and his taxation policy. Now, apparently, we must again do our annual penance for past errors of omission and have some more complicated Clauses on tax avoidance. I see the Chief Secretary to the Treasury in his place. Probably he has almost forgotten how long ago it was when, as Financial Secretary to the Treasury, he said that the days of this breed of dividend strippers were over. They are dead, but they will not lie down. They crop up every year and we have had to deal with tax avoidance provisions in every Finance Bill since.

What a miserable story it all is, of boasts of having vanquished dividend stripping, threats to the dividend strippers, warning of retrospective legislation, proposals for retrospective legislation, the withdrawal of proposals for retrospective legislation and Clauses in Finance Bills as long as a wet week. But here we are again.

The Government are sadly to blame on this matter. The Chancellor is acclaimed for his courage in certain matters. Here is a field in which he could take much bolder steps to stop the robber barons getting at the national Exchequer.

Sir Alexander Spearman (Scarborough and Whitby)

I know that the Member is a much-respected authority on these matters. Has he made any estimate of the amount of tax which is evaded by part-time work for which no return is made?

Mr. Houghton

There may be quite a lot, and I deplore it, but one can excuse people for wanting to make a little bit "on the side" when they see so many people making a great deal "on the side". After all, they cannot fiddle about with property transactions. They cannot have a gamble on the Stock Exchange. All they can get is a little earned income that they may omit to put under Pay-As-You-Earn. The whole morale of taxation has been lowered by the malpractices and abuses to which we are constantly drawing attention in the House of Commons. There is no doubt that this will have to be tightened up and an astringent applied to our taxation system before the general tone of taxpayers will be raised.

Now I come to capital gains, which is a disappointment to my right hon. and hon. Friends, although we never believed that the Chancellor would go further than he said he would. Here again, it would have been better to have said nothing and to have brought it in without a lot of tittle-tattle about it for eight months and a good deal of uncertainty and dither about the Chancellor's intentions.

What surprises me is the manifest injustice of the arbitrary time limits of six months for Stock Exchange profits and three years for land. This is quite contrary to the principle of graduation, for which we provide escalator clauses of different types. A tapering arrangement would be appropriate so that a taxpayer did not go from the full tax to no tax at all between Monday night and Tuesday morning. If the Chancellor is distinguishing between short-term and long-term profits, a complete cut-off at six months and three years, respectively, is obviously open to objection. When speculation ends and investment begins is scarcely a matter to be decided by drawing a single line. Speculation can be recognised in its obvious form, but what is called a "lock-up" is speculation, too.

We on these benches see no reason to distinguish in principle between long-term and short-term capital gains. Nor, it seems, did the Board of Inland Revenue, in its lengthy and interesting paper to the Radcliffe Commission a few years ago. This does not mean that we should tax short-term and long-term capital gains at the same rates irrespective of the length of period of accrual. Just as speculation tapers off into investment with the passage of time, so the incidence of the tax could take account of that. The Chancellor's proposals, however, are quite inadequate in this respect since they distinguish sharply between short term and long term and make a very big difference taxwise between the two.

It seems to me that there is nothing here to reassure the public that those adding to their wealth by capital transactions or profitable investment will pay a proper share of taxation like those who are adding to their income, although not their wealth, by work, skill, initiative and enterprise. What has happened, for example, to the hope held out by the Home Secretary, when Chancellor of the Exchequer, years ago that the earned income relief of two-ninths could be raised some time to one-quarter? These are matters which are forgotten. We could be getting from capital gains enough revenue to give reliefs of that kind.

What the public want to know is whether the large and many small operators in the field of take-over bids and capital transactions are paying tax on what are plainly the profits of their trade. I deplore the secrecy that overhangs this whole field of taxation. The public has not the faintest idea, and not even experts have any real idea, of who pays and who does not in this field of capital transactions and speculative activities of one kind or another.

So long as the Chancellor is reticent about these matters, the country remains in ignorance of what is going on. Fortunes are being made; there is no secret about that. How can we blame people for regarding Income Tax and Surtax "fiddles" as fair game when there is such an enormous tax-free reward to come from activities of the kind that we are describing?

The Evening Standard of 10th April said: The new opportunities. … As one door shuts, another opens. Accountants, who in recent years have made a comfortable living from the entirely legitimate business of tax avoidance "— that is what we have come to, "the entirely legitimate business of tax avoidance "— were today studying the Budget to find the profitable loopholes in the Chancellor's latest proposals.…The speculative gains tax, not surprisingly, is the centre of attention and here accountants are delighted with the apparent impossibility of keeping its administration watertight. Is the hon. Member for Brighouse and Spenborough (Mr. Shaw) delighted, or does he contract out of this delight?

Mr. John Diamond (Gloucester)

Would my hon. Friend allow me to interrupt him, as he has talked in his fourth successive speech on these occasions about accountants? Would he accept it from me that all accountants do not share this view, and that they take the view that this is such a do-it-yourself avoidance device that no accountant at all need be consulted?

Mr. Houghton

I am very much Obliged to my hon. Friend. I have immediate confirmation of what he has just said, because this writer says: In a sense, of course, the six months' limit makes it a purely voluntary tax. To avoid it, you only need wait six months and a day before selling. I agree that one need not pay five guineas to an accountant to be told about this so-called capital gains tax.

This writer goes on to say: But the eager speculator will probably want even more freedom of movement. Two courses which are not strictly legal, but which, because of the great difficulty of checking on them, will undoubtely be used are to get a friend with a lower tax rate to operate for you in future or to work through a bank in the Channel Islands. Smart people are beginning to make fun of the Chancellor's proposals already, and a little later they will make business out of them, but we shall be debating all this on the Finance Bill and we shall want to get very much closer to how the thing is to work, what loopholes there are likely to be, and whether this will be a tax or a farce, and whether the Chancellor can find any justification for proceeding with a manifestly inadequate tax reform.

To conclude, we do not really expect that this will be the Chancellor's last Budget. It is probably next to the last. Already, the forecasters are predicting a bumper Budget next year. They, of course, know the form. They know, just as we all do, that Conservative Budgets are just as much part of their political strategy as they always have been. The Chancellor, however, is feeling somewhat virtuous just now, and he will probably deny this, because in a recent television interview, on Monday of this week, he was asked some questions by Mr. Robin Day, and one referred to the suggestion that the Chancellor had made some promises in this Budget which could be turned to electoral advantage. The right hon. and learned Gentleman said: I think there is one very sound rule for Chancellors of the Exchequer. They should not pay any attention to by-elections or to the morale of political parties. They should do what they think is right, and that is what I have done. The Chancellor would have us believe that his strength is as the strength of ten because his heart is pure. Still he cannot escape from the fact that he is part of the Tory conspiracy to get power and keep it.

How simple does the Chancellor think people are? Let us look at the facts and the coincidences: April, 1955, 6d. off the Income Tax; May, 1955, General Election; October, 1955, a second Budget to claw back the April tax reliefs, but not to put the 6d. back on the Income Tax —no, to put extra taxes on pots and pans.

Viscount Hinchingbrooke

Is that all?

Mr. Houghton

No, it is not all. The noble Lord knows that this is only the beginning of the indictment.

April, 1959, 9d. off the Income Tax; October, 1959, General Election. Summer of 1960, crisis, emergency, balance of payments, sterling; so we had the credit squeeze, hire-purchase restrictions, and so forth to save the £—and the then Chancellor of the Exchequer and two Treasury Ministers resigned because the Government would not save it hard enough.

Mr. Græme Finlay (Vice-Chamberlain of Her Majesty's Household)

Which year?

Mr. Houghton

April—[HON. MEMBERS: "Which year?"] The crisis lasted twelve months and they resigned at the end of it. [HON. MEMBERS: "Who resigned?"] April—[HON. MEMBERS: "Who resigned?"] Is anyone denying that the right hon. Gentleman the Minister of Aviation did resign? [HON. MEMBERS: "1958."] Well, there have been so many crises that I have not kept track of them. In April, 1961, we had an £80 million tax relief for about 500,000 people, people with money to give away and they will get the benefit on 1st January, 1963.

We can see it coming now, 1963: the tide will have turned and the sun will be rising over the Wirral. Tory freedom will be working again even though the Chancellor has to turn the handle. The National Economic Development Council will be trundled around as the Government's white hope in the field of international competition. We shall hear that Conservative planning works. We shall be told that it works despite the fact that the National Economic Development Council is composed mainly of people on both sides of industry whose advice the Chancellor has persistently ignored for the past ten years.

Now, apparently, the Chancellor is ready to listen to them, unless he is to do most of the talking. But what may appear to be a real thing to some viewers is merely the studio set of a party political broadcast on behalf of the Conservative Party. It is a make-believe, and the country is tired of it. The Government have become a bore, a deadbeat. They are yawning their way through, and the by-elections show that they are shuffling along on borrowed time. A man of the Chancellor's integrity ought to realise that the hour has now come to hand in his checks, and go.

4.27 p.m.

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

The Committee has now heard seven speeches from the two Front Benches, and there are to be two more this evening. I have not sat on the Treasury Bench so long as to be oblivious of what is in the minds of many hon. Member's on the back benches on both sides of the Committee who are still hopeful of catching the eye of the Chair, so I shall do my best to be relatively short.

We have just listened to a typical, rollicking speech of the hon. Gentleman the Member for Sowerby (Mr. Houghton), as always, agreeable, good humoured, and hard hitting. I shall do my best, in the course of what I have to say, to answer some of the points he has made. I think that it would be convenient if I dealt at the outset with two questions which he raised.

The hon. Gentleman deprecated the giving of advance notice of changes in taxation. I am sure that, as a general rule, the hon. Gentleman is right, but there have, of course, been exceptions before, which were thought to be justifiable. I mention only one, and that was in, I think, the autumn of 1945, when the late Lord Dalton announced what the rates of Income Tax and Surtax were to be for the following financial year.

The hon. Gentleman talked a good deal about Surtax. Well, we have been over this ground before, but on the question whether or not my right hon. and learned Friend was justified in announcing the Surtax changes when he did I would only point out to the hon. Gentleman, what he must know from his own experience, that the Surtax concessions related to statutory income for the year 1961–62, that is to say, to wages and salaries in the year 1961–62 and earlier Schedule D earned income. It was, I submit, therefore quite proper to deal with the changes at the beginning of that financial year. The hon. Member, when talking about the burden on the Exchequer this year as a result of the changes in Surtax last year, omitted, somewhat significantly, to refer to the increase in Profits Tax.

The second point that the hon. Member raised was the way in which my right hon. and learned Friend has dealt with the Customs and Excise surcharge regulator. He complained that my right hon. and learned Friend had allowed the surcharge to lapse and had now consolidated part of it. He thought that this was an abuse and would bring discredit on the regulator. It was, quite genuinely, precisely because my right hon. and learned Friend did not want to abuse the regulator that he proceeded as he has done. [Laughter.] Hon. and right hon. Members opposite may laugh, but how much easier it would have been for him to let the surcharge run on to the end of August and then, if he thought it necessary in the circumstances, then to apply the regulator again under new powers. But my right hon. and learned Friend considered that the proper way to proceed was to bring the whole matter before the Committee at this stage.

To turn to Schedule A, I will deal with the one point which was seriously raised by the hon. Member, and that is whether my right hon. and learned Friend is right to make the announcement at this time. The hon. Member is perfectly correct, in law, in saying that there is no statutory link between valuation for rating and valuation for Schedule A, but we should face the realities. It is now known that the new rating values will be between three and four times the existing rating values, and if no announcement of the Government's intention had been made there would have been a fear on the part of owner-occupiers that the new rating values would be adopted as the basis of future Schedule A assessments. This would have certainly led to more appeals against rating assessments than are to be expected on rating grounds alone. Therefore, I think that once my right hon. and learned Friend had decided in principle what he proposed to do about Schedule A he was absolutely right to inform the Committee and the country.

I think that the hon. Member for Sowerby would agree that a constructive appraisal of any Budget must proceed along two lines.

Mr. G. R. Mitchison (Kettering)

Would the hon. Gentleman comment on what his right hon. and learned Friend said some time ago and what my hon. Friend the Member for Sowerby (Mr. Houghton) said today about rent allowances? What are the Government's views on that subject?

Mr. Barber

No, Sir. My right hon. and learned Friend has already said that this is a matter for legislation next year. He has explained what he proposes to do in principle and that is a matter of considerable significance for any owner-occupier who is considering appealing against the new rating valuations. I think, therefore, that it would be most unwise at this stage, before this matter can be considered in detail in the context of legislation, for me to deal with that at all and I do not propose to do so.

Mr. Mitchison

Schedule A allowances are in exactly the same position. They must be the subject of legislation. They have been mentioned and a promise, or quasi-promise. has been given. What about rent allowances?

Mr. Barber

The hon. and learned Member asks, "What about rent allowances?" I have already explained that the question of valuation for Schedule A purposes will have to be considered for legislation next year, and at this stage I do not propose to go any further than my right hon. and learned Friend has gone.

As I have said, I am sure that the hon. Member for Sowerby will agree that a constructive appraisal of any Budget must proceed along two lines. First, there is the aspect dealt with in the last speech made in the debate yesterday by my hon. Friend the Member for Eastleigh (Mr. D. Price), that is to say, consideration of the general effect of the proposals on the economy, including, of course, the likely consequences for the balance of payments. Secondly, there is consideration individually of the particular proposals which in the aggregate make up the Budget. I want to proceed in this way.

First, on the general effect of my right hon. and learned Friend's proposals, I do not want to speak at length, because my hon. Friend the Financial Secretary to the Treasury yesterday dealt fairly fully with the economic background to the Budget. We start from the assumption that in the coming year there will be a substantial increase in home demand, that total investment will rise and that personal spending will rise. Despite these facts, which were made known by my right hon. and learned Friend in his Budget speech, quite a number of hon. Members opposite, in their speeches, have taken the view that there are compelling reasons for a Budget designed to stimulate an even greater increase in home demand than is in any event expected.

This argument is based on the fact, which the right hon. Member for Batter-sea, North (Mr. Jay) pointed out yesterday, that in some industries there is at present a certain amount of unused capacity. I agree that that is a fact, but I do not think that we should exaggerate the extent of this reserve of productive power. The overall level of unemployment is only 2 per cent., and it is the supply of labour, particularly of skilled labour, that is the limiting factor in our productive resources.

My hon. Friend the Member for Halifax (Mr. Maurice Macmillan) yesterday gave the Committee some telling facts about the reasons for the economic growth of Germany and France, and he pointed, in particular, to the considerable reservoir of agricultural labour in those two countries. My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) also referred to economic growth in Common Market countries. Perhaps I can refer briefly to a third E.E.C. country—Italy. Four years ago, in 1958, the level of unemployment there was 9 per cent. By last year the Italians had reduced it to 6½ per cent., and the result has been that their economic growth has been faster over those years than has ours. Indeed, it would have been quite astonishing if it had been otherwise.

I ask the Committee to think what an increase in production we could have had in this country if we had moved from a level of unemployment of, say, 4 per cent. or 5 per cent. to the present 2 per cent. It is one of our achievements, under both Labour and Conservative Governments ever since the end of the war, that, despite all our difficulties, the overall level of unemployment has been kept so low. I have said already that in the coming year we expect a substantial increase in home demand. To press for an even greater increase than is expected seems to be dangerous in the extreme, because it ignores one essential factor—the balance of payments.

All that has happened since the end of the war surely proves that the higher the demand at home becomes the greater the increase in imports. And in a free enterprise economy, a higher level of home demand in relation to the resources available is bound to dull the incentive to export—to put it no higher than that.

Hon. Members opposite, particularly on the Front Bench, quite rightly urge the Government to plan ahead. But for a country like ours one of the essential factors of forward planning is the trend in world trade, and it is basic to the purpose of this Budget that the prospects for world trade are good and that, in consequence, in the next year or so there is an opportunity for a substantial increase in British exports.

If this opportunity is grasped—and that is a matter primarily for industry and not for the Government—the increase in overseas trade, combined with the expected increase in home demand, will put quite as much pressure on our productive resources as the economy can stand, consistently with our remaining competitive. In these circumstances, it would have been the height of irresponsibility not to ensure that there was room in the economy for British industry to respond to that opportunity.

All of us, on both sides of the Committee, want economic growth. But I must say that, listening to the speeches which have come from the Opposition during the last three days, it seems that their policy is to take a gamble on exports. I know that, if necessary, the Opposition are prepared to attempt to keep the balance of payments light by imposing import controls, a policy to which we on this side of the Committee do not subscribe. It is worth while examining where this Opposition policy would get us.

Ignore for a moment the withdrawal from millions of consumers of the increased choice of imported goods which they have learned to enjoy over the last few prosperous years—I might say, in passing, in view of the sotto voce remark by the hon. Member for Cardiff, South-East (Mr. Callaghan), that it is perfectly clear from what he has said that the Labour Party is prepared to sacrifice that—ignore for the moment the far more serious consequence of the United Kingdom imposing import controls, namely, that some of the countries to which we want to sell our exports would in all probability retaliate, ignore for the moment our international obligations; even assuming that we were prepared to ignore all these consequences, would the policy of import controls advocated by hon. Members opposite really help?

Only a few weeks ago the hon. Member for Cardiff, South-East with one breath declared … I cannot but wonder at the infirmity of a Government who permit the unregulated importation of consumer goods and machinery…"—[OFFICIAL REPORT, 19th March, 1962: Vol. 656, c. 41.] and with the next breath he went on to say that it is the policy of the Labour Party to promote demand.

But if one restricts imports artificially by import controls, one diverts demand to goods produced in this country, and if, at the same time, one is promoting total demand, as the hon. Gentleman suggested, the inevitable consequence will be that there will be less capacity available for export. The policy of the Government is to improve the balance of payments not by the negative method of restricting other countries' trade, but positively by making possible an increase in exports from this country.

The hon. Member for Cardiff, South-East, who leads for the Opposition on these matters, has again advocated a tax incentive scheme for exporters. That is a point of view, but I wish that he would tell us what he has in mind. In his television broadcast on Tuesday he said that he had sent the Chancellor a scheme. That went out to millions of viewers. To say the least, I thought that it was a little disingenuous of the hon. Member not to mention also the fact that I had replied to him in a letter, long before his broadcast, that that scheme, the only one he has submitted to me, was quite obviously contrary to our international obligations.

Does the hon. Member want us to break our international obligations? I am still hoping that perhaps he will have another shot. [HON. MEMBERS: "Answer."] After all, the rules laid down by the international conventions are quite simple and straightforward. There is certainly nothing in them which would make it particularly difficult for the hon. Member to formulate a scheme in principle. But he really ought to tell the Committee whether he wants us to break the international rules. Or does he perhaps want us to switch to a new tax, which we might well have within the rules, perhaps a tax such as the German turnover tax, which applies to a vast range of goods which are not now subject to indirect taxation in this country—to raw materials, machinery, and food, for instance? I do not know whether that is what the hon. Gentleman wants—I assume that it is not—but I would say in all sincerity to him that I think that the Committee is entitled to know what the hon. Genleman has in mind. I hope that, in view of my invitation, he will, before too long, tell us.

Last year the United Kingdom was faced with very real difficulties, but it cannot seriously be argued that the policies which have been pursued by my right hon. and learned Friend are not improving the balance of payments. During last year, compared with 1960, exports rose by £156 million, and the deficit in invisible trade was reduced by no less than £256 million. During the last six months of last year the deficit in visible trade was reduced to only £23 million compared with £245 million in the same period of 1960.

Moreover, I would remind the Committee that as a result of the measures which my right hon. and learned Friend introduced on 25th July last sterling has been strong on the exchanges and we have been able to repay £225 million of our International Monetary Fund drawing of last August. It is perfectly true that this repayment has been made possible by an inflow of funds, but it is important to bear in mind that much of this inflow has been identified as a considerable increase in portfolio investment—in other words, in investment in United Kingdom stocks and shares—in the second half of last year, and that is a sure sign of confidence in the policies which my right hon. and learned Friend is pursuing.

It cannot, of course, be satisfactory to rely on a continued capital inflow of this kind to balance our accounts. The only balance of payments which can be considered really satisfactory is one which shows a substantial surplus on our current account. It is because of this that one of the prime objectives of the Budget is to ensure that capacity is available for additional exports and that our costs remain competitive so that at least British industry has the chance to take full advantage of the export opportunities which we can expect.

It is against this improving position of the balance of payments in recent months and the need for further continued improvement that we have to consider the Budget proposals, and also, I might add, in the light of a Bank Rate which has twice been reduced in recent weeks. The significance of those two Bank Rate reductions so far as the Budget is concerned was, I think, misunderstood in some quarters. Like the hon. Member for Sowerby, I also read the Statist, and I thought that the true relevance of those two reductions was well expressed by the Statist shortly before the Budget. I should like to read this short passage, because I think that it puts it very well: There is no logic and only the flimsiest evidence of timing that would lead one to suppose that the reduction in Bank Rate to 5 per cent. promises comparable easement in fiscal policy on April 9. Logic as well as the harsh facts of the situation should lead to precisely the contrary conclusion. The modest easing of credit restriction, of which the reduction in Bank Rate is the symbol, should make it all the more necessary to restrain domestic consumer demand through fiscal policy ". I think that that is right. As the Committee knows, my right hon. and learned Friend has, in fact, proposed no change in the general burden of taxation.

I now want to turn for a few minutes to two particular proposals—the tax on short-term gains and the changes in Purchase Tax. The former has already been explained by my right hon. and learned Friend at considerable length, and the details will shortly appear in the Finance Bill.

The short-term gains tax was referred to by the hon. Member for Pontefract (Mr. Harper) in his maiden speech yesterday. I heard his speech, and I think that other hon. Members who did so will agree with me that it could hardly be described as non-controversial on this matter. It was, however, certainly one of the most amusing maiden speeches that we have heard for some time. I am particularly pleased to have the opportunity of congratulating the hon. Member, because I am the hon. Member for Doncaster and we are, therefore, close neighbours. The hon. Gentleman mentioned the occasion in 1893 when the whole of the Pontefract police force had gone to Doncaster races. I am bound to admit that until he spoke I had not realised that even in those days Pontefract races were so inferior to those of Doncaster.

To return to the tax on short-term gains, I want to refer to only one aspect. The right hon. Member for Battersea, North (Mr. Jay) derided the tax because my right hon. and learned Friend has given no estimate of the yield. I should have thought that with his own experience at the Treasury the right hon. Gentleman would have been the first person to realise that in the very nature of things it is quite impossible to make an estimate in the case of an extension of the tax field of this kind.

Even if the right hon. Gentleman and his hon. Friends were right in thinking that the yield would be small, I would not accept that as a conclusive argument against the proposal, because there is another consideration which is of great importance in matters of taxation. Again and again the Committee has approved provisions in Finance Acts not primarily because of the amount of revenue involved, but to ensure that the incidence of taxation is fair; for instance, the so-called "golden handshake" legislation introduced by Lord Amory.

Many of the transactions which are covered by my right hon. and learned Friend's new proposals are socially unobjectionable and, indeed, some are economically desirable. But it does not follow that the profit to which they give rise is not a proper subject of taxation. After all, the incomes of ordinary employees, the profits of the trader or professional man, are subject to taxation, despite the fact that they contribute to the well-being of the economy.

This extension of the field of taxation to short-term gains is not concerned with the morality of particular transactions, as the right hon. Member for Battersea, North seemed to think yesterday. Its justification lies in the fact that the transactions which it embraces give rise to profits which are just as properly the subject of taxation as are the activities of men and women who are already liable to tax.

The right hon. Member for Battersea, North said that we were proceeding on the basis that if a transaction were completed in six months or less it was immoral, while if it took longer than six months it was moral. That is complete nonsense. The right hon. Gentleman the Leader of the Opposition and the hon. Member for Sowerby also thought that there was something odd about a distinction between six months and less and a period of six months and a day. One would think from that type of criticism that the idea of a time test was something which had simply been conjured up by my right hon. and learned Friend. But there is a time test in many other European countries. In West Germany, for instance, profits from speculative transactions are taxed as ordinary income and the test for real property is two years or less and for other assets the test is six months or less.

Mr. Douglas Jay (Battersea, North)

If the hon. Gentleman is arguing that a capital gain can reasonably be taxed as income, why does he exempt gains beyond the time limit?

Mr. Barber

My right hon. and learned Friend has already explained this. He said that it was his view that to go further than he has, in other words to introduce a conventional capital gains tax—and I know all the debating points about what is done in the United States and so on—would operate as a disincentive to investment and so would certainly not be conducive to growth.

Mr. Jayindicated dissent.

Mr. Barber

The right hon. Gentleman may dissent and I know that he takes a different view, but he asked a question and that is the answer.

I come now to the changes in Purchase Tax. The Committee has often discussed the relative merits of Purchase Tax and a sales tax, which was also mentioned this afternoon. I do not propose to go over that ground again. But many of those who prefer the system of Purchase Tax have made two criticisms in the last few years—first, that the tax is too discriminatory in that the range of rates is too wide, and, secondly, that it is too discriminatory in that it is not sufficiently broadly based.

This year my right hon. and learned Friend has gone some way towards meeting both those criticisms. To listen to the speeches from the Opposition one would think that there was something positively immoral about reducing the top rate from 55 to 45 per cent. But we have moved on from the dreary days of Socialism when a motor car, or radio, or T.V. set, or even cosmetics, was something beyond the range of ordinary people. This reduction of Purchase Tax on goods which in 1962 are no longer the prerogative of the rich will command widespread support. After all, there are now 5 million privately owned motor cars and more than 11 million television sets, with some 40 million viewers.

Mr. A, E. Oram (East Ham, South) The hon. Gentleman says that we have moved on from those dreary days, but have we now moved into the days when the tax on essentials like furniture and clothing should be doubled?

Mr. Barber

If the hon. Member would like me to do so, I will describe the sort of situation which existed when the Conservative Government took over and when the top rate was 100 per cent. AH those goods which were within the tax at 100 per cent. are now with the exception of cosmetics taxed at 25 per cent. There are many facts which I could give to the hon. Gentleman, but he can look them up for himself.

Mr. Jay

Should not the hon. Gentleman also add that at that time the great bulk of clothing, boots, shoes and furniture, which he is taxing at 10 per cent., were tax-free?

Mr. Barber

That is so, but since those days—I do not want to make purely party political points on these matters but it seems that the right hon. Gentleman has been provoked—the standard of living has risen considerably. The increase in the cost of a suit, for example, as a result of the action taken by my right and learned Friend in this Budget cannot be said in 1962 to be a matter of real hardship.

Yesterday evening my right hon. Friend the Member for Reigate (Sir J. Vaughan-Morgan) referred to Purchase Tax simplification and regretted that the Chancellor had brought in the tax on confectionery, ice-cream and soft drinks at a new rate. The important considerations in the introduction of a new rate of Purchase Tax are two-fold. First, what really matters is the discrimination, that is to say, the gap, between the lowest rate of tax and the top rate. As I have said, many people have criticised the great disparity between the extreme rates of Purchase Tax, and the new rate of 15 per cent. does nothing to detract from the advantage of my right hon. and learned Friend's reform in that respect.

The second aspect which is important from the point of view of the structure of the tax is whether the introduction of a new rate is likely to produce anomalies. For example, to take certain articles out of the 25 per cent. rate and put them into the new 15 per cent. rate would create anomalies and distortion of trade. But there can be no question of anomalies arising from taxing confectionery, ice-cream and soft drinks at the new rate. Nor will the fact that the rate is new involve any additional administrative work. Given that my right hon. and learned Friend considered that 25 per cent. was too high and 10 per cent. was too low, I hope that the Committee will agree that in this instance it was sensible to create a new rate.

To turn to the merits of the tax; to tax confectionery, ice-cream and soft drinks at the modest rate of 15 per cent. is not unreasonable. Hon. Members opposite have spoken over and over again about children's pocket money, but what does the tax mean in real terms? It means that a child who spends a shilling a week on sweets, or pop, or ice-cream, will in future get only as much as he previously got for 10½d., or will have to have his pocket money increased by 1½d. a week. In the light of the substantial increase in real earnings over the years, this is not an unreasonable extension of Purchase Tax. A tax of 15 per cent. on the wholesale value is equivalent to about 1½d. in the shilling on the retail price. The amount which people spend on ice-cream and pop and lollipops and so on varies from person to person, and from family to family, but there is available a good deal of information about the pattern of spending by families at various income levels.

Mr. Arthur Lewis (West Ham, North)

Strange as it may seem, I have no vested interest to declare, because I do not touch these things. The hon. Gentleman dodges the question. Every time the Chancellor of the Exchequer puts on these increases, which come almost every week, he says that it is only a small increase. The rent increases were "only a little"; increases in National Insurance contributions are "only a little", increases in Purchase Tax are "only a little"; increases in lollipops are "only a little". Does he not realise that almost every month there is a price rise for which the Government are directly responsible and that every time the Government say that the increase is only a shilling or sixpence or two shillings? Do they not appreciate that these small increases total up to a good deal, particularly for old-age pensioners, for it is not only kiddies who spend money on sweets and, if they can afford it, on ice-cream?

Mr. Barber

I was not going to weary the Committee with these figures, but the fact is that in the last ten years the retirement pension for a single person in real terms has gone up by 37 per cent.—[HON. MEMBERS: "No."]—It is no good hon. Gentlemen shaking their heads. That is a fact, and the pension for a married couple has gone up by 32 per cent. According to social surveys, the average expenditure by pensioners is Is. 3d. a week on these things, and a typical family with a total family income—that is not one man's income—of between £14 and £20 a week spends about 7s. on these three items, so the tax on this will not be more than about 10½d.

Mr. William Warbey (Ashfield)

The hon. Gentleman said that the increase on sweets and soft drinks amounted to 15 per cent. on the wholesale price. Does he know that the price being charged by manufacturers and retailers, who are adding to their profits at the same time as the 15 per cent. of tax is being imposed, is resulting in a total increase in the wholesale price of 50 per cent. and not 15 per cent?

Mr. Barber

The increase is 15 per cent. of the wholesale price.

I was a little suprised that the Leader of the Liberal Party, in what was otherwise a rather good, moderate Socialist speech, apparently thought it odd to impose tax on these things. He said: … in the year when everybody is trying to stop people smoking, especially young people, the Government elect to put a tax on sweets."—[OFFICIAL REPORT, 10th April, 1962; Vol. 657, c. 1196.] I thought that it was a little odd to say that, because only last Saturday the Liberal News, under banner headlines How Liberals would plan a Budget took the contrary view and advocated a tax on sweets as a hedge against a fall in tobacco sales. But perhaps we should be well advised to rely on the right hon. Gentleman, because the whole of this article was based on the assumption that the present standard rate of Income Tax was 6s. in the £.

So far I have spoken of the Budget proposals, but they cannot be considered in isolation from the rest of economic policy, in particular, as my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) pointed out, from the incomes policy which the Government have set out in the recent White Paper.

The right hon. Member for Battersea, North yesterday seemed to resent my hon. Friend the Financial Secretary to the Treasury dealing with this matter, but there is no point in a Budget designed to leave room in the economy for the production of goods for export if, because of increased costs, the price of the goods is too high for the overseas customer. That the pay pause has worked to the advantage of the economy no one can really deny. Costs have not risen as much as they otherwise would, and so far as the greater part of manufacturing industry is concerned our export prices are now competitive, but we must keep them so.

Hon. Gentlemen opposite have frequently referred in these debates to the record of West Germany. In the light of the criticism which has been directed against the incomes policy of my right hon. and learned Friend, it is not without significance that the Federal German Minister of Economics declared the other day that because of increased wage costs and shorter hours, there had been an unmistakable decline in the international competitiveness of the Federal Republic. We in the United Kingdom can take some satisfaction from the fact that due to a policy which may have been unpopular our international competitiveness has improved. But the object of the Government's policy for incomes is not merely to ensure that we should remain competitive. It is also, in the long run, the fairest policy.

Hon. Members know that an indiscriminate scramble for wage increases is the surest way of hurting the very people whom the Labour movement has always said it cares for most, the poorer sections of the community living on small fixed incomes. The truth is that hon. Gentlemen opposite genuinely want to help this section of the community just as much as we do, but they lack the courage to support a policy which will help those people, and the reason is that in so doing they are afraid that they will incur the displeasure of other sections of society. The truth is that they are suffering from political schizophrenia.

To listen to some hon. Gentlemen opposite one would think that the standard of living in this country was no longer rising. Let me remind the Committee of one undeniable fact. Over the last ten years, for every Is. that prices have risen, earnings have risen by no less than 2s. 3d. Last year, even at constant prices, consumers' expenditure went up by more than £200 million. Yet, despite this increase, personal savings were up by £478 million, and last year 10.7 per cent of personal disposable incomes, that is after deducting tax and contributions, was saved, compared with less than 2 per cent. ten years ago.

Those are the facts of a prosperous society. But prosperity, or affluence if one likes, will not continue unless the foundations of our economy are sound. It would have been all too easy for my right hon. and learned Friend to trim his sails to the passing winds of Orpington, to curry favour with those who think only of the present. Instead. he has chosen to present a Budget which time will show to have been both sound and courageous.

5.8 p.m.

Mr. Arthur Holt (Bolton, West)

I am delighted to hear that the Economic Secretary reads The Liberal News. I hope that he will continue to do so, not only at Budget time but throughout the year. Occasionally he may find some statements in it which do not correspond with what other Liberals may say in the country, but he should not deduce too much from this, which is what many Tories apparently appear to be delighted to do at the moment.

The Tory Party, of all the parties represented in the Committee, is the one most able to be challenged on consistency of policy. I think that we should all be interested to hear the hon. Gentleman's view of what the Chancellor of the Exchequer called speculators' capital gain. The view that the Chancellor of the Exchequer put out about this on Monday was that as it was pretty widely felt to be inequitable that those who supplemented their incomes by speculative gains could escape tax on these gains, and therefore it was necessary to design a tax system to produce a feeling of broad equity of treatment between taxpayers.

The right hon. and learned Gentleman was quite clear that he was not introducing a capital gains tax. On the other hand, as I understood him, the Economic Secretary indicated that some people, perhaps many people, who were indulging in perfectly proper and legitimate transactions would be caught by this tax, and he went on to defend the decision to impose it.

I think that what it adds up to is that this tax is a beginning. It will have to be developed. We shall have to see how it works. But if the idea is to produce greater equity between those who are taxed on earnings and those who accumulate a lot of wealth from capital gains, then I do not think that the tax can be left in this form. I should have thought that hon. Members on both sides of the Committee agree that it is most important to create equity between those people who make their money purely out of earnings and those who are in the fortunate position of being able to accumulate greater wealth merely by the possession of capital.

The fact that conditions are so much weighted in favour of those with capital is one of the obstacles to our efforts to prevent further inflation. Some of those who possess capital also have considerable influence in our affairs, and they have in their hands a permanent hedge against inflation which is not possessed by the ordinary wage earner. If that hedge were removed or reduced they would be just as interested in preventing inflation as are pensioners or wage earners. I welcome the introduction of this tax. I shall be interested to see how it works out in practice, and to consider what development or alteration there should be in it as we go along. If it is extended in the future it will probably have to take in a lower rate of tax than the Chancellor intends to impose at the moment.

One aspect of the problem which is largely responsible for some of the troubles of the Government is the competitive climate in which they wish British industry to act. There was a period in the middle 1950s when it seemed that a certain element in the party opposite was interested in trying to see that British industry operated in a fair but thoroughly competitive climate. The Restrictive Trade Practices Act was passed in 1956. There were criticisms of it, but it started a new era, and when complaints were made that it was not fierce or vigorous enough the Government said. "Let us see how it works out. We can strengthen it as we go along". Since then the initial urge on the part of the Government to bring about a more effective competitive climate seems to have died.

The President of the Board of Trade now has on his plate a number of problems concerning competition, but he has done very little about them. A vigorous competitive climate is one of the prerequisites for the success or development of a policy designed to promote economic growth, a wages policy, and one that will help to increase our exports. Why are the Government so reluctant to make even the smallest unilateral reduction in tariffs? From time to time Government spokesmen talk about the desirability of such a move and the good effect it would have on British industry, but nothing is done about it. There is no difficulty about this, even in the present situation vis-à-vis the negotiations for the Common Market. Generally speaking, our tariff level is higher than the ultimate Common Market tariff level, and there would be no difficulty in making a number of reductions in our tariffs, which we should not have to increase again if we entered the Common Market.

It must be remembered that those firms which are carrying on an export trade are bearing the burden of other firms which are in business only because they are protected. If we want to help firms engaged in the export business we must remove from their backs the other inefficient firms from whom they may have to buy products or services. This is particularly the case in relation to the Lancashire textile industry. Very often that industry has no tariff protection against its overseas competitors, but it has to buy many of its services, and some of its materials and machinery, from other firms which do have tariff protection.

Are the Government really tough enough about monopolies or semi-monopolies? On 10th April, when the Minister of State, Board of Trade, was asked to remove or reduce the tariff protection in respect of the man-made fibres industry, he said, in answer to a supplementary question from me: … we have to face the fact that in this country the law is that a monopoly is objectionable only when it abuses its position."—[OFFICUL REPORT, 10th April, 1962; Vol. 657. c. 1125.] That may well be the case, but if it is we ought to turn the law the other way round, and state that a monopoly is prima facie objectionable unless it can show that it is not.

This is of special relevance to the textile trade. The man-made fibres industry, which is now providing an increasing proportion of the raw material for what is still called the cotton textile industry, has the benefit of high tariff protection. But it provides one of the raw materials of the cotton textile industry, and it was never our policy, even during the last generation, which was a protectionist era, to protect raw materials. This is an added reason why the Board of Trade should take some action to remove this tariff, whether it be on the ground that the man-made fibres industry is supplying a raw material or that it is a monopoly. Some of us cannot help despairing at the fact that the Board of Trade is not taking a more active part in making monopolies subject to real competition from abroad, if they cannot be subjected to it from firms at home.

When the restrictive trade practices legislation was introduced it was said that it might well lead to amalgamations with a view to avoiding its effects, and that this would lead to semi-monopolies or possibly complete monopolies, and that if its provisions were not to be frustrated early amending legislation was required. As I have suggested previously, we should say that if a company or a group of companies reaches the stage at which it is producing a third or even a quarter of the products of a trade it shall automatically come before the Monopolies Commission, which will decide whether any good technical grounds exist for allowing it to go on increasing its production, or whether it would be in the public interest, in order to maintain competition, to say, "No, you cannot increase your production any further." If there were good technical grounds—because of great advances in automation—for a company to continue to increase its production beyond one-third of the products of the trade it would have to come under regular scrutiny in order to ensure that it was continuing to act in the public interest.

In the last report of the Registrar of Restrictive Trading Agreements, for the period 1st January, 1960, to 30th June, 1961, attention was drawn to one of the manœuvres which had been developed in order to get round the provisions of the Act, namely, the growth of price information agreements. We have had nothing from the Board of Trade as to the action that it intends to take about this. I should have thought that we must now incorporate it in the Act as one of the things which should be registered when it takes place, so that the court can decide whether the use of such an agreement is against the public interest. I know that probably a number of these agreements do not act against the public interest. They are a useful source of information which is probably of help to the proper carrying on of a business and are not a threat to the public good; but certainly there is plenty of evidence that others are. I think that this should be dealt with in the same way as other practises are dealt with under the Restrictive Trade Practices Act.

The last point that I want to make on this whole proposition of improving the competitive climate in which industry works is partly related to this and also to consumer prices. It is time that we repealed Section 25 of the Restrictive Trade Practices Act. There was considerable doubt in the House of Commons when the provisions was included as to whether it would net have very undesirable effects, and I think that there is a growing feeling now that it is having such effects.

This is the Section which deals with individual enforcement by legal proceedings of conditions as to resale prices. In addition a Departmental Committee within the Board of Trade is considering the question of resale price maintenance, and we are shortly to have a report from a consumers' committee as well. I think that all these matters are relevant to the creation of a proper climate in which private enterprise competitive industry ought to operate. It is on this score that the Government have been extremely weak and feeble in their approach.

If we really believe in a fair and competitive system—because if it is only partially competitive it is unfair to other people operating in it—it is essential that the rules of competition should be clearly understood and that where they are the responsibility of the Government the Government should see that they are carried out. I believe this to be an absolute pre-condition for creating the right atmosphere in which to get a developing policy on wages and on growth.

Unless the Government tackle questions if this kind with real energy, I do not think that they will succeed in their other policies. It is up to them. They have not very much time before we go into the Common Market or, for that matter, before we come to a General Election, and whether or not they succeed in doing this will make a lot of difference.

5.24 p.m.

Mr. R. H. Turton (Thirsk and Malton)

The right hon. Member for Bolton, West (Mr. Holt) rightly began his speech by considering how far the Budget was creating greater fairness in taxation between one section of citizen and another. He dealt with the short-term speculator and pointed out that there was undoubtedly a feeling in the country that the man who is paying P.A.Y.E. and the man who is making quick profits by short-term speculations ought to be treated alike.

The main feeling that I get is that the Budget is very fair. It is trying to bring about a degree of equality where there has been inequality. I am extremely pleased that it deals with exemption limits for elderly people. It is a pity that this had ever drifted away from fairness. With the proposed limit it merely means that an elderly person can have other pension or savings equal in amount to the National Insurance pension and no more without being taxed. In other words, the limit is twice the rate of the standard rate of the National Insurance pension. This is bringing it back to what it was pre-1959.

I should like my right hon. and learned Friend to consider whether he cannot avoid the unfairness in future by so drafting his recommendation that this exemption is always at the limit of twice the National Insurance pension, which would avoid the difficulty that when we put up the standard rate of pension the pensioner is at a tax disadvantage. I should also like him to tell us how many pensioners will benefit from his concession.

Parliament should consider whether we cannot deal with the marginal case of those who have over £9 12s. 6d. a week in pensions and savings but less than £10 12s. 6d. or £11 per week, and whether we cannot ease their burden of taxation. The people who are being hit hardest in the present society are those living on small fixed incomes.

I hope that my right hon. and learned Friend, when dealing with inequalities— he has dealt with a number in his Budget—will not forget one mentioned by several hon. Members. It is the unfairness which those taxed under Schedule E feel because the rules for allowances and expenses for them are different from those affecting people taxed under Schedule D. There would be great satisfaction generally if the rules for the two Schedules could be made the same.

I wish to point out to the Economic Secretary that there is a feeling of unfairness among those parents who make sacrifices by paying for the education of their children but find that they get exactly the same tax allowances as do the parents of children who take the education supplied by local education authorities. If the children are under 11 they cost the country £90 a year and if they are over 11 they cost the country £150 a year. I believe that there is a strong case for giving a small measure of tax relief to parents who make sacrifices to pay for their children's education.

My right hon. and learned Friend's simplification of the Purchase Tax scales is, in general, equitable. Some artificial indignation has been worked up by the Opposition over the confectionery tax. This indignation is artificial because hon. Members opposite know perfectly well that the dental profession has been stampeding for this tax for many years. It is also artificial because if one goes round the confectionery shops in the West End of London, one will find that they are not frequented by children under 16. Undoubtedly, these confectioneries come within the category of luxuries. I have never heard hon. Members opposite making a great clamour about the Purchase Tax on toys, which certainly affects children and which stands at 25 per cent. Yet they clamour about the tax imposed on confectionery which is only 15 per cent. To me, that does not ring true.

I think it unfortunate, however, that when reducing the number of tax scales from four to three the Chancellor should have added to the complication by making the tax on confectionery at the new level of 15 per cent. I should have thought that there was a strong case for starting off at the lower rate of 10 per cent. which is imposed on other petty luxuries. If that did not bring in sufficient revenue my right hon. and learned Friend could have considered whether the whole range should be brought into the 12½ per cent. class. It is an advantage to have as few rates of Purchase Tax as possible.

We use the opportunity afforded by this debate not merely to look at the Budget, but also to make our own reviews of the economy of our country. I wish to look at two aspects which have caused considerable concern to a great number of us. The first is the continuous rise in Government expenditure and the second is the fact that in recent years we have been showing a deficit on our current account.

After about four years of being associated with and helping to look after the Estimates Committee, I have decided that it is impossible to save more than £1 million or £2 million by cutting out waste and extravagance in the public service. I admit that it is possible to achieve economies to the tune of a few million pounds, but we cannot achieve a major saving in expenditure except by looking at policy. I think that there is a weakness in the ministerial and the parliamentary review of policies which have an effect on expenditure.

In its recent Report the Estimates Committee noted, as the Committee will recall, that a Measure was introduced in respect of local employment. That resulted in a contingent cost of £112 million. When the Measure was introduced no mention was made of that contingent cost to Parliament. I am not criticising the legislation. I am using the instance to illustrate something of which the House should have been informed, the likely amount of expenditure which would be incurred following the passing of that Act.

I might add that, having been given that information, in my view Parliament ought also to have considered whether there were other policies which could be altered in order to save a similar amount. If we are continually passing new legislation and throwing large contingent financial burdens on the economy, there will be no end to the inflation which will result.

We ought to review policies to see whether some of them are not out of date and require alteration. There are some policies which were very desirable ten, fifteen, or twenty years ago. Now they may be out of date and should be reviewed. So far as I know, there is not in the Government—and certainly there is not in Parliament—any machinery for reviewing policies. There may be policies which are still desirable but, due to changing circumtances, we need the adoption of new methods to make them work.

This brings me to the Supplementary Estimates of last year, in which there was an alarming increase, due principally to the increase in the requirement for agricultural deficiency payments which amounted to 25 per cent. In other words, the payments for agriculture came to 25 per cent. more than had been previously estimated. I do not think it has been sufficiently recognised that the main reason for that increase lay in what is happening in agriculture and in agricultural imports.

Comparing the figures for 1959–58 and last year, agricultural domestic production had gone up by 12½ per cent. In that same period imports of food had gone up by 2 per cent. in quantity and had declined by 2 per cent. in price. But as our appetities remained fairly constant the only effect of that—with a 12½ per cent. increase in domestic production and a 2 per cent. increase in imports—under our system of agricultural deficiency payments must be a very large increase in the bill on the Estimates.

I can illustrate that by referring to eggs, and then the picture will become clear. Last year, we produced 34,000 more tons of eggs. At the same time, we increased our imports of eggs in the shell by 12 per cent. and of frozen, broken eggs by 40 per cent. That means that the burden on the balance of payments for eggs, in shell and broken, was £10 million, and the burden on the subsidy account was £15 million. That is something which requires to be reviewed. I could give other illustrations. Last year, imports of Irish fresh beef rose by 120 per cent. Imports of foreign barley went up by 1,500 per cent., which must throw the economy out of balance. I do not believe that we can work this system of price support for agriculture without some form of import control. I believe that to be absolutely necessary if this form of support is to be continued.

That was one part of the speech of my hon. Friend the Economic Secretary where I found that I was not entirely in agreement with him. Equally, if we are to expand our exports, if we are to stimulate our export trade, it is absolutely vital that we should show more concern about our trading balances with particular countries. Each year we run into a very heavy deficit in our trade with France and Holland. At the same time, we have favourable trade relations with countries such as Australia and Ghana. I cannot see why we should not take those factors into consideration. Despite her international commitments, the United States of America practices this form of reciprocal trading. It would be very valuable if we could imitate the United States in this respect.

Last Tuesday, my right hon. Friend the President of the Board of Trade, speaking on this subject, said that what our economy required was growth, but that growth would not come automatically. Here, I think that he was referring to the speech of the right hon. Member for Orkney and Shetland (Mr. Grimond). He said: in a modern industrial society progress and growth mean change … change of product, change of method, change of market and often change of size are essential. … "—[OFFICIAL REPORT, 10th April, 1962; Vol. 657, c. 1183.] I entirely agree that as society progresses we must have change in trade and change of product, but I do not believe in this change of market about which he spoke. If change of market means leaving our traditional markets for new ones, we may well find that our whole superstructure is geared to the traditional markets and not to the new ones and, therefore, we should lose on the change. In other words, infidelity is not productive, either in marriage or in international trade.

I would have the Committee realise that our main difficulty in recent years has not been any great defect in our salesmen or of management or men, but the three facts: that our traditional customers have been in the past the primary producing countries of the Commonwealth, that our trade with those countries has been bound and tethered ever since 1947 by the General Agreement on Tariffs and Trade, and that, except for a very generous policy of investment in the Commonwealth, we have done very little to promote an economic policy with the Commonwealth.

Those are the vital facts of the present time. If we read the year books of the General Agreement on Tariffs and Trade we find that year by year they point out that the primary producing countries are getting the worst of it in international trade while the industrial countries are getting the best of it. In other words, the rich countries are getting richer and the poor countries poorer. Our rôle should be to champion all those primary producing countries, but we are failing.

This is not good either for economics or politics. We do not want to see this rift occurring on the world. It our customers become impoverished, our trade will decline, and so will their feeling of satisfaction with the order in the world. If primary production becomes ill-rewarded, I warn not only the Committee but the country, the world will go in to another economic slump such as we had in 1929.

I draw attention to the Balance of Payments White Paper, and particularly to tables 3 and 4, to point to the balance on current account of the rest of the sterling area and ourselves with the non-sterling countries. To get the true picture in those tables we have to exclude gold production. We find, on current account, that the rest of the sterling area had deficits in balance of payments in 1959 on £211 million, in 1960 of £674 million, and in 1961 of £518 million.

If we add to those the deficit in our balance of payments on current account with non-sterling countries we get the final figures; 1959, £389 million; 1960, £1,321 million; and 1961, £880 million. Those are deficits which I do not believe that we and the primary producing countries of the Commonwealth can continue to incur for very long without a general world catastrophe.

I therefore beg the Government to think about changing our fiscal policy in this respect. I noticed that my hon. Friend the Member for Isle of Ely (Sir H. Legge-Bourke) had something to say about this in a letter he wrote to the Sunday Times last Sunday. I fear that our present pattern of trading is leading us to the opposite position. A few years ago I worked out for some research I was doing the level of our imports of agricultural products from the Commonwealth and from foreign countries, taking the average for the years 1956–58. Looking at the present position of importing certain agricultural products and comparing last year with 1956–58, we get these results, which I think the Committee should study.

Imports of butter from the Commonwealth in that period slightly declined while imports from Europe went up by 30 per cent. Imports of cheese from the Commonwealth were steady, but our imports from Europe went up by 28 per cent. Imports of barley from the Commonwealth declined by half while our imports from Europe and other foreign countries went up by 90 per cent. There was an increase of 25 per cent. in imports of pork from the Commonwealth in that period, but imports from foreign countries went up by 1,600 per cent.

I labour that point because so often it is said that we are doing all we can to help the Commonwealth. In fact, the Commonwealth's share of certain agricultural imports to this country in that period declined. That, I believe, is the result of our present policy, which should be amended. Our rôle in the world is to help primary producing countries to sell their products, not to encourage industrial countries to take over the markets from the Commonwealth in those agricultural products. One of the most disturbing factors I see at present is the way in which our policy is tending to encourage industrial countries to go more and more into agriculture at the expense of primary producing countries.

Therefore, I ask the Government to consider whether we should not be thinking out ways of helping to stop fluctuations in the prices of primary products, probably by creating buffer stocks, which will guarantee price stability. It is far better for emerging countries to gain resources with which to buy capital and consumer goods from rising prices of primary products than from grants and loans given as favours by this country or any other.

I quite agree that for emerging Africa and Asia grants and loans will be required, but it is far more important to have stable remunerative prices for primary production. It is also true that if we give aid and help to feed the famine areas of the world that in itself will help to get prices stable. All three policies should go together.

That is Britain's rôle in the twentieth century. We shall grow, and can only grow, if we can help the emerging countries to have an expanding share of the world's prosperity. I believe that my right hon. and learned Friend, in this Budget, has put a firm, fair base for an incomes policy for the country. I believe that he should build on it a superstructure to ensure that we and the Commonwealth can together have economic prosperity in the future.

5.50 p.m.

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

On this the fourth and final day of the Budget debate most of the points have obviously already been covered more than once. We have just listened to a very sincere speech by the right hon. Member for Thirsk and Malton (Mr. Turton) with the majority of which I almost completely agree. I did not agree with the first part of his speech when he said that in his opinion this is a fair Budget. He went on to speak a little about pensions. What he said on that point proved that he is not so familiar with the problems of old-age pensioners as he is with agriculture.

As I continue, I hope to be able to show the Committee that this is anything but a fair Budget. I am very disappointed that no reference is made to giving any additional help to old-age and other pensioners. I suppose at this stage, half-way between two General Elections, it would be too much to expect this Government to announce any immediate increase in benefits for pensioners. We shall have to wait another year, as was said so well by my hon. Friend the Member for Sowerby (Mr. Houghton). We shall have to wait until a little nearer the next general election for this and other bribes, as a good many of us regard them, from the present Government to sway the electors.

Mr. David Webster (Weston-super-Mare)

If the hon. Member takes so great an interest in matters concerning pensions, he should know that it is not a budgetary matter. Pensions have never been changed in any Budget since the war by either party.

Mr. Hilton

I am grateful to the hon Member. Even if it is traditional not to include pensions increases in the Budget, I am still disappointed that we have not broken with tradition this year and dealt with them, in view of the plight of so many pensioners. The night after the Budget I called to see an old-age pensioner not very far from the House of Commons. She said, "We did not get very much out of it, did we? There is to be a ½d. per lb. off sugar. That is the only benefit I have got, but my rent has gone up a few coppers again, so I shall still be a little worse off".

The fact that the Budget has satisfied the hon. Member for Kidderminster (Mr. Nabarro) is evidence that it is not fair for all sections of the community. I am sorry that the hon. Member is not here to hear that remark. In recent years he has threatened successive Chancellors of the Exchequer and voted against the Budget proposals, but, as he admitted in his speech earlier in the debate, for once in his life he is satisfied with a Chancellor of the Exchequer and he does not intend to vote against any of the proposals this time. The hon. Member takes the doubtful credit for the Chancellor of the Exchequer having put this iniquitous 15 per cent. Purchase Tax on sweets, "pop" and ice-cream. I should not like to take the credit for that. The hon. Member told us that he suggested this during last year's Budget debate. This is one item of Purchase Tax which the country could well have done without. It will not hit the small daughter of the Chancellor of the Exchequer. The right hon. and learned Gentleman said that he would have to make his peace with his young daughter for imposing this tax. It will hit the children of the workers and old-age pensioners, especially old ladies who still are very fond of sweets and chocolate.

A number of hon. Members have said that we have to plan for the future. I am sure I am on good ground in saying that we all agree with them. In the meantime, pensioners and those on the bottom rung of the wages ladder have to live and should not be forgotten. If any benefits were to be given, I claim that these people should have been considered. The tax on sweets will affect youngsters. This comes after what was done to them last year by the Tory Government, who imposed the additional charges on welfare foods for youngsters and expectant mothers. This has had disastrous effects on many children. It is outrageous to punish children by imposing this item of Purchase Tax, especially after the Government's action last year in giving £83 million to Surtax payers.

This is anything but a just Budget. To prove the point we have merely to look at the changes proposed in Purchase Tax, both the reductions and the increases. I have gone through them carefully. I cannot find an instance where these changes, up or down, will benefit to any marked extent farm workers and pensioners in my constituency. It has been said that the average earnings of workers are £15-odd a week. The Economic Secretary spoke of earnings of from £14 to £20 a week. In my constituency in South-West Norfolk, such earnings are the exception rather than the rule, because the minimum wage of farm workers is still only £8 9s. for a 46-hour week.

The following examples prove that it is the wealthy section of the community which will get the real benefits from the changes in Purchase Tax. Purchase Tax on cars, refrigerators, washing machines and carpets is to be considerably reduced. On the other side, there is to be a reduction of only ½d. a lb. in the price of sugar, and the tax on such essential things such as clothes and furniture is to be increased. Like other people, retirement and other pensioners—and the lower-paid workers—have to replace worn-out clothes now and again. I know that the Chancellor said that a 10s. increase in the price of a suit costing up to about £12 is not very much. It may not be very much to a wealthy person, but it is a considerable sum to a farm worker and a bigger burden for pensioners.

We, on this side, welcome the abolition of Schedule A, but that, again, will not affect very many of the farm workers in my constituency.

A number of references have been made to Great Britain and the Common Market. I was particularly interested in what the hon. Member for Halifax (Mr. Maurice Macmillan) said about that yesterday, because just previously I had read in a newspaper article that he is one of the Tory back benchers whose job it is to whip up support for the Common Market among his colleagues. The hon. Member was talking about how Germany and other countries had managed to get their additional labour, and said: … as the Common Market grows, whether the United Kingdom is in or out. One of the main policies of the member countries of the Common Market is the reform of their agriculture—to close 5 million small farms and smallholdings in the course of the next period of agricultural adjustment, to increase the size of their holdings, and to remove people from the land to industry. That is part of their policy. This must put the other countries of Europe at a permanent competitive advantage in labour force.—[OFFICIAL REPORT, 11th April, 1962; Vol. 657, c. 1383.] I was unable to catch the hon. Member's attention at that point, but I should very much like to know whether, if we enter the Common Market, the Government intend to put a large number of our small farmers and smallholders out of business.

That is a very important matter to Norfolk and the adjoining counties. After all, it was the son of the Prime Minister who said that, and we are entitled to know whether it is true. If it is true, I can only say that the Tory revolt at Orpington and in other recent by-elections will be a picnic compared with the revolt there will be in the agricultural areas.

It has been rightly said on both sides of the Committee that we must concentrate on increasing production and exports, and I want to suggest two ways in which I think this can be achieved. I welcome the Chancellor's late conversion to the wisdom of planning, which we on this side have long thought essential to increased production. To get that planning we need real cooperation between employers, workers and the Government, but the Government's recent policy on wages is not conducive to the workers' co-operation, and the Chancellor would be very wise to realise that.

In setting up the National Economic Development Council the right hon. and learned Gentleman has certainly shown far more sense than did the hon. Member for Ilford, South (Mr. Cooper) on Monday. The hon. Member said that he spent much of his time trying to sell goods abroad, and then want on to make a rather serious criticism of trade unionists. In particular, he sorted out Ted Hill. The hon. Member should remember, as we all should, that for the production of these export goods we must rely to a large extent on our workers. The hon. Member's criticism was unjust to the majority of our workers, who are first-class people, As workers, they have the best record of any. They should be encouraged, and not criticised as the hon. Member thought fit to criticise them.

The President of the Board of Trade can assist in planning by means of distribution of industry. I hope that the Government will give greater consideration to the siting of factories, and will take more industry from London and the other big industrial towns and cities which are now over-industrialised, where traffic is such a great problem, and where building land costs a fortune to buy. I want to reinforce my recent appeal for light industry to be diverted—and, if necessary, directed—to such places as the many small towns in Norfolk.

Agriculture was at one time almost the only industry that Norfolk had, but the changing pattern in farming techniques has resulted in a great reduction in the labour force. There are now redundant farm workers, but they get no compensation for redundancy. About a year ago, this House agreed that cotton workers becoming redundant should be compensated, and I agreed with that. Workers in other industries should also be compensated. But there is at present no compensation at all for farm workers who, after giving a lifetime of service to the industry—sometimes forty years or more—find themselves redundant. They are then on the labour market, and there is very little alternative industry for them.

In a number of these small market towns there are facilities for industrial development. There is land in abundance that could be acquired at a reasonable price, and the labour is available. Swaffham—my own town—and Downham Market are examples. Both are on the trunk road, and have everything to commend them to light industry. I appeal for Ministerial co-operation in that connection and for co-operation between the various ministries to encourage firms to come to these areas.

Quite recently, a firm was prepared to come to Swaffham. It would have been welcome, as it would have absorbed some of the redundant workers. All arrangements were very nearly completed, and the county planning committee had given the project its blessing. At the last minute, the Ministry of Transport stepped in and now, because of some doubt about access from the proposed site to the road, the whole thing is held up. I have appealed to the Minister of Transport, and I hope that he will reconsider the matter sympathetically and allow this firm to come to Swaffham.

While I am on the question of cooperation and planning for increased production to help our exports, it is appropriate to refer to another place in Norfolk—Sculthorpe—a village in the constituency of my hon. Friend the Member for Norfolk, North (Mr. Gooch). There, a large American air base is about to be what is called "phased down", and, eventually, I suppose, it will be closed.

For a long period, this camp has provided employment for many hundreds of workers from a very large area of Norfolk, including many from my own constituency, and it now appears that if it is to be closed, many people will lose their employment. I hope that one of the Ministers on the Treasury bench will take note of this, and will be able to say later whether it is possible to divert some sort of industry into the Sculthorpe area. On the site, there is available almost every type of building and hundreds of houses, and the suggestion has been made that it might be converted into a New Town.

Whether it becomes a new town or not, industry certainly needs to be diverted to the area, and I therefore hope that the Government will give the matter sympathetic consideration. By doing this, they will give the workers in that part of Norfolk an opportunity to increase production, which is desired by everyone in this House and in the country, and to increase our export trade.

6.12 p.m.

Viscount Hinchingbrooke (Dorset, South)

Someone remarked the other day that what distinguished me from the rest of my hon. Friends was that I was a Whig at home and a Tory abroad, whereas they were the reverse. Certainly, my hon. Friend the Financial Secretary to the Treasury, who made a most distinguished speech yesterday, is the reverse. Where the Chancellor is, I do not quite know. I hope my right hon. and learned Friend is on the side of the angels—my angels, of course.

I agree with my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) that it is Britain's duty abroad to use the powers of the State in a handsome way to rectify the inequalities that exist. I believe myself in a strong defence programme and in the protection of this country by tariffs. I believe in very large Government-organised aid to the Commonwealth. But, on the home front. I am entirely different.

I believe, like the representative of the Liberal Party, the hon. Member for Bolton, West (Mr. Holt), who spoke this afternoon, in free enterprise, in anti-monopoly legislation for the restitution of the full-scale capitalist system, untrammelled by the exercise of the State, except in so far that the State, in the famous words of my right hon. Friend the Member for Woodford (Sir W. Churchill), should make quite certain that there was a platform below which no individual life should fall.

It is in the light of that philosophy that I wish to examine the Budget which my right hon. and learned Friend has introduced. The hon. Member for Pontefract (Mr. Harper), in an amusing and witty maiden speech, deprived me, I am afraid, of the adjectives which I should have liked to have used about the Budget. He said that it was— dull, unimaginative, uninspiring and vision-less ".—[OFFICIAL REPORT. 11th April, 1962; Vol. 657, c. 1365.] At breakfast time this morning, I had to think up a few more. I think that it is tedious, trivial and largely irrelevant to the British position in the world, and, in one respect, at any rate, positively menacing.

Of course, some of the concessions that my right hon. and learned Friend has made are to be welcomed by all of us—'the increase of the income limit for personal reliefs from £300 to £400, the increase of the age exemption limit from £275 to £300, the change in the basis for claims under Section 20 of the Finance Act, 1954, which has not been very much remarked upon, but which will actually cost as much as all the other small concessions put together, the increase in the exemption limit from £3,000 to £4,000 in Estate Duty, and the remissions on sugar, coffee, cocoa, and the like.

There, the useful concessions seem to end, and we are forced to the more ugly realities behind the thinking of the Treasury officials. I say that advisedly. One is supposed to be unfair in attacking Treasury officials, and if one is unfair the Chancellor can reply on their behalf. I am coming inevitably to the conclusion that there is a taut little core of very able and dynamic people in the Treasury, in whose hands successive Chancellors of the Exchequer, imbued with every kind of Tory principle and belief, become little better than putty.

We have seen it time and time again since the end of the war. My noble Friend Lord Amory, the previous Chancellor, went to the Treasury saying, at any rate on one occasion, in a speech in the country, that the object of the Tory Government was not only to stabilise prices while maintaining full employment, but actually to reduce them. He had not been there a year before inflation was resumed. Bureaucracy grows all the time.

Before I get on to that theme, I want to concentrate on the capital gains tax. This is a sad business. We are crossing the Rubicon between the taxation of incomes and the taxation of capital, where individuals are concerned, and when we cross the Rubicon all sorts of curious things happen. Of course, there is nothing in it this year. The manipulators of the levers are only just setting the points and pulling the signals. I remember the first scene in the famous play "The Ghost Train". All was quiet. A genial old gentleman was sitting puffing a pipe in the corner of a signal box. A few lights winked, a few little bells tinkled, and then he slowly got up and gently pulled the levers, and sat down again. A few minutes passed, and then, the ugly roar of the deadly express began, and the excitement and violence of the play proceeded. The train rushed by, directed to the disused chalk pit, where it was dashed to pieces.

I remember that when Surtax was introduced in 1909 it was introduced at 2d. in the £. I remember that when Estate Duty was introduced in 1894—[Laughter.] I remember reading that when it was introduced in 1894 it was £8 per cent. Where is Surtax now? It is 10s. in the £. Where is Estate Duty? It is at £80 per cent. It is very likely that this is what will happen with the capital gains tax. Of course, the Chancellor is not to get any revenue from it this year. The Treasury officials are just setting the points. The real pressure will be applied in succeeding years.

I can see certain of my hon. Friends, some of them, I regret to say, zealous for this tax, supporting the Chancellor, thinking that somehow this is the way to get back on the results of Orpington, behaving like the Priests of Bael, cutting themselves with knives, and getting into a frenzy of enthusiasm when it is revealed, as it will be next year, that a great many people, by a little judicious handling, have escaped the six months' limit and are operating at six months and ten days.

Then the messages will flow to the Chancellor, "Make sure that they suffer, these miserable types who have escaped your magnificent taxation system. Make them suffer this year". Slowly, the whole thing will elaborate until people who have been making investments over a six-month, nine-month and twelvemonth period will be brought in. That is the way in which this tax will go.

Why should we stop at catching the proceeds of sale of shares or land? Why should not we tax any other sort of capital windfall? Why should the football pools be left out?

Mr. A. Lewis

They are already taxed.

Viscount Hinchingbrooke

No. The football pool promoters pay a specific tax, just like the whisky distillers pay a specific tax. This is not a tax on the individual receipts of the person who indulges in football pools. The same applies to winnings from greyhound racing and horse racing.

The arm of the law, now that we have crossed the Rubicon, will be stretched out increasingly to catch all those who have a fortuitous winning of some kind, ending no doubt in the stabbing of the sacred cow of the Prime Minister himself—the Premium Bond. When we start on something of this kind, I do not know where we stop. I think that the institution of this tax is utterly indefensible and I profoundly regret that my right hon. and learned Friend has been associated with it.

Let me now examine the state of the economy. We have had speeches from the Chancellor of the Exchequer and from two other Ministers showing satisfaction and complacency about the situation in which we find ourselves. My right hon. and learned Friend said in his Budget speech that certain cautions must be exercised in future. His speech was, however, a great deal more optimistic than the Budget speech of a year ago, and I cannot believe that his optimism is really justified. The wage claims have only been dammed up over six months. The wage pause has not really paid off at all. A certain détente, as they say in foreign affairs, has taken place, but it will not last. The backlog of wage demands is building up. It will burst on the country in quite a short time.

No one will observe the Government's injunctions to avoid wage increases after the way in which the wage pause has been infringed. The Chancellor argued as though the wage pause had served its purpose and as though we were now on an even keel. That is a piece of wish-ful thinking. The wage pause was breached by the actions of violent men who refused to observe it, notably the Electricity Authority, and everyone else has taken his cue from the Authority. The policy of my right hon. and learned Friend, instituted last summer, has not succeeded. It has failed. It has been broken by the opinions of people evidently more powerful than himself.

We still have the International Monetary Fund loan hanging over our heads. Only part of it has been repaid. It is true that the balance of payments position is a little better than it was last year, but it is still a minus in the total figure and worse than during any other year since 1955. My right hon. and learned Friend has admitted that the growth in personal spending this year is likely to be 4 per cent. against a possible increase in production of 2 per cent. We are about to see, no doubt, a further rise in stocking, resulting in a heavy demand for imports.

But, over and above all these dangers, I continually see staring me in the face the graph produced annually by The Times showing the declining value of the £, that bar sinister across our national life. The Financial Secretary to the Treasury gave some startling figures on 5th December last. He showed that the value of the £, which was worth 20s. in 1914, fell to 8s. in 1920, recovered to 14s. in 1935 and stood at 4s. 6d. in 1960. That is to say that in the fifteen years preceding the war the £ almost doubled in value compared with the value to which it sank at the end of the 1914–18 war but, of course, at fearful cost in the 2 million or so Who were unemployed at the time. During the fifteen years from 1935, it lost 60 per cent. of its value. In the last ten years during which the Conservatives have been in office it has lost another 25 per cent. of its value.

Nothing whatever has been done to correct this. Chancellors of the Exchequer come and go. Credit squeezes and pay pauses are instituted. Exhortations of every sort and kind are used, but entirely without effect. This declining value of the £, which some people, notably the individual who wrote to The Times two or three days ago, appear to think innocuous, is to me one of the worst features in our national life. I sometimes think that it is the direct cause of the demoralisation of society today compared with the society of twenty or thirty years ago. When we see on television that young men earning £30 a week are spending £20 of it in the betting shops regularly every week, when we hear and see violence on the television and in the cinemas, and when we notice how the quality of British newspapers has declined over the last fifteen or twenty years, we must ascribe it to some cause. I cannot but ascribe it to the cause of inflation. I sometimes think that the Germans and French, who suffered swift, short-lived but violent inflation, have not done their social life anything like the damage that we have done to ours by this steady depreciation of the £ by 2, 3 and 4 per cent. every year.

Cannot the Conservative Government find a way of breaking through this situation? The Labour Party found itself incapable of doing it in the six years that it was in office, and the £ declined at much the same rate as previously. We came in zestful of the chances of improving the situation. Gradually our ideals have been neglected. No attempts have been made to maintain full employment at stable prices, much less at reducing prices.

In the period between the wars we could put up the value of the £, drastically, in fifteen years by the amount I have described—at the cost of 2 million unemployed—and if we are reducing the value of the £ at the rate I have described since the war—at the cost of overfull employment—is there not a midway position that can be attained which the public will find satisfactory and which they will regard as a major political triumph for this country?

Is it to be left to the Liberal Party to do that, a party which has not had an opportunity of exercising power so far? Will the Liberals be able to go to the country shortly with the claim that they alone will succeed in doing something which neither of the two traditional parties recently in power have been able to do? I would not be a bit surprised if the Liberals laid claim to do that. They may not look very competent in the House—[HON. MEMBERS: "Oh."]—but some of their candidates are looking fairly competent in the countryside.

I believe that only the Government can act in this situation. The private sector of the economy is absolutely immoveable, it is rocklike, and it cannot be squeezed by taxation. The only thing which will result in the private sector of the economy constraining itself is either Communism or war. Communist tactics make it absolutely compulsory on the individual to obey for the sake of a national peace-time endeavour. Wartime tactics persuade people voluntarily to sacrifice their liberties and standards of living and surrender them to the State to enable the country to survive.

In peace time there is absolutely no means, Socialist or Conservative, by which the private sector of the economy can be squeezed. We must do this, therefore, in a free way, by voluntary sacrifice of part of the public sector. Government expenditure is now the key and I believe that it is higher in this country than in any other. If one takes in local authority expenditure, which is directed and approved by the Government, the total demand which the State is now making on the gross national product is 34 per cent. We are back to the figure we were at in 1954, when the Conservatives were fast reducing it. The Conservatives are now fast increasing it and, as I say, we are back to the level of 1954. In Sweden, a country which is extremely docile and Socialistic, and where one would have thought that the private sector would voluntarily sacrifice itself to the elected Government, the figure is only 26 per cent.

Mr. Geoffrey Hirst (Shipley)

In fact, the total demand on national and local expenditure is nearer 45 per cent. of the gross national product.

Viscount Hinchingbrooke

To reconcile this with my hon. Friend we would have to consider this matter around the table to see whether one nationalised industry or another had been included or excluded. I have taken some care to look into this matter and the figure I have given is the one with which I have charged myself.

We have not heard a word from the Chancellor about Government expenditure. I do not know whether my right hon. and learned Friend is shy of the subject as the result of his broken pledge of last July, but I hope that before the debate ends, perhaps when he replies tonight, he will say something positive about this matter. I am not persuaded that my right hon. and learned Friend is not an inflationist. It would be a terrible thing to find that he was that because other hon. Members of the Government have declared themselves very strongly against an undue exercise of the State's activity.

My right hon. Friend the Minister of Aviation, as we all know, resigned over this very subject—When it was a question of another £50 million upon the Estimates. The Estimates have now soared to about twenty times the figure at which he resigned. My right hon. Friend said: I hold the view that the Government have spent, are spending and are certainly planning to spend, a great deal too much money."—[OFFICIAL REPORT, 6th April, 1960; Vol. 621, c. 432.] My right hon. Friend the Minister of Health is also on record as having expressed deep regret that the claims of the central Government on the national income had ceased to fall, but had risen. That shows that there are friends at court if my right hon. and learned Friend could direct his attention to this matter.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

My noble Friend said that I had not mentioned this topic in my Budget speech. After dealing with Supply expenditure I added these words: Nevertheless, I say frankly to the Committee I see no diminution in the public pressures to put additional burdens upon the Exchequer. But if we do not keep down these demands to what can be safely met out of increases in the gross national product, we have no hope of preventing an intolerable burden of taxation with all its consequences for our costs and balance of payments."—[OFFICIAL REPORT. 9th April, 1962; Vol. 657. c. 970.]

Mr. Hirst

It was the best part of my right hon. and learned Friend's speech.

Viscount Hinchingbrooke

I am grateful to the Chancellor for having pointed that out. That single sentence of about nine lines escaped me when I re-read his speech this morning. I would have hoped for one of the cross-headings in his speech and for a very large programme, which I am now about to offer him, for the reduction of Government expenditure.

My right hon. and learned Friend's institution—the National Economic Development Council—does not seem to be going to do anything but replace Parliament in consideration of these matters. If it does not act dynamically and purposefully to replace Parliament it will prove to be very little different from the old draft horse of Mr. Low, the cartoonist—but this time with Lord Robens in the front legs and with Mr. Cousins in the rear.

The Financial Secretary to the Treasury (Sir Edward Boyle)

Does my noble Friend consider that the Iron and Steel Board, which was set up by the 1953 Act, has in any sense replaced Parliament? Surely the job which the N.E.D.C. will do is very much analogous to the job of the Iron and Steel Board—only covering the whole of the economy instead of part of it?

Viscount Hinchingbrooke

I regard it as symptomatic of the political cowardice of Ministers that, year after year, they set up new institutions behind which to take shelter, allowing them to walk out into the public gaze and appear as purposeful and confident for a time and then, quietly, to fold up a few years later, just as we have seen with previous ones. I want direct action from the Cabinet—determined and courageous action, and that is what we are not getting.

Inflation is built into our existing system and the Chancellor has not acknowledged that fact in the way he should have done. Pay pauses are no answer, as I have said; the last one had to be given up. Taxation in order to establish Budget surpluses as a means of reducing inflation is useless. I have pointed out in previous speeches that, time after time since the war, when we have had a Budget surplus, there has been an inflation, and, time after time since the war, when we have had a vast Budget deficit, there has been a deflation. Figures of £200 million either side of the Budget, when one is dealing with a gross national product of £23,000 million, are meaningless.

What must be done—it is a very unpleasant job—is to make a straight cut in the public sector of about £500 million to £1,000 million, and do it over a definite planned period. One often hears about foreign five-year plans. I should like this country to have a five-year or four-year plan for a reduction in Government expenditure of that order.

It cannot be applied to things for which the Government are inevitably responsible. As I have said, I am enthusiastic about a strong defence programme, about large loans and gifts to the Commonwealth and countries abroad, and about a roads programme. There are many other things which only the Government can do. The Government's work there cannot be replaced by the private individual. But there are a great many other things where the Government's work can and should be replaced by the private individual.

In saying what I have to say, I do not want hon. Members to get it into their heads that I am advocating an absolute reduction of standards. When one talks about a cut in the Health Service, in the education service, or in pensions, this does not mean that there is to be a reduction in the amount and quality of the service. The actual amount of service given continues, but it is paid for by the individual instead of by the taxpayer. In every case, of course, it means the concentration on those in need of the money which the Government do, in fact, continue to spend.

I said in the House last year that I should apply a 5s. tax to every family with a child at school, yielding £100 million, I have said before that we ought to have higher hospital and prescription charges.

Mr. D. Price

Is it 5s. a week, or 5s. a year? Five shillings a year on each child, if my arithmetic serves me aright, cannot yield £100 million a year, since the total population is only 52 million. Is it per week?

Viscount Hinchingbrooke

No, it is not per child. It is 5s. per family with a child at school.

Mr. D. Price

Per what?

Viscount Hinchingbrooke

Per week per family with a child at school, and that yields £100 million a year.

The Beveridge system of pensions should be made a closed account and the money devoted to those who really need it. On the appointed day, we should enable everyone to have the option of drawing his accumulated previous contributions at compound rates of interest, whatever the calculation should be actuarially, or continuing in the scheme and being paid out at the then value on the appropriate date. All weekly contributions to the Beveridge scheme would cease and all the money would be concentrated on those who directly need it. Family allowances and unemployment and sickness benefits should all be subjected to a means test after a certain time. Subsidies should be drastically reduced.

I should like to see a great change made in British agriculture, a change forced on to it not by going into the Common Market but forced on to it by the decision of this House. I should like to put tariffs on all imported foodstuffs sufficiently to give British agriculture the sort of protection that it has now and then let the farming community go completely free of all subsidies and all special payments and go unto competition on that basis.

I should hand back to each Commonwealth country the proceeds of the tariff on its imported food. This would be a tremendous thing. Each Commonwealth country concerned could decide how the money was to be expended, on social services, handing it back to the growers or livestock producers, or whatever it might be. We could tie this in with our gifts to the Commonwealth and make a vast programme of it which would inspire the Commonwealth in a way in which it has not been inspired since the Ottawa Agreement days.

The general housing subsidy should be abolished. There is still a continuing basic housing subsidy, I think, of £100 million a year for old houses which is being continued. That should go.

I reckon that by a programme of this kind 10 per cent. of the State's expenditure, or £700 million, would be saved.

Hon. Members will immediately ask: what will be the cost to this country in unemployment? I cannot see any reason why it should be appreciable. Certain services performed now for ourselves would require the retraining of personnel employed in them. They might go into export work. Everybody should get a job in a different direction. Nevertheless I seriously suggest that we ought to look again at some of the unemployment figures. We are now working with what is still regarded as overfull employment, 2 per cent. per annum. We have the lowest unemployment rate of any country of the world. The lines of unfilled vacancies and current unemployment cross and recross each other. It is too tight a situation fundamentally for a free society.

I am amazed to look back to the Beveridge Report and find that the social security scheme which he prepared envisaged an unemployment rate of 8½ per cent. of the whole body of insured employees. At present rates, that would come to a total of 2 million persons. This was the scheme which Labour and Conservatives supported during the war. It seemed to the Coalition Government, to Lord Attlee and to my right hon. Friend the Member for Woodford an acceptable scheme at that time.

Mr. A. Lewis

And the Liberals.

Viscount Hinchingbrooke

And the Liberals.

The 1944 White Paper on employment policy gives tables devised on the assumption of 8 per cent. or 1,900,000 persons unemployed. We have also got the figure which the right hon. Gentleman the Leader of the Opposition, to say nothing of Sir Stafford Cripps, have subscribed to as being acceptable in modern society, namely, 3 per cent. That would give us an unemployed rate of 720,000 persons instead of the present 400,000.

Above all, it is essential—here, I agree with the Liberal Party fundamentally—to restore capitalism to this country, to find something which repeats the success of the United States. In the United States today, every working man regards his wages as coming from the earnings of his company. He looks to the boss of his concern. He hopes to be the boss himself. His avenue to success is right through the machine of industry. Over here, the working man looks to an outside trade union organisation to force on the country wages which, in many cases, are inflationary.

I would like to see a tremendous effort made to get trade unionism out of this setting, out of this whole picture, as the engine of inflation, and trade unionists somehow put on to the boards of companies as personnel managers or employed by companies for personal relations work. The day of trade unionism, in a certain sense, has passed away. The State now guarantees and provides for the very social minima which trade unionism came into existence to bring about. Trade unionism is largely redundant, and in so far as it is not redundant it is forcing the country, by selfish means, to the verge of devaluation. That cannot be tolerated in modern society. The Government must take the trade union position in hand.

Mr. Selwyn Lloydindicated dissent.

Viscount Hinchingbrooke

I notice that my right hon. and learned Friend is turning away in great embarrassment. I realise that I am causing him the utmost pain, because his mind has never moved in the direction which I am trying to indicate is necessary.

Of course, something must be done about the employers' side. There are too many people in trade associations going round the country handing out the orders with a glass of hock at the luncheon table. I am not sure that A.E.I. and English Electric are really trying to drive each other into the dust by competition. I am not sure that Lord Chandos and Lord Nelson really detest each other in the way they should. There seems to me to be too many of these easy-going, friendly, happy relations between big businessmen—and small businessmen—in gatherings round the table in trade associations, having a jolly good time and making quite sure that orders are not really competitive.

I should like my right hon. and learned Friend the Chancellor to inject himself like a rocket into the situation. Who is the happy Warrior? Who is he That every man in arms should wish to be?… —'Tis he… —Who, if he rises to station of command, Rises by open means; and there will stand On honourable terms, or else retire … I would like to see my right hon. and learned Friend in the lead of the nation's affairs. I would like him to institute a tremendous change in our national life, one which would redound to our future glory and prosperity in the world and make our name ring throughout the Continents.

6.53 p.m.

Mr. John Diamond (Gloucester)

The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) said that at breakfast time today he had to alter some of the notes he had made and to prepare a new speech—at all events, new epithets. I find myself also in that position. I, too, have prepared a speech but, as it is my privilege to follow him, I feel that some of the things he said ought to be answered. One cannot answer them all because there was no general philosophy governing his speech. He was as ambivalent in many of the things he said as he claimed to be at the start of his speech.

He made remarks about the capital gains tax, which is a matter I have been interested in for many years. For reasons I could not follow, he thought it right to attack the civil servants, and to put the whole of the blame on to astute officials in the Treasury who were able to understand what was going on and were able to mislead successive Chancellors. But I have more respect for Chancellors of the Exchequer—including Conservative Chancellors—than to think that they would be hoodwinked by their civil servants.

It is a poor reward for a civil servant who, in a most responsible position, has served every Minister, whatever his politics, as loyally and faithfully as he can. to sit here and have to listen to somebody attacking him, knowing that he cannot answer.

The reason why the noble Lord is sitting now in his place—where he presumably likes to sit—is because the Conservatives won the last General Election. They won it because of the then Economic Adviser to the Treasury. He was no Tory, but it was his policies, adopted by the Government in the last year or two before the election, that won that election for the Government and allowed the noble Lord to sit where he now sits. The noble Lord should not be so thoughtless and so discourteous to his own chiefs by attacking the Treasury civil servants.

Sir E. Boyle

The hon. Member for Gloucester (Mr. Diamond) has made some remarks about the general propriety of criticising civil servants with which I have some sympathy. But he then rather committed the offence himself. Knowing him personally as well as at the Treasury, I am certain that Sir Robert Hall, for many years the Economic Adviser, would certainly not wish to be considered by this Committee or by anyone else as author of the victory of any political party. He has served both parties to the best of his ability.

Mr. Diamond

I have said that. I do not know why the Financial Secretary thought it necessary to interrupt. The civil servants serve the Government to the best of their ability. They were asked by the Government for advice on economic matters, and no doubt gave it. It was the sound advice to have the economy moved up and keep prices stable. That was the advice which the then Economic Adviser gave to Lord Amory, and which Lord Amory no doubt accepted. I do not know it as a fact. It is only a conjecture. But any party which won an election on the economic policy prevailing in the previous three years should be chary of offering criticism of the economic advisers responsible for producing that policy.

I was referring to the capital gains tax, which is really a short term speculative gains tax. The noble Lord said that we had crossed the Rubicon in this. I want to follow this matter up, because that statement is neither right nor wrong. It is right in one sense and wrong in another.

I agree that all the Government have done is to bring into the net of Income Tax profits which should have been taxed for a long time already. They have done it by defining profits in this field as those made within a restricted period. They say that if they are made within a restricted period, than it is obvious that the man who entered into the transaction had the making of profit in his mind at the time he entered into it, and therefore it should be taxed in the ordinary way. I agree with the Government that this is a clear distinction, another method of distinguishing between income and capital. AH they have done is slightly to extend Income Tax.

However, I support the noble Lord in one matter. He does not see the difference between income of this kind and a realised capital gain. There is no difference. Of course, there will be pressure, when it is seen that this scheme does not work, to increase the tax so that it has some effect and raises more revenue. There is no real difference between a realised capital gain and income. There is a demarcation figure for taxation purposes, however. One cannot strictly draw the line anywhere, although it has been drawn previously to a certain extent, inasmuch that speculative gains are borderline transactions, sometimes falling one way and sometimes the other. Now, for clarification, they are to be included in Income Tax.

Mr. John Hall (Wycombe)

Does the hon. Gentleman include transactions relating to individual purchases and sales of houses in his view that there is no difference between income and a capital gain?

Mr. Diamond

There is no dispute between either side of the Committee that the realisation of a capital gain on one's own house cannot be so classified, because one is going to use the money to buy a new house at the same level of price. All that happens is that the level of price has moved up. It is clear that one bought the house to live in and was concerned with living in it and with nothing else. When one realises a profit by capital investment in the ordinary way, one has additional money in one's pocket to spend, and one is just as much able to pay additional tax as if one had additional money to spend from any other source.

I would go much further and say, if one wanted to treat the matter on a moral basis as opposed to a purely factual and financial basis, that one has a much greater capacity, and should feel a much greater willingness, to pay tax on a realised capital gain which one has done nothing physically or mentally to earn in whatever period it is since one invested it than one would feel called upon to pay on one's earnings as a Member of Parliament or whatever other occupation one pursued.

Obviously, earnings should attract a far lower rate of tax than realised capital gains. Therefore, I say that the noble Lord is right in foreseeing that there will be, as there should be, pressure the whole time to highlight the fact that there is no distinction of any kind between income and realised capital gains in the resulting ability to pay tax. One's shoulders are the broader, and one's taxability is the greater.

Mr. Holt

Does not the hon. Gentleman agree, however, that the increase of wealth depends on capital accumulation and capital growth? Therefore, there is at least an argument involved here in suggesting that if one is going to tax capital gains, this ought to be, possibly, at a lower level than a tax on income?

Mr. John Hallrose—

Mr. Diamond

Let me answer one question at a time. One earns an income for a given purpose but, of course, one has to encourage people to work just as much as one has to encourage people to save. There is no distinction there. Working and saving are both useful economic functions. What I am saying is that if one wants to distinguish between the two as to which should bear the higher rate of tax, surely one should encourage people to work rather more than one should encourage them to save.

Mr. John Hall

Suppose a realisation of investment produced a capital gain which was related only to the fall in the value of money from the time the investment was made. Would the hon. Gentleman regard that as a true capital gain, or would he merely regard it as a pouring out of £s worth the same as when they were first invested?

Mr. Diamond

It depends on the length of time and the amount of inflation which has taken place in the meantime. Equally, everybody's salary has a certain amount of that element, although it may be earned over a shorter period, and so has every income in any case. The real point is that we are not taxing either of these at 100 per cent. Nobody has suggested that these things should be taxed at more than a modest amount. The average rate of Income Tax bearing on it, for instance, may be 5s. or 7s. 6d., whatever is the average effective rate of Income Tax on the average person's income. Nobody is suggesting that it should be more than that. The rest of the money is available for the man in question, because we are not taxing his income at 100 per cent.

I hope to see this levy, this tax, this tightening up of the Income Tax, in the Finance Bill. It will produce nothing. As I have already indicated in an intervention, one does not even have to go to one's accountant to consider ways and means of avoiding it. It is easy to avoid it oneself. It will produce nothing, but it will be put there on the Statute Book and that will enable us to build on it, as we mean to do. I certainly mean to. To that extent, and to that extent alone, I go with the noble Lord.

I now turn from the noble Lord's speech, though I might add that if he had been a resident of Orpington, I am sure that it would have resulted in his voting for the Liberals, as many dissident and disaffected Tories did there, partly because the Government were taking them into the Common Market—as I gather from many of them—and mainly because there was no party 300 miles to the right of the Tories for whom they could vote.

I come back to the main shape of the Budget and the things which the Budget omitted. These are the serious matters. As to the main shape of the Budget, I cannot understand why so many hon. Members have been referring to it as a Budget which has helped to establish a sense of justice and fair play. This is a Budget which continues the Tory pattern of taking burdens from those who are richer and putting them on to the shoulders of those who are poorer.

This has been done in the Purchase Tax proposals. It is simple to demonstrate this. The net result of all the Purchase Tax proposals plus the Surcharge rearrangement is that a larger sum will be collected notwithstanding that the highest rates will be substantially reduced. Where is the additional sum coming from? This represents a net increase all-told of some £35 million, plus the reduction from 55 per cent. to 45 per cent., and that is coming from the lowest rates on the things which are more in the nature of necessities for the ordinary people. Those who are fortunate enough to be able to buy motor cars and so on will pay much less tax. This is the typical Tory pattern.

The same thing can be seen in the promise to extinguish Schedule A, which is a complete answer of the noble Lord about whether Chancellors take the advice of the Inland Revenue. Previous Chancellors have defended Schedule A, which is not easy to defend. It is easy to demonstrate that one will be more popular if one gets rid of Schedule A, which is a tax which householders have to pay, if one defends the other side of the matter, that one would only have a net resulting equality if as between two people who are absolutely equally placed and live in identical houses, one of them renting his house and the other having bought his house, one imposed a Schedule A tax on what the Chancellor sneeringly referred to this time as "notional income". Chancellor after Chancellor has explained this "notional income" and said that nevertheless one has to tax it in order to secure simple justice between the tenant on the one hand and the owner of the house on the other.

Here was the Chancellor coming and saying, notwithstanding that his advice must have been to the contrary, "Fancy charging notional income! So we will forgo Schedule A." But he said that the Government would not forgo it this year, that they were merely raising the argument this year, thus getting all the propaganda value from it, and that there would be further benefit from it next year. He said that it might, no doubt, come off in more than one instalment. Apparently, he was not certain yet whether the date for the next General Election has been fixed and was taking that into consideration. This is a great development of the method whereby one can over three years get a benefit from one simple piece of legislation.

As my hon. and learned Friend the Member for Kettering (Mr. Mitchison) indicated in his intervention, there will be pressure for an equalising relief to make it fair. There will be pressure for an equalising relief for rents. We shall be told that we can get the same answer only if we allow the person who is paying rent to get relief equal to that which is being given to the person who receives the notional income on his owner-occupied house, who will no longer have to pay tax on it.

I come now to the main criticism of the Budget which everybody has voiced, namely, that it does absolutely nothing to help the real needs of the country, which are productivity and exports. We had a debate on exports very recently and there is no need to go over that ground again, but I want to suggest some of the things which the Government should have done in the Budget to help production, and we all agree that whether we enter the Common Market or not we need a strong economy, that our economy has been stagnant for far too long and that nothing has been done about it. There are four major needs and they centre around skilled labour, investment. Government leadership and what I can only call a tonic to industry.

Everybody recognises that the commodity of which we are most short is skilled labour and that there should be much more mobility of labour and that we will only get the economy moving satisfactorily if we can encourage this mobility. Of course there should be more training, but this is not the occasion to talk about that. The Budget can do a great deal about the mobility of labour. It can ensure that there is a much heavier accent on housing. We will never get mobility of skilled labour unless we have more houses. Every employer knows that he cannot get men to move to his factory if he has an expanding firm because he cannot offer them anywhere to live. If someone has a council house, he knows what a prize it is and is not likely to chance his arm and go to a different town with no likelihood of being able to get another council house for five or six or ten years, or however long it may be he has to wait on the waiting list. The first thing therefore, is more houses, and that involves a reduction in the Bank Rate, certainly for local authority houses because there will not be sufficient houses if the Bank Rate remains where it is. The alternative of private houses is covered by the same reasoning.

But a new point which I want to make and which I believe profoundly is that we will never get satisfactory mobility of labour until we have a State responsibility for retraining at full or 90 per cent. salary every worker who has to be retrained because the skill which he has been using to the full is not required in that form in his next industry. After all, Ministers move from Department to Department and we recognise that that is possible and appropriate. Skilled men are skilled men because they have great skill in their hands and great knowledge in their heads, but they are incapable, without retraining, of moving their skill from one industry to another. If one industry closes down, as has been the case with the aircraft industry, as I know only too well from the example in my own constituency, if an industry is concentrated and skilled men become available, there is no method by which they can be retrained, except at their own expense, which means by getting unemployment relief which is absolutely hopeless.

The Coal and Steel Community has set us the perfect example in this respect. It has had to concentrate coal mining, and coal miners who have become unemployed have been retrained at 100 per cent. of their salary for the first four months and 80 per cent. of their salary for the next four months, and within the first six months about 90 per cent. of them have been retrained and re-employed. So we will never get satisfactory mobility of labour unless there is more housing and particularly unless there is an accepted State responsibility, no doubt tied up with an insurance scheme, for retraining men so that they can move of their own free will to whatever employment is offered.

We need more investment, but it must be more investment of the right kind. In view of the increasing figures of investment, it would be difficult to prove that investment has not gone up reasonably well. One of our great disappointments has been that productivity has not gone up in proportion to investment. We always felt that investment by itself was the clue to all this. We had always thought that all we had to do was to get investment rising and the rest would follow, but it is clear that it is not as simple as that and we must have investment of the right kind. Investment which is of the right kind is investment in industries where there is rapid growth and where by virtue of that rapid growth there is a need rapidly to expand plant or rapidly to renew it.

The present system of capital allowances and allowances for depreciation is inadequate for encouraging those who are in a rapid growth industry. The Government should consider what I have suggested before and what they know to have been carried on in other countries for many years—the system whereby the allowances are the same as those which are dealt with by the company in its own balance sheet. If the company chooses to write off a machine over three years instead of writing it off over ten years, let it do so. It does not cost the Government a penny in the long run and costs them only a little money in the short run. It is a tremendous encouragement to those boards and managing directors who are dynamic and who have guts and who want to press ahead and who anxiously want to replace their plant fast.

One of the vast differences between this country and the United States of America, for example, in this as in other things is that we are far too conservative as a country and change our plant far too slowly and renovate far too slowly and adopt new machines and new methods far too slowly. There ought to be encouragement and this encouragement has to be much more selective than any kind of increase in capital allowances or investment allowances or anything of that kind, which would be very broad and costly.

This would cost absolutely nothing and would merely result in a slight addition in the early stages and a slight reduction in the later stages and the difference would be the cost of borrowing in the early stages and would be neglible. But this is a method which would improve investment.

I repeat what I have said before about leadership—that if the Government realised how frustrating their "Stop-Go" policies were to the average managing director, they would certainly hesitate much more than they have in the past before restricting production by the various methods with which we are all familiar and with which I will not bore hon. Members. It is most frustrating when managing directors cannot plan for a long run and for straightforward development. All sorts of embarassments are put in their way and what is particularly damaging, as my right hon. Friend the Member for Middlesbrough, East (Mr. Bottomley) said earlier, is that the capital goods industries which we should help most are hindered most by the increase in the Bank Rate and, therefore, the increase in the rate for borrowing money.

There was an intervention from the Government Front Bench which suggested that a 5 per cent. Bank Rate was something to be proud of and that it had been reduced twice in recent months and was now down to "only" 5 per cent. But they should regard 5 per cent. as an intolerably high Bank Rate, especially when 3 per cent. or 3½ per cent. is the normal everywhere else. Having endured a Bank Rate of 7 per cent., the Government think that coming down to 5 per cent. is something comparatively good. It is appalling. It delays everything; it slows housing and prevents people from putting down plant and developing buildings and so on.

It is particularly damaging to the capital goods industry because, without wishing to be technical, in a capital goods industry one turns over one's money only once and therefore the cost of borrowing it is felt to the full, whereas in light industry, where the money is turned over four times, the cost of borrowing it felt only one quarter of that amount. Therefore, the impact of borrowing money is felt four times as strongly in the heavy goods industries as in consumer goods industries, for example, and in this way we are keeping down the country's productive effort and not letting the people who could go have a go.

I can see only one tonic and that is in the Common Market. There is the tonic of the larger market, the tonic of the free exchange of ideas, the tonic of rubbing shoulders with people who are keen to get on, the tonic of seeing expansion, the tonic of workers rubbing shoulders with other workers like the Germans who have had a wage increase of about 11½ per cent. in the last year alone, there is the tonic of being stimulated by the general dynamic attitude to be seen all around, and there is the tonic of full production which has been mentioned on both sides of the Committee. This is the tonic to which I am looking forward and the sooner the Government can achieve it, on appropriate conditions, the more pleased I shall be.

7.10 p.m.

Sir Thomas Moore (Ayr)

This will be a short speech, because I realise that there are many hon. Members who want to take part in the debate and whose contributions may probably be more valuable than mine. The few remarks that I intend to make will differ from the speeches during the last three days, because I propose to deal with the Budget, which is what only one or two hon. Members have done today. In my rather naïve way I thought that the Budget was to be the main topic of discussion today.

As far as the Budget goes, it is tidy, helpful, on the whole beneficial, and, I think, wise. Obviously, the stock markets think that there is something in it to their taste, although I imagine that their feelings stem rather from relief than from rejoicing. I agree that the Budget is not as inspiring as many of my right hon. and learned Friend's enthusiastic supporters hoped for, nor have the proposals aroused a storm of enthusiastic applause from any direction, although I noticed that the hon. Member for Cardiff, South-East (Mr. Callaghan) contained his enthusiasm by implying that, innocuous as it was, Labour would do it better still; in other words, that Labour would produce a still more innocuous Budget.

The hon. Member for Cardiff, South-East made one comment which has been repeated today. In fact, it has been repeated ad nauseam, and one is getting tired of it. It is becoming tiresome and monotonous to hear it said that last year the Chancellor gave away—and I stress that word "gave" because that is the word that has been used on two occasions today—£84 million to the Surtax payers. It is nonsense to talk like that, because no Chancellor has ever given away anything to the taxpayer as such.

Those who use this phrase believe, as did Dr. Goebbels, that if the lie is big enough, and is repeated often enough, it will eventually assume the guise of truth, and there is no doubt that there are many excellent, well-meaning, but economically half-witted supporters of Labour in the constituencies who have definitely swallowed that statement hook, line, and sinker.

Just to show the kind of ignorance that exists in many minds today, I remember Mr. Attlee, as he then was, saying that he proposed to allow private Members more time. That, also, was nonsense. The Government have no time to give away. Members allow the Executive such time as is needed to carry out the policy which the majority of Members want, and so it is with the taxpayer and the Chancellor.

I imagine that the Chancellor has watched with growing concern the efforts of successive Chancellors of the Exchequer since 1945 to kill, and at times practically succeeding in doing so, the golden-egged goose, but my right hon. and learned Friend, having seen the red light, wisely allowed the said goose to retain sufficient sustenance to keep it alive so that it could go on laying. My right hon. and learned Friend knows, and we all know, that without that sustenance, and without the eggs that that goose lays, he could not possibly support our present standard of social services, nor protect our defence programme.

I have only one or two comments on some of the more important proposals in the Budget. I used to oppose a capital gains tax, not because I thought that it was moral or immoral to make a capital gain, but I took the experience of America, where they have found that owing to the offsetting of capital losses, and because of the difficulties of collection, it is hardly worth while. But during the last few years, because of a rising market, the gains have become rather exorbitant, and, it seems to me, that is contrary to the public interest.

Even though the Chancellor has made a rather limited application of this tax, and has perhaps allowed himself to be too timid in that application, I hope that it will have the desired effect. I believe that he has been affected too much by those pre-Budget bleats or threats of the Chairman of the Stock Exchange. I cannot help thinking that it is not right that those who neither toil nor spin should be able, merely by astute timing and anticipation, to enjoy fantastic capital appreciation and holidays on the Riviera, which the rest of us have to work hard to achieve.

I think that it might also be useful for my right hon. and learned Friend to consider some of these more obvious take-over bids and the substantial hidden profits made by them. In some cases these bids are quite indefensible. Where a genuine merger, agreed by both sides for the mutual interest of workers, shareholders, and the general public takes place, it is all right. But some of these bids are indefensible, and indeed in my opinion even unethical, since these bidders not only obtain the material assets of the victim—and written down assets at that—but buy for cash the tears, blood, and sweat poured into the business by countless men who have given years of their lives to make it prosperous, progressive and succesful.

I was disappointed at the somewhat canny approach of the Chancellor to the fuel oil tax, but I expect that next year he will fully disclose his intentions.

On the controversial subject of the 15 per cent. tax on sweets, I wholeheartedly support my right hon. and learned Friend's efforts to safeguard our children's teeth, and, at the same time, to gain such a substantial benefit for the Treasury. In addition to protecting children's teeth, he has given parents the virtuous feeling of satisfaction that they may now minimise their own dangers from lung cancer by devoting what they save on cigarettes to allowing their children to go on enjoying their favourite lollipops, though possibly in reduced quantities.

As for that synthetic burst of spurious indignation shown by the Opposition last Monday, it was not worthy of a presumably intelligent and adult party. Perhaps they overlooked the warning given the other day by the Dental Association, who pointed out that the over-consumption of sweets today was ruining our children's teeth, especially at a time when there were not nearly enough dentists to undo the harm in time.

I now turn to one or two complaints that I have to make. About two years ago I protested strongly to the then Chancellor of the Exchequer, as I did again the other day, at the inequities of the existing rate of Surtax coupled with the present fantastic scale of Estate Duty. I cannot understand how any Government, especially a Conservative one, can connive at the perpetuation of these two indefensible taxes.

Next year I admit the Chancellor will do something for the Surtax payers, although Income Tax will still have to be paid on the £5,000 that will be free of Surtax. This means that the tax remains a powerful penalty upon effort. If business executives, who are now beginning to enjoy high incomes, do not have the incentive to put everything they have into their businesses, our social services will inevitably suffer, which will mean that those in the lower fixed income group, who really need help, will not be able to receive it.

When a man has worked hard to provide better or more rewarding opportunities for his children and more comfort for his whole family—when he has put so much effort into building up his business and putting by a certain amount of savings—I cannot understand why he should have up to three-quarters of his wealth taken away. Estate Duty is one of the most shocking of all our taxes. It is a penalty on effort and success. What justification can there be for the imposition of such a sadistic retribution on those who want only to serve their families, but who, in the end, serve the country as well?

I have said my say. I fear that my criticisms outweigh my commendations, but I can always look forward to next year.

7.31 p.m.

Mr. John McKay (Wallsend)

I have listened to some very peculiar speeches during this debate, especially the one from the noble Lord the Member for Dorset, South (Viscount Hinching-brooke). It makes me wonder whether this place is becoming a Chamber where one makes up stories in order to attract attention—a place where hon. Members say things not to do good, but simply to criticise. The less we take note of some of these speeches the better it will be. Although some of the things that I shall refer to are plain to most people they still require to be emphasised, because they are defects which even Conservative supporters would like to see remedied.

We have given lots of money to the Surtax payers, and we are also giving extra privileges to aged people who have investments that are not very small, because they are receiving about £400 a year from them. The Government are going out of their way to help those people. It can be argued that their income has not risen recently, although the cost of living has, and that they ought, therefore, to be given some help to enable them to live again in the style to which they have been accustomed. I cannot understand why people worry when they have thousands of pounds invested and are getting about £400 or £500 a year from those investments. They will still have a lot of money when they die, which they can hand on to their relatives, if they do not wish to take it with them in their coffins.

What annoys me is not that so much is being done for people in exceptional circumstances, but that nothing is being done for others who are in a very much worse position. Many workers with families are earning less than £480 a year for a full year's work, but are still having to pay about £27 for insurance benefits and £22 in taxation. The Government are selecting those people who have £5,000 invested, and, therefore, have £400 a year coming in, for special concessions, while ignoring those people who are earning low wages. Yet if those poor people fall ill. or have an accident, their £9 a week drops to about £4 10s.

I now turn my attention to those people who are receiving not £9 a week, but, if they are married. £4 12s. 6d. Who are those people? They represent the main body of the nation. They are the relations of people who are carrying on the work of the country, and there are nearly 6 million of them. We are making small concessions to some people and big concessions to others, but we are leaving these people standing still. We are giving them about 30 per cent. of the average wage. Next year at least 10s. will be added to the average wage, and this will make the difference between the old people and the workers even greater.

The question is: how can we ensure that these old people have a reasonable income? This is too great a problem to be tackled in the way in which the Government are tackling it at present. We had to pay 1s. 6d. extra in contributions to enable the single pensioner to receive an extra 7s. 6d. on the last occasion. If we continue to try to look after the old people on the present contribution basis we shall never succeed in giving them a reasonable income. The Government know that, but their policy is not to help these poor people to be independent, in the way in which those with £5,000 invested are independent. The Government are not very anxious to make old-age pensioners sufficiently independent to be able to do without public assistance.

They do not want that. The Government could easily find ways and means of doing it, but they are not prepared to do it on principle. If we are to help the aged people we shall have to change the financial methods that we use at present. This problem is being solved elsewhere—in Germany, France and other places. America is also considering it. The United States is paying a married couple £10 15s. a week, and we are paying £4 12s. 6d. That is a mighty difference. There may be a mighty difference in the cost of living, but it shows that this problem is quite possible of solution. It is being solved in Germany by regulations and by law.

The question is: do the people of our country, regardless of whether they are Tories or Liberals, want the aged people to be able to live on a reasonably self-sufficient basis instead of having to undergo a means test to receive National Assistance?

What is the attitude of the Government on this question? At the moment they are suggesting to us that by far the better way of dealing with the problem of the aged people and their needs is to push more and more of them on to public assistance, where they have to give particulars of their family affairs before they can get aid. This will get worse as time goes on. To the extent that rents are raised a bigger percentage of aged people are bound to have to undergo the means test. It has been well-established by experienced investigators-it is not simply a matter of opinion—that thousands of aged people are not prepared to undergo the means test.

They would not have to do this if National Insurance were put on a proper basis, which would enable them to be self-supporting. We could do that without having to draw very heavily upon Government resources. It would not cost the Government a great deal more to make that possible. It is a question of saying how much more people shall contribute towards making such a scheme financially sound. There is no doubt, in my mind, that this could be done if any party considered the matter sympathetically and obtained the help of the public. I am sure that the people who work hard would not mind contributing a little more.

The people who might object will not be those who work hard in the factories, in the pits and on the farms. The big objection will come, as it has done in the past, from those who earn higher incomes. It is part of human nature, apparently, that the more people earn the more mean they are about paying out a little more. They are the people who will be the biggest objectors.

I want to refer to a case which I examined myself, and which I sent to the National Assistance Board for consideration. It concerns a married couple who are constituents of mine. The father was injured in the war and the son was killed. After examination, the Board came to the conclusion that the father was entitled to a pension. It was decided later that both the father and mother were entitled to some extra money. They were given a pension on behalf of the father and on behalf of the son. They have managed to carry on, but they are getting old and rather feeble and their health is beginning to break down. They do not want a lot of extra help. They send out their washing and they have also to have home help. That does not cost them very much, 9s. per week.

It must be admitted that people in receipt of pensions for war injuries have an income which is greater than that provided by ordinary pensions. The Government have announced their intentions towards old people and their needs and have advocated the means test. The margin between the ordinary pension and an income following the means test is becoming greater and the Government are endeavouring to create the impression that the extra money which results from a means test is an advantage for old people. In the case of the family to which I refer the maximum disregarded was 30s. The impression was given that this amount would be disregarded completely, but that was not so.

The couple to whom I refer found it necessary to have their laundry done for them and to ask for the provision of a home help. But the cost of these things was refused to them because it was argued that the amount of the disregard was sufficient to cover the cost of that extra assistance. So, in fact, the only people who enjoy the advantage of so-called disregards are those who have no extra expenses to meet. One way to improve National Assistance grants would be to change the situation so that a disregard would be an advantage, in full, regardless of extra needs.

I have been trying to understand some of the economic problems about which various opinions have been expressed. Some people are of the opinion that we should encourage investment and that the volume of our trade should be increased. By these means it is hoped that there will be more production per head of the population and consequently the whole country will benefit. I feel that the present financial situation is one which reacts more favourably to the capitalist than ever before.

I have tried to discover what are the prevailing amounts of dividends which investors expect to receive and whether the amount which they get is justified. I have heard it argued that people who had shares in various companies in 1938 then received dividend on their shares to the extent of 5 per cent. and that that was a satisfactory figure at that time. But, in the post-war years and because of the rise in prices and material costs, dividend returns on share capital have increased. This has been going on ever since the end of the war. It is argued that dividend at 5 per cent. is not sufficient. Because of the increase in the cost of living, at least 15 per cent. must be paid so that a person who received 5 per cent. in 1938 may enjoy the same purchasing power today. A newcomer to industry who is investing his capital argues that he, too, should receive 15 per cent. because people who held shares ever since 1938 now receive that percentage of interest upon them. Producing the same commodity, he commands the same price.

The Stock Exchange has issued a booklet which seems to me to make the position clear. It quotes dividends on shares. The average dividend which is quoted is 14 per cent. on each share.

Sir T. Moore

Nonsense.

Mr. McKay

Has the hon. Gentleman examined the figures?

Sir T. Moore

What was the purchase price?

Mr. McKay

The hon. Member is quick to shout "Nonsense". But the booklet to which I refer is available for his inspection. It contains the share capital figure and the dividends year by year, and a figure of 14 per cent. is realised on the average.

I inquired from the Treasury what were the dividends for companies which appear in Table 3 in the Blue Book covering nearly all the industries of the country. I could not get all the information for which I asked, but I was told that two-thirds of these companies paid a dividend of 16½ per cent. in 1954 and 15 per cent. in 1960. So we have the Stock Exchange figure of 14 per cent. and a figure of 15 per cent. for the companies referred to in Table 3 of the Blue Book. It seems to me, therefore, that they get a better dividend percentage per share than that indicated in the Stock Exchange booklet.

Is there anything attached to that financial situation which is worth considering? To my mind, there is. If a company is selling commodities, and getting 14 per cent. or 15 per cent. dividend, is there anything else that it can get? It can get undistributed profits. Mr. Jay mentioned some of these things the other day. He knows what he is talking about. What are the undistributed profits which these companies are getting? There is no mystery about this. It is in the Blue Book. Do the undistributed profits amount to 5 per cent., or are they similar to the dividend which has been received?

I have the figures, and can give them if necessary. In most years the undistributed profits are three times as great as the dividend. If a company has a dividend of 12 per cent. or 15 per cent. and has extra profit which is three times the amount of dividend retained is that not a rather big return? Is it an absolute necessity? Is it to a large extent an organised practice in industry?

It is amazing to think that at any time when we are in difficulties over trade that is the situation. Yet that is what this Blue Book says. It gives the total dividend and the total undistributed profits, which are nearly three times the dividend. We can try to get over a crisis by increasing the productive power of industry and to that extent we can get production and reduced profits, but this kind of thing is repeating and we are not getting at the root of the problem. We get into difficulties over balance of payments, and so on. People who have the power seem to have no idea of getting prices down. Have industrialists any real desire to get prices down? Is pressure brought to bear on employers to keep prices down?

No pressure of any great consequence is put on industrialists. They are all doing well. We may be able to point to some companies which are doing badly, but we have to look at these matters in a general way. The Government have to find out where there are ways and means of getting over this difficulty. Unless great pressure is brought to bear on industrialists, there will be no beneficial factor in it. How some hon. Members opposite can stand on their feet—

Hon. Members

We can

Mr. Kenneth Lewis (Rutland and Stamford)

On a point of order. Since I am not interested in speaking in this debate, may I point out that the hon. Member for Wallsend (Mr. McKay) has been speaking for 35 minutes? May I ask whether he is winding up for the Opposition? Thirty-five minutes seems to be a long time.

The Temporary Chairman (Mr. James McInnes)

That is not a point of order.

Mr. McKay

Are there any ways and means whereby the Government might be helpful? Could a case be presented on actual information supplied by the Government? Do they agree that the returns made by industrialists today are—[Laughter.] It is all right laughing, but if the people knew exactly what was happening—[Interruption.] It was all right when Lord Hinchingbrooke spoke. There were no interruptions of his speech, which had no sense in it and no attempt to deal with the problem, but which was a wild story of what he would do.

Mr. Webster

Is it in order, Mr. McInnes, to refer to the noble Lord by name and not by constituency?

The Temporary Chairman

No it is not in order. The hon. Member for Wallsend (Mr. McKay) has referred to hon. Members on two occasions in that way. I hope that he will address and refer to hon. Members in the proper fashion.

Mr. McKay

I did not want to breach the rules. I notice that another hon. Member used the term "Lord", but did not mention a name. I am sorry, Mr. McInnes; I will not do it any more. I am not trying to talk party politics but economic sense. That may take some time, but I think that I have as much right to take time over that as has anyone else.

The question is: can we collect that information? I could not get to know what the price was, or exactly what was the position, to show that the undistributed profits were of such a nature and size that if there were an attempt to deal with them honestly and fairly for the nation at large something could be done about them by industrialists. I looked at Table 3 and considered the trading profits and the collective wages and came to the conclusion that, taking one-third of wages as the cost of material, the total of wages, trading profits and material would roughly give the price.

When we take the trading profits with the other factors and add the undistributed profits we find that the undistributed profits are equal roughly to 10 per cent. of the approximate price. If the undistributed profits collectively are practically 10 per cent. of the price, there is an opportunity for the industrialists to see whether, instead of relying on investment and getting more production, there is something in their own hands by which they can reach a financial position in which employers collectively could reduce the price. If industrialists are exploiting the nation by demanding such enormous dividends and retaining such huge sums as undistributed profit, it is time that pressure was brought to bear on them as well as on wage earners.

Anyone who asks for wage restraint is talking about 24 million of his fellow countrymen. The Government have tried to put a collective responsibility upon the wage earners. The Government allege that our economic troubles are caused by excessive wages. Yet Stock Exchange capital rose by 59 per cent. in five years and Stock Exchange dividends rose by 73 per cent. in five years. The dividends of the companies set out in the Blue Book also rose alarmingly, 70 per cent. in five years. But the individual earnings of men on piece work, who depend on the money they receive for their very life, rose by only 37 per cent. and the total bulk of wages in the five years rose by only 28 per cent.

In spite of this, it is continually alleged that our economic troubles are caused largely by the wage demands of the people. What a farce and an untruth! Bulk wages, including lower-paid men and everyone else, instead of rising by 70 per cent. in five years, have risen, according to the Blue Book, by only 28 per cent. These are some of the figures that my right hon. Friend the Member for Battersea, North (Mr. Jay) mentioned. They are not farcical or imaginary figures. They are contained in Government returns.

In all these circumstances, I do not know how the Government or anybody else dare give the impression that the wages of the workers are responsible for the nation's troubles.

8.13 p.m.

Mr. Edward du Cann (Taunton)

The hon. Member for Wallsend (Mr. McKay) in that part of his speech which related to the problems of old people spoke with sincerity and made a number of very worth-while points to which I shall refer later. In the second half of his speech when he discussed the financial affairs of companies and of the country at large—I say this with great respect to him—he was much wider of the mark than I have ever heard any other speaker in the House of Commons be, and that is saying something. This is a matter which we might discuss together some time, when I shall do my best to put him right.

I think that it is right to come back to the Budget now. I want most warmly to congratulate my right hon. and learned Friend on his Budget. It is a tough Budget, but I believe, that it is a sound and sensible one. If the country were now in a state of economic crisis, it is abundantly clear that my right hon. and learned Friend would be criticised very sharply on both sides of the Committee for that. It is, therefore, appropriate that we should offer him our congratulations that the balance of payments is better than it has been for some time. That is not to say that it is yet totally satisfactory. We should also congratulate him on the fact that exports are rising and imports falling, although we should again like to see further progress made, and so would he. We congratulate him, lastly, on maintaining a state of full employment, though again many of us on both sides of the Committee, judging by what has been said already, think that we are in a state of over-full employment.

It is a fact that the standard of life in this country is very high. It is a fact that it is continuing to rise. My right hon. and learned Friend, as the chief administrator of the economic well-being of the nation, deserves the credit for this, together with his colleagues. This creates a slightly difficult situation in England, for this reason. We are a curious people. We are much happier in defeat than we are in victory. For example, we remember Dunkirk very much better than we remember El Alamein.

There is a difficulty in the United Kingdom at the moment in that people find it hard to adjust themselves to the new lush circumstances in which they live. They are able for the first time for many years—a very different picture exists today from that which existed before the last war—to fill their houses with material goods, which make living so much easier. They have more money in real terms and more leisure than they ever had before. They find it difficult to adjust themselves to the new situation.

As a result, there is perhaps an especial need for the Government to give the people a lead and a clear purpose and particularly, through fiscal measures and in other ways, to ensure that in their philosophy they are given something concrete to bite on. It is clear that the people look to the Chancellor of the Exchequer in this Budget to give that lead. We have heard much criticism from commentators outside Parliament and from speakers on both sides of the Committee to the effect that my right hon. and learned Friend has not fully done that. In some ways he is the prisoner of the Budget situation, because before Budget day commentators in this place and outside it build up the position greatly. I believe that the public is led to expect far too much and far more than any Chancellor of the Exchequer could possibly deliver.

This is most unsatisfactory. After all, the purpose of the Budget is twofold. Its first purpose is to provide the revenue which the Government must have to administer the country. Its second purpose is as an instrument to control the economy, but it is only one of many instruments and it is by no means the chief instrument. The sooner that point is better appreciated in the country at large the better.

Our economy requires constant surveillance. Now that the Chancellor of the Exchequer has so rightly set up the National Economic Development Council, which everyone on both sides of the Committee wishes well, it is plain that the Budget will become of less and less importance as a single instrument to control the national economy. I hope very much that the Council will look particularly into the training of labour, the mobility of labour, about which the hon. Member for Gloucester (Mr. Diamond) so rightly spoke, the hoarding of skilled labour, which has been one of our economic difficulties in recent years, and especially into restrictive practices on both sides of industry. Last, but by no means least, I hope that the Council will pay particular regard to the need for realistic training and apprenticeship schemes.

All these things will happen. It is quite wrong for anybody to feel let down because the whole financial system of the United Kingdom has not been turned upside down by the Chancellor of the Exchequer on this occasion. In any case, he would have been quite wrong to do that, because the most effective changes are probably those which are accomplished most gradually. He has himself already endeavoured to reduce the scale of importance of the Budget in the context of our national affairs, it seems to me, by sparing those of us who have to sit on these benches having to listen to the usual thirty minutes of economic polemics which used to precede the announcement of the previous year's results. I congratulate my right hon. and learned Friend on that, and if he can further reduce the occasion of its importance it would be a good thing.

Incidentally, I must say that the Opposition, and some of the outside commentators, do themselves a disservice by finding their chief line of argument or discussion on the Budget to be this new tax on sweets, soft drinks and ice-cream. It is, of course, perfectly true to say that it is to some extent hard upon the children and, perhaps, on old and retired people, but on the generality of the community it is a tax that is very much overdue. I went to the cinema the other night, for the first time in a long time—and saw such a wretched film that I cannot see myself going again for a very long time—and noted in the interval that the queues for the sweets, soft drinks, chocolate, popcorn and the rest were enormous; and the noise they made eating those things afterwards was almost a disgrace.

The truth is that it is not the price of admittance that makes the cinema pay so much as the sale of the soft drinks, sweets and chocolates, and so on in the interval. The agitation about this tax I believe to be completely "phoney". Indeed, if that is all the Opposition can find seriously to complain of it is an indication that the Budget is just about right for the national needs.

This Budget is, of course, a standstill operation. It is a holding measure. Its purpose is to consolidate the gains we have made since the financial crisis of July—and the very substantial gains made in raising the standard of life ever since the Conservatives formed the Government in 1951. As such, I support it. In some quarters it has been called dull, but that is a totally misleading description. Rather, I regard it as being an exciting Budget, because it is setting the stage for sound growth in 1963 and 1964.

I believe that the country is beginning to be only too well aware of this, and only too well aware of the fact that it would have been very easy for the Chancellor to give money away—as it is called, although that is the wrong phrase, because he only returns to the people their own money in tax concessions—and be popular. I do not believe that that is what the people want, but that, instead, they congratulate the Chancellor on budgeting for a borrowing requirement of only £74 million, which compares with last year's estimate of £69 million.

Of course my right hon. and learned Friend had to rein in. Of course he was right not to try to bribe the electorate in any sort of way. After the Chancellor's television appearance, which I dare say many hon. Members saw, one of my constituents wrote to the following effect: I was very much struck by the way in which the Chancellor said that he would do what he believed to be right in the country's interests and, so to speak, devil take everything else. I will always support a man like that and so, I believe, will the country at large. That is profoundly true.

I have spoken about the excitement of the Budget. There is some excitement. If a man gives a lead there is excitement. There is excitement in the Purchase Tax consolidation leading, as it so obviously does, to a change to an overall sales tax, maybe to export incentives, and so on, in due course. There is excitement and good sense in the idea of a single corporation tax. That might make United Kingdom investment very much more attractive to foreigners. It is particularly noteworthy that the volume of investment in the United Kingdom in common stocks, as it were, gilt-edged stocks, in the last year amounted to £184 million, of which £155 million was in the last six months of the year. That is a great thing. There are great opportunities here. It is completely and totally right that the Government should be taking us forward, so to speak, gradually into a prospect of change.

My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke), whose speech I very much enjoyed and with which I very largely agreed, spoke about the moral purpose of our nation. I have felt for a long time, and I think that many hon. Members will agree, that it is distressing to see the growth of materialism in our country. It is perfectly plain that an attitude has developed among people of all classes and types of seeking to grab all they can for themselves, and "devil take the hindmost", which means very largely at the expense of the other fellow. I do not say that everybody does it, but it is a tendency, and we are all very well aware of it. For my own part, I deplore it.

The Government have introduced the pay pause. This has not been altogether a satisfactory policy, as we all know. In the first place, it has been thoroughly unfair, particularly on some civil servants, on the nurses, especially, and it is also true, as my noble Friend said, that a coach and horses was driven through it by the Electricity Authority, among others. I thought that the responsible Minister at that time should have resigned, but that is neither here nor there.

On the other hand, that policy has succeeded, from a psychological point of view, I believe, beyond our wildest dreams, for the country is at last fully aware of the need for voluntary restraint. It was prophesied when that policy was introduced that it would perhaps lead to a head-on clash between organised labour on the one hand and the Government on the other. That has not occurred, and I congratulate both the Government and organised labour on handling the situation so tactfully. It is plain that our competitive position is improving, as my hon. Friend the Economic Secretary to the Treasury said in his very able speech this afternoon. It is plain also that if this policy succeeds in the end, it will be those very people Who are practising restraint at the moment who will be the gainers, and, what is more, they will deserve success.

The second aspect of life which has bothered me very much has been the attitude of our citizens to the Welfare State, and, indeed, to the State in general. The other day, I was driving my little car—and. in view of what was said by the hon. Member for Sowerby (Mr. Houghton) about business expenses, I should immediately say that it is my own car—from my office to the Palace of Westminster, when I turned on the radio hoping to pick up Mr. Acker Bilk, who is a well-known son of Somerset—

Mr. Webster

Hear, hear.

Mr. du Cann

I am glad to have the support of my hon. Friend the Member for Weston-super-Mare (Mr. Webster), whose constituency I think he comes from. Instead of that. I got Lord Morrison of Lambeth, a very different thing altogether, being interviewed. He was asked what his impressions were regarding the greatest changes he had noticed in his very distinguished life in politics and public life in Britain. He replied "I remember how when I first became interested in politics the slum dwellers in the parts of London with which I was associated were opposed to any political party which wanted to change and improve their circumstances. They said 'We will not be interfered with'."

Today, of course—although he did not go on to say this—the situation is very different. Sometimes, on reading my mail and when holding interviews on Saturday mornings, I think that it is the chief aim of the community to get everything they jolly well can out of the State. We are all proud of what the Welfare State has achieved, and these achievements are very real. One has only to go to one of the modern secondary schools, a housing estate, or a hospital to realise that we have every right to be proud of what we have—politics apart—all created together.

Mr. Mitchison

With a few divisions.

Mr. du Cann

If the hon. and learned Member for Kettering (Mr. Mitchison) wishes to intervene, perhaps he would be good enough to stand up.

Mr. Mitchison

The hon. Gentleman says that we have all created it together; I said "With occasional divisions". There were divisions at the time.

Mr. da Cann

The hon. and learned Gentleman is, as usual, absolutely right, but that has not stopped us getting on with it, and I think that between us we have not done a bad job. On the other hand, I think there is a good deal more to be done in the psychological field. A constituent of mine said to me at a meeting the other day in the broad Somerset language which I will try to imitate, "My dear, the trouble with you and that than Government is that you do too much for us. You want to let us stand on our own feet a bit more." That is absolutely true. We should concentrate much more on giving aid where it is most needed. We should stop assisting everybody irrespective of whether they need help or not.

Of course, this is sound, old-fashioned, radical Conservative doctrine, enunciated by past leaders of the party like Burke, Disraeli and others. I was glad to hear my noble Friend the Member for Dorset, South repeating it this afternoon. Of course, we have done a great deal in moving towards it. The future abolition of Schedule A is a step in the right direction, as was the reduction in Stamp Duty on house purchase. The abolition of the general housing subsidy and the substitution of new subsidies for building houses for old people and clearing away slums are also steps in the right direction. The tax concessions to old people are very fair and much required.

May I say in reply to the hon. Member for Wallsend that one does not have to have a great deal of capital to produce an income of £400. One needs only to invest £8,000 in War Loan. A few days ago a constituent of mine told me how he had worked like mad for twenty years in building up a little sweet, confectionery and tobacconist business and then sold it for £9,000 He invested that money and was living in retirement with his wife on the income from that investment. I say, jolly good luck to him. That is a fine thing for a person to do with his life. To suggest that people with incomes of £400 a year are all bloated capitalists and enemies of society is totally and absolutely wrong.

I support the increase from £3,000 to £4,000 in the minimum level of Estate Duty. All this is excellent, but I say that, although this Budget fits the general pattern, the main stream, of Conservative philosophy, thought and policy, it does not go far enough. My noble Friend the Member for Dorset, South was right when he suggested that more should be done in health and education matters to ensure that people paid for what they received. Let us concentrate on endeavouring to do what we can to build a nation of independent people, not a nation of people always expecting their problems to be solved by their local councillors, local Members of Parliament, or by the Government. People must learn to settle their problems for themselves.

Mr. McKay

If the hon. Gentleman thinks it right for the Government to give £22 a year, arising out of regulations, to people of 65 years of age or so with £5,000 or £9,000, as the hon. Gentleman said, invested from which they get an income of £400, whereas the man in the factory or on the farm who is working every week—

The Temporary Chairman

Order. I thought that the hon. Gentleman wished to put a question. It seems that he is making a good attempt at another speech. Will he put the question direct?

Mr. du Cann

If the question is not put, I cannot answer it.

Mr. McKay

That is all right.

Mr. du Cann

I repeat that this is a proper thing to have done. I most warmly support it and I am glad that it has received support from both sides of the Committee.

I wish to deal very shortly with the subject of economy in Government expenditure because I think that this is a part of the same psychological process. If there is something wrong with the behaviour and attitude of the Government, it is that we are not sufficiently clearly projecting our policies. For example, I have not heard it said in this Budget that we are, so to speak, in the main stream of endeavouring to help people to stand on their own feet and encouraging independent-minded people. Economy in Government expenditure is something to which we have to devote very much more attention.

I heard it said this afternoon by a distinguished back-bencher, a Privy Councillor and former Minister, namely, my right hon. Friend the Member for Thirsk and Malton (Mr. Turton), that he did not believe it possible to effect economies unless there were radical changes in policy. He went on to argue that this was not necessarily a matter which Ministers could decide for themselves, and he took agriculture as his example. I could not disagree with what he said more strongly. I do not know why it has not been made very clear to the farming industry, as some of us have tried to make clear in our constituencies over a long period, that it must face—and the sooner it faces it the better—a radical change in the system of support. I do not believe that there has been any need for us to be hoisted with this open-ended situation.

Mr. Turton

If my hon. Friend will read in the OFFICIAL REPORT tomorrow just what I said he will find that I stated that, so far as I knew, there was no machinery at present by which either Ministers or Parliament were reviewing policy to see how they could effect economies. I instanced agriculture as one where they should make such a review.

Mr. du Cann

I apologise if I misinterpreted my right hon. Friend's remarks but it is plain that we are agreed on the main point that there is urgent need for reform in this connection and, I dare say, in others.

One recognises that it is not easy to introduce sweeping changes and reductions in Government expenditure, but I remain totally unconvinced that economies are not possible. All hon. Members are familiar with cases in their constituencies where economies would be possible. In my constituency, for example, the Home Office intends to spend the enormous sum of £300,000 on the building of an approved school.

I am sure that that Department could find an old mansion which would be suitable for this need. Indeed, the advertisement columns of the newspapers are full of mansions for sale, many of which are excellent for institutional purposes. But no, For some reason the Home Office must have a brand new school in the middle of nowhere and, of course, a further £15,000 will have to be spent to provide new roads. Meanwhile, I cannot get a few pounds to improve the roads which really do need a bit of money spent on them. This is just one of many instances that could be given. It is urgent and essential that the Government should set local authorities and the nation as a whole a strong example in this regard.

I wanted particularly tonight to plead that something be done to encourage a greater volume of saving. This is a field in which the Government could do much to encourage people who are anxious to stand on their own feet. But, because of the time, I will content myself by making that general plea and I hope that it will be possible to discuss this matter more widely in Committee on the Finance Bill.

I am a strong supporter of this Budget. I believe that it has many good features. But it has one thoroughly bad feature—the capital gains tax. It is possible to argue that it is a tax designed, so to speak, to make people who, somehow or other, do not have an opportunity to make gains of any sort feel a little happier. That suggestion is very much exaggerated and I believe that the tax has substantial demerits. It is, as my noble Friend the Member for Dorset, South said in his excellent speech, the thin edge of the wedge. Hon. Members should make no mistake about that, for that is what it is.

If we ever have a Labour Government or a Lib-Lab coalition it is true that they would grind the knife in a little deeper.

Miss Margaret Herbison (Lanarkshire, North)

Hear, hear.

Mr. du Cann

Indeed, they make it plain and I am glad that it has been made plain. The suggestion that there should be a harsher rate of tax indicates very clearly that the ideas of the hon. Member for Lanarkshire, North (Miss Herbison) about social fairness are totally out of date.

This form of taxation is psychologically damaging. How on earth can we expect to raise new capital for industry if the Government—indeed, if any Government—intend to engage in this sort of enterprise? How can people be expected to produce the money that is so urgently required to keep British industry going? I believe that it is absolutely certain, at least in the short term, to restrict the operations of the London market. A market is only as good as its turnover. It is too early to judge, of course, but the turnover of the London Stock Exchange is already down. If we want London to become the financial centre which we all hope it will be when we go into the Common Market, we have set the process back by the introduction of this tax. It is the old game. We are catching a few, perhaps, and we are wrecking the situation for the many.

Lastly, I believe that this tax will do positive harm, apart from the psychological effect which it is bound to have, because there will be innocent transactions interfered with. I have written to the Chancellor on this subject, and I will not go into detail now. I am sure that this is not my right hon. and learned Friend's intention, and I hope that he will give attention to these matters as the debate on the Finance Bill proceeds. In my view, this tax is a blot upon the Budget which otherwise I strongly support.

8.41 p.m.

Mr. Ifor Davies (Gower)

Before I comment on the speech which we have just heard from the hon. Member for Taunton (Mr. du Cann), I wish, as a Welshman, to take this opportunity to congratulate my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) on his excellent maiden speech as the shadow Chancellor of the Exchequer in reply to the Budget. It was a speech worthy of a representative of the capital city of Wales, and I am happy to offer him my congratulations.

The hon. Member for Taunton gave us a hymn of praise on the Budget, with some reactionary suggestions. His speech was characteristic of nearly all the speeches I have heard from the benches opposite. The hon. Gentleman called the Budget a tough Budget, a standstill Budget, a holding operation. He even said that it was "exciting". This is typical. I have heard most of the speeches in the Committee during the past four days. The remarkable thing is that, when we compare the speeches from right hon. and hon. Members opposite not with speeches made from this side of the Committee—for we may be charged with political bias—but with the comments in the free Press, we can hardly recognise that it is the same Budget that is being discussed.

The hon. Member for Taunton praised the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), who made a deplorable speech, in my view. He gave a display of dramatic indignation about the so-called capital gains tax. He exhibited great indignation in referring to the pay pause and the attempts which have been made to stop it. He went further and proposed a means test, in connection with the social services and he proposed that there should be a tax of 5s. per family per week to pay for education.

The noble Lord did not utter a word of indignation about the plight of those who need consideration, the people that my hon. Friend the Member for Walls-end (Mr. McKay) told us about, those who are in need and suffering as a result of some of the social injustice which still exists.

The noble Lord treated us to a poetic reference. I reply to him with another quotation: Ill fares the land, to hastening ills a prey. Where wealth accumulates, and men decay. I am sorry that the noble Lord is not here to listen to that.

I have said that it is difficult to recognise that it is the same Budget when one compares comments on it in the Press and in the speeches of hon. Members opposite. Here are some comments. The Daily Mail, for instance, which is certainly not a Labour Party paper, says: No inspiring take-off for Britain's forward leap. For once, I agree with the Daily Mail. The Times—not exactly a friend of ours—described it as "waiting for Neddy".

I see that the Chancellor has returned. I believe that he claims Welsh connections, so I shall refer to some Welsh journals. The Western Mail described the budget as being …a typical Conservative half-way Budget. That is a significant comment. The South Wales Evening Post said that the Budget contained "nothing to inspire."

I can agree with all these newspapers. The comment by the Daily Mail is precisely our criticism—that there is no inspiring take-off for a leap in our economy. A Budget must be designed to ensure that the Government earn enough revenue to meet their commitments, but the real test of a modern Budget is whether it promotes national efficiency and production, stimulates exports and charts a course for the national economy. But this Budget, as a revenue regulator, is unfair, and as an example in leadership is pathetic.

On Monday, the nation was waiting anxiously for a lead—which is what the hon. Member for Taunton said that a Budget should give. Even the Stock Exchange says that it was waiting for a lead. Instead of an inspiring call, however, we were given a depressing recital of doubts and promises. It has been said that the British people are never better than when facing difficulties, and I believe this to be true. No one can deny, after listening to this week's dismal record of our economic position, that we are not in difficulties. Here, then, was the psychological moment to make a clarion call for a tremendous national effort based upon proposals fair, equitable and able to stand up to the important test of social justice.

By one single announcement, the Chancellor could have changed the atmosphere in the country. An example of that has been mentioned already—the cancellation of the Surtax reliefs. If he could not have done that, the Chancellor, alternatively, could have imposed a real capital gains tax and not just a sham tax which, it is admitted, will yield only a little; but a proper capital gains tax, which it was estimated in the minority Report of the Royal Commission on the Taxation of Profits and Incomes, in 1955, would yield about £300 million. The Chancellor could also have taken the important step of convincing the nation that he really wanted to promote productivity by offering an incentive. The best incentive in this direction would have been a change in the disastrous pay pause policy. It is claimed that this policy has achieved some success. But at what price? I spent most of my working life, before I came to the House, in industrial relations. In this country, after tremendous efforts, we succeeded in building up machinery for wage negotiations of which we are proud. But, as a direct result of the Chancellor's disastrous interference we have witnessed unprecedented action, not by irresponsible militants but by people such as teachers, Post Office workers, and even university professors. These people feel such a sense of grievance that they have been forced to demonstrate their feelings, for the first time ever.

Instead of improving the atmosphere, however, the Chancellor made matters worse by imposing another item of Purchase Tax. I do not want to say a great deal about it, but I must make a comment on it, because this was the meanest tax ever introduced by a Chancellor. The right hon. and learned Gentleman defends himself as a father and claims that sweets are a luxury. I answer him also as a parent of young children. I am convinced that one of the essential pleasures of a child's life is the gift of sweets. The only other comment that I want to make is to ask the nation to compare the yield of £50 million from this tax with the relief of £83 million to the Surtax payers.

The Chancellor has missed a very great opportunity to take the initiative. What is he waiting for? Can it be that The Times is rigfht in saying that he is waiting for "Neddy"? I remind the Committee that on Monday the Chancellor said that the setting up of the National Economic Development Council was a step of major importance. I agree entirely. But if the Council is of major importance now, why has it taken so long to introduce it?

The hon. and learned Member for Liverpool, Garston (Mr. Bingham) challenged us yesterday evening to give the Council our support. Let me say at once that I wish it well, but let me also say that we on this side of the Committee have been advocating planning for expansion for a very long time. The Council is, after all, only an advisory body. It is the Government's responsibility to plan the nation's economy. Indeed, the noble Lord the Member for Dorset, South was right when he said that it is the Cabinet's business to give a dynamic lead.

The Chancellor said on Monday that the Council had a threefold task. This is worth repeating. Its task is to examine, to consider and to recommend. I want particularly to comment on the second: to consider together what are the obstacles to quicker growth, what can be done to improve efficiency, and whether the best use is being made of our resources."—[OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 968.] But there is no need for the Chancellor to wait for the Council to tell us what can be done. Indeed, in the Economic Survey we read: Public opinion is increasingly aware of what these objectives mean; an example is the current concern about the inadequate training of apprentices and of adult skilled labour. I was very glad indeed to hear a reference to this in the speech by my hon. Friend the Member for Gloucester (Mr. Diamond)—it was the first time I have heard it in this Budget debate—and it was mentioned also by the hon. Member for Taunton, later.

In this context, I listened to the speech by the Parliamentary Secretary to the Ministry of Labour on the Adjournment last Thursday in reply to the hon. Member for Rutland and Stamford (Mr. K. Lewis). The Parliamentary Secretary said: Our expansion has been consistently held up"— the hon. Gentleman did not say "by strikes" or by absenteeism— by shortages of skilled labour."—[OFFICIAL REPORT, 5th April, 1962; Vol. 657, c. 816.] He added that the present position is that for every machine tool setter unemployed there are ten vacancies and for every turner unemployed there are eight vacancies. It is obvious that our very prosperity as a manufacturing nation depends to a great extent not only on our technological skill and our technicians, but also on our skilled craftsmen.

This morning I received the third annual Report of the Development Corporation for Wales, a Report which is comprehensive and well produced. Under the heading "The prerequisites of a Balanced Economy", it states that in the constitution of a balanced economy there are seven elements, but I am glad to note that the first is quoted as follows: The best use of the employment potential of the various parts of the area under review, men, women and youth. I entirely agree with that, but it was said as long as four years ago by the Carr Committee, the Government's own advisory committee. Yet the Government still insist that industrial training is a matter for industry.

In this year of the bulge, only 38 per cent. of all the youths entering employment will obtain apprenticeships, and in Wales the figure is only 28 per cent. I agree with this Report and with the statement last Thursday by the Parliamentary Secretary to the Ministry of Labour when he said that our prosperity largely depended on the increase which we could get in our skills. Apprenticeship and training should not be left to chance, therefore, but should become a matter of national responsibility. We need a national scheme.

Here is a proposal not for a Development Council to consider, but for the Government to implement, for in the last resort an increase in productivity depends on the nation's human resources, the workers by hand and brain in every sector of industry. To train them and, having trained them, to give the fullest play to their talents, should be our top priority. This is the way to improve our efficiency and to ensure the growth of our economy, which should be the main theme of this Budget.

8.57 p.m.

Mr. G. R. Mitchison (Kettering)

I earnestly hope that I have not been responsible for any undue shortening of what my hon. Friend the Member for Gower (Mr. I. Davies) was saying so eloquently, for I agreed with every word of it. I have been listening for most of the four days we have been talking and I have read the rest of what has been said, and I think that we have had a more man usually interesting debate on what I shall suggest was a rather dull Budget. Hon. Members have gone some way beyond it, very rightly, for at this time of year, ever since the late Sir Stafford Cripps introduced the practice, we discuss the country's economic situation as well as the actual terms of the Budget, afterwards to be incorporated in the Finance Bill.

There is one matter on which I agree very cordially with my hon. Friend the Member for Sowerby (Mr. Houghton). I should like to congratulate the Government on a quite remarkable feat of conjuring. They have succeeded in getting through four Government speeches and reviewing the country's economic situation and the Budget proposals without once mentioning the £80 million concession to Surtax payers which comes into this year's finances and for which the figures are in the Financial Statement and so on.

This is getting a little too skilful. There is a limit to political] tactics, perhaps especially for the Chancellor of the Exchequer, and there comes a time when he ought to tell the country that this, too, should be taken into account. We can all see his reasons for not wishing to do so. It would fit very ill indeed with some of the proposals which he has been putting before the country and some of the proposals in this very Budget.

For the rest of the Budget—and I say the rest of the Budget because I count the Surtax in it—we may at first sight be tempted to say that it would not really have made any difference if he had said, "No change, boys. Carry on as before". That is not quite so. That is, of course, the final balancing effect of the Budget. There is a very small change one way or the other. No one pretends that there is anything else, but there are some matters of some importance in it, and I am going to mention one or two of them.

The right hon. and learned Gentleman has very properly met, I think, the first two Amendments of the Opposition in last year's Finance Bill—I think that we have had them there for some time now—and given small income relief and dealt favourably with age exemption limits. These are very small beer. There is little money in these two concessions, but they are quite right and I am glad that we persuaded the right hon. and learned Gentleman.

I am not going to say very much about sweets. I see the dental case, if I may so put it, but I do not think that that is the real reason for the tax. It is unfortunate that the tax has been put on at the moment when we have had the report of the Royal College of Physicians about tobacco, because many people who are trying to give up smoking eat a lot of sweets in the process, and I think that this is a wrong moment to put on the tax. But lately the Government have been hunting for new things on which to put Purchase Tax. and some of their efforts are really quaint. The last couple that I had to deal with were taking tax off garden mowers and putting it on to fireworks. We had quite a lively debate about it. This is the same sort of thing. The Government go hunting round for something on which to put Purchase Tax, and I agree with the comments that have been made, in the same way as I did with the comments about fireworks. It is rather unfortunate that every time they choose things that children want. The Government say that it is only a little one. The sort of pickpockety noise that we had from the Government—"We are just filching a little out of their pockets; they really will not notice "—falls a little flat when one finds that the total is £50 million in a full year and £30 million this year. It is really quite a substantial tax.

The other thing is the Purchase Tax arrangement. In 1955—that was, if I have kept count correctly, the last financial crisis but one; but it may have been another; one loses count of them a little but they all run absolutely true to form—we had the present Home Secretary bringing in for the first time, after the General Election—that was rather a quick one, because it came directly after the General Election and this has been just a little bit slower—Purchase Tax on pots and pans, brushes and household goods, and all kinds of things. These things had been taxed during the war, but directly after the war Mr. Hugh Dalton, as he then was, took the tax off household necessities, things like furniture, and so on. They were then introduced in that financial crisis at the 5 per cent. rate.

We objected to it strongly at the time We said that it was—as indeed it was —a regressive tax, a mean tax, and from every point of view thoroughly unsatisfactory. We have never liked it. We have been in the difficulty time and time again of not being able to deal with individual cases of Purchase Tax. I do not complain of that. It was actually Sir Stafford Cripps who introduced the Resolution and I see the reason for it. But what is happening now? That tax is being doubled, and it is part of the financial arrangement that the Chancellor is bringing forward. What is more, it is not only those things. It includes clothing, and the staple trade in my constituency, boots and shoes.

It is a fantastic sort of civilisation which, in the same Budget—and apparently for a reason which satisfies the Chancellor—lightens the tax on motor cars and doubles the tax on boots and shoes. Some people still have to walk; not everybody has a motor car. But it is part of good, sound Tory policy to lighten the tax on motor cars—the Press comment on this concession was that all the agents and dealers in the motor-trade would be drinking champagne that night—and at the same time to double the tax on boots and shoes. I am only taking boots and shoes as an example. Somebody was talking about the number of people who used various articles. Almost everybody has one pair of boots and shoes. Some have two. The number involved is, therefore, quite considerable.

In fact, the boot and shoe trade is in some difficulty at the moment. Its members have written to the Chancellor, and have sent to other hon. Members and myself a copy of the letter, in which they point out, rightly, that there is some short-working in the trade and some redundancy. They do not say, as they might, "It is enough for us to have to deal with Mr. Clore, without having to deal with the Chancellor, too."

I cannot see the reason for these changes. The whole business of bringing the two ends of Purchase Tax together is, in essence, regressive, because of the effect it has on those articles which ought never to have been taxed in the first place, and in respect of which the tax certainly ought not to have been doubled. I cannot understand what it is all about. The Chancellor told us that he was not heading towards a sales tax. Is this, therefore, a sort of preliminary step before we know what the conditions of entry into the Common Market will be? If that were the case, the Government would not be acting quite straight, in face of what has been said about our not going into the Common Market unless the conditions were satisfactory. But one's ideas of what is straight are so odd.

I come now to the famous speculative gains tax. My hon. Friend the Member for Sowerby and I had a look at the Evening Standard. I shall not quote it all again, but my view is that people who commit crimes should be dealt with by due process of law. I wonder whether hon. Members opposite will tell me whether they think it right or wrong, or criminal, to incite people to defraud the Inland Revenue, and whether they do not regard what the Evening Standard said as just exactly that. I shall read it out slowly and carefully. The newspaper says: The eager speculator will probably want even more freedom of movement. That is quaint language, but there is nothing very wrong so far, by Evening Standard standards. It then goes on to say this: Two courses which are not strictly legal but which, because of the great difficulty of checking on them, will undoubtedly be used, are so and so, and so and so; I do not see why I should advertise these things by reading them out again. I do not know whether they are good or bad courses, but I regard that passage as a direct incitement to the readers of that newspaper to defraud the Inland Revenue. The newspaper says, "These courses are not legal, but you are unlikely to be found out."

What does the Chancellor say about that, and what does he say about a tax that immediately provokes such a statement? Also it tells people that they need not bother too much, because they need only wait for six months and a day and everything will be all right, and then goes on to point out a legal way out and says that the accountants are busily engaged in concocting other ways out. Have not we had enough trouble with dividend strippers and the rest without introducing a new tax which is greeted by everybody as being the leak of all leaks, and as having more holes in it than anyone has ever been able to devise before?

What is the Government's defence? The Chancellor says, "Revenue is not my main purpose. What I intend to achieve is a greater sense of fair treatment between taxpayers." I suppose that some taxpayers read the Evening Standard. If they happen to be engaged in a Schedule E P.A.Y.E. occupation, without the opportunity for playing any of these games, I wonder whether they will be impressed by the fair treatment between taxpayers which is arrived at by the introduction this tax, or by the fact that it was apparently introduced to achieve fair treatment. I should have thought that the party opposite might have thought up something a bit better than that. This is too thin. It will not wash. Nobody will believe that the Chancellor really thought that he would get away with that one.

I say to him that I think it a very great pity that hon. Members opposite who tell us, as the hon. Member for Taunton (Mr. du Cann) did just now with perfect sincerity, that the one thing that they object to is materialism, will be faced with having to defend, as the right hon. and learned Member conspicuously refused to do, this really rather shameful tax, introduced to produce a greater sense of fair treatment between taxpayers. It is a most discreditable performance to bring in that sort of tax and to defend it in those sort of terms.

I am sorry to say this to the right hon. and learned Member. He knows perfectly well that I am talking only about his political activities and that I would not dream for a moment of saying anything of the sort about his personal character, but I do say that I regard this as a semi-fraudulent attempt from a political point of view to persuade the public that the Government are really doing something about capital gains at last.

Of course they are not doing anything about capital gains. This is about the silliest measure one could think of, and it will not have the effect that the right hon. and learned Member intends it to have. He has brought it in—and this is significant—because capital gains both in stocks and shares and in land now run against the public conscience. People are really disturbed at this sort of thing. They are disturbed at the kind of cases of profiting in land to which my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) called attention on Tuesday. They are disturbed not at any particular set of transactions about stocks and shares, but that sometimes some individual makes an enormous amount for doing nothing in a very short space of time, but, and more generally, by the knowledge that these particular gains are not taxed and that for some reason or another a responsible political party appears to think that they ought not to be taxed.

I have never understood the objection in principle. What is the difference between a man who gets an income of, say, £100 a year and a man who gets that amount by what I believe is known in the worst circles as "capital Apt.", and, having got it by capital Apt., sells off one share or two shares, or whatever is required year by year, and gets exactly the same amount to spend, and who, moreover, carries on his business for that purpose?

I cannot see what the difference is and I agree with what was said about this by my hon. Friend the Member for Gloucester (Mr. Diamond). It is perfectly true that at present the line between what is sometimes called the badge of trade in these matters and cases which are not treated as constituting trade is a very shadowy and unnecessarily difficult one. Surely it is right, and must be right, to treat what is in fact responsible for so much of the spending power of this country at present as good sound taxable capacity, and the taxing of it as raising no question of principle which I can see under modern conditions. I say, therefore, apart from the machinery of the thing—I am talking about what is here at the moment—that I see no reason whatever why a proper capital gains tax should not have been introduced. I do not regard this as any substitute for it or as anything but a derisory makeshift intended, apparently, to deceive the public into thinking that something effective has been done. I repeat, and the right hon. and learned Gentleman will understand, that these words are not meant personally.

I go on from that to deal with one other matter which is, as I see it, the background of the Budget which we are being asked to consider today. We have had it clearly pointed out, and it has not been denied, that the pay pause, in one sense, has failed completely; that is to say, between the time when it was introduced and the beginning of this year, there has been a fall in production of 9 per cent. per annum which constituted a record, and the rise in exports, if there has been some rise, was slower than the rise which occurred in previous years before there was a pay pause. We can say, therefore, that if the object of the pay pause was to improve production or exports, in both respects it has had the opposite effect to what was intended—it has made the position rather worse instead of rather better.

I am not sure that this is the last word about it, but it is the last word about it. if we are to regard it as a direct instrument for the purpose. I do not think that is the right way to look at it. I wish to point out that it is an instrument which has led the British Government to repudiate and to break contracts that they have made with their own employees. It has led classes of the community—public servants, like the nurses who appeared in the Lobbies of this House recently, like many of the groups in the Civil Service, and others we can all think of who are not as a rule in a position to take strike action about their claims—to become furious, frustrated, angry and indignant with the Government for breaking arrangements about negotiations, and so on, which have existed in this country for years, which have worked well and which constitute a really notable part of the national heritage to which we can pay tribute. That is a very heavy price to have to pay for an economic measure.

I turn now to the O.E.C.D. economic surveys which seem to me to be excellent. As members of the Government have already indicated, there are parts in them where they get support and others where they do not. But there is one outstanding matter in the conclusion. It is that the pay pause and all that goes with it are temporary measures intended as a sort of clamp-down for the moment. I am leaving out whether these temporary measures work. But they are only temporary, and, of course, the longer they are imposed the worse they will be and the less effective for their purpose. I wish to quote from paragraph 48 in the conclusions of the surveys where reference is made to the difficulty—one which I need not elaborate again—about the effect on the foreign exchange position of an excessive domestic demand. The paragraph reads: Escape from this impasse lies in the achievement of a steady and significant export rise as the major dynamic element in new economic growth. It is with reference to that that the report says: it equally is important that full advantage should be taken of the breathing-space thus provided …"— that is the way in which it refers to the pay pause— to set on foot the more fundamental adjustments which the economy requires. This Budget does nothing of the sort. The survey of the economic position promised nothing of the sort. There is a very great deal indeed in the comment which was made, I think it was by The Times, about "Neddy". When we look at what the Chancellor said we find language used about the Advisory Council which seems to pass to that Advisory Council some of the powers and responsibilities which can be properly exercised and borne only by the Government of the day.

I read this sort of thing which was said by the Chancellor about "Neddy": The collective target agreed in Paris by the O.E.C.D. for this decade is one of just over 4 per cent. a year. It will be for the Council to decide whether its study should be based on that figure, or a larger one, and what period of years should be taken for this. My comment on that is that in a Parliamentary democracy as we understand it it is the duty and the responsibility of the right hon. and learned Gentleman to tell that to the Council and then certainly to collect its advice on it—I say this, of course, without any derogation of the weight and value of the advice he may receive—and, having received the advice, to consider and decide himself what action he will take. I do not like this language. These speeches are usually written. I do not think it was a slip of the tongue or anything of that sort. It is not for the Council to decide that sort of question as I understand the constitutional position in this country. The Chancellor also said: What the Council must do "— the Council, mark you— is to set an ambitious but realistic target figure. Both sides of industry, the Government "— we have got to the Government at last— and, indeed, all sections of the community, must be prepared to face up to the practical consequences involved in its achievement."—[OFFICIAL REPORT. 9th April, 1962; Vol. 657. c. 968–9.] It seems that this is putting the Council in the place of the Government. What is the reason for it? It is perfectly obvious that the Government have been more conspicuous than any Government of recent years for consistent failure by comparison with every other country. It cannot go on for ever like this. What they want to do with "Neddy" is to put it up and say, "Here are the boys, a distinguished lot, representing both sides of the table in industry. They will make the decision. You shoot them if it does not go right. If it does, we shall come in and take the praise for it".

This has happened before in other fields with this Government. The Chief Secretary to the Treasury had a long and happy time as Minister of Housing and Local Government. I used to tell him time after time—I am sure I was right—that many of the measures he introduced were with the object of pushing the local authorities, like women and children, in front of the Government in the firing line, so that they could get shot down, if there were any trouble, before anyone could get at the Government. This is being done for the same reason. These birds will not face the music. They have had so much of it in the last few years and it is a terrible record.

Look at the pamphlet—I am not now talking of the pay pause or what it recommends. From beginning to end it is a record of failure to keep up with our competitors. Successful contribution is heaven in the eyes of the Tory Party, but hon. Members cannot do it, and they cannot get the country to do it. What is the matter? They had some suggestions from my hon. Friend the Member for Cardiff, South-East. I advise hon. Members opposite to have a look at them. There is a great deal of sense in them. They had some more from my right hon. Friend now the Member for Middlesbrough, East (Mr. Bottomley) and they were very good suggestions. He used to be Secretary for Overseas Trade and he has some experience of this kind of thing—[HON. MEMBERS: "Where is he now?"]—I am not his keeper.

I want to end my speech my asking the Government about one point which my right hon. Friend mentioned particularly, namely, the growth of scientific invention and new technique, to put it as broadly as possible, in industry. He felt, as I feel, that the Government are not taking this seriously enough. When I say not taking it seriously enough I do not mean that they have not appointed a Minister for Science. They have put him in another place, but that is as may be. The difficulty is that we fall behind not in actual inventions—we are very good at those—but in their practical application and, above all, at the stage of development.

The reason is that this Government take a thoroughly Tory view of the matter. If industry will not pick up the inventions, that is the end of it. The Government do very little—they do a little—to try to develop the inventions themselves. A very great deal more ought to be done on these lines. At the end of the day this country has not very many natural resources. It has coal. It has harbours. It has a few other things, but it is not particularly rich in them. We are a great industrial country. We depend not merely on the old-fashioned, excellent manual skill of some of our workers—technical skill, too—but also on the fact that we have some highly intelligent scientists and thinkers. We do not make enough use of them. We do not ensure that what they do is properly translated into what can make us successful in world competition, because that is undoubtedly what we have to do.

When one makes a speech like this one always sits down—at least, I do—regretting hundreds of things that one wanted to say but did not and the things one has forgotten to say. I suppose I shall do that again tonight, but I do say this to the Committee. I believe that if the Government get away with this Budget and with the things which were said about the speculative gains tax, and if that is regarded as sufficient at the moment, it will in itself be a step backward.

The country needs Governments and people who will for the time being look beyond their immediate advantage and be prepared to look to the interests of the community as a whole. I have the feeling that the Chancellor's attitude at the moment is lacking in that respect. Until we can get that attitude restored, we are not likely to go far and we shall continue to welter in the troubles which intermittently have afflicted us since we have had Tory Governments in the past few years. I honestly think that a change of Government is not only the best chance for this country but, as matters stand at present, a necessity for its survival.

9.29 p.m.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd)

We have had an agreeably stimulating debate on a sound and sensible Budget. I came here tonight ready to meet the serried ranks of a furious Opposition, and I can only say that, "Even the ranks of Tuscany could scarce forbear to stay away."

I should like to begin by paying tribute to the maiden speeches we have heard during the debate. Unfortunately, I did not hear the speech of my hon. Friend the Member for Manchester, Moss Side (Mr. F. Taylor), but I read it, and it certainly contained much admirable good sense. I did hear the speech of the hon. Member for Pontefract (Mr. Harper), and it was a most humourous and entertaining interlude. My view of his speech was not the same as was his view of my Budget. Perhaps the only slight debt of gratitude I owe him is that he did take away some of the epithets that my noble Friend the Member for Dorset, South (Lord Hinching-brooke) might otherwise have used.

I shall not stress too much the fact that a large part of the hon. Member's speech dealt with events of 1893, a period in which a large part of the theory of his party is still embedded. However, I do most sincerely congratulate both new Members. They represent constituencies held by former popular and respected Members of the Houseo; we are delighted to see them here, although sad for the reason. We wish them well, and congratulate them.

The hon. and learned Member for Kettering (Mr. Mitchison) dealt with some emphasis with the short-term gains tax, and suggested that in that portion of my proposals I was deceiving the public. I know quite well that nothing I could do would satisfy the predatory instincts of the Opposition, but I have done exactly what I said I would do; to bring into the field of income certain short-term transactions.

When suggestions are made that it is such an extraordinary charge, and one that is bound to be evaded, I would remind the Opposition of what is done in other countries. I have selected the same period as there is in the United States for the full range, and exactly the same period as in the Federal Republic of Germany, except that for the German real estate transactions the period is two years, not three. The same is true of some other European countries. This is not crossing the Rubicon, but accepting the reasonable proposition that one applies the test of time to certain transactions, and says that, within that time, they come within the income bracket.

With regard to Schedule A, I was rebuked a little about the morality of forward promises. I thought it right to make the position clear, but I want to make it clear again, because at least one evening newspaper represented me afterwards as having said something quite different from what I did say. I said: We will not seek to use the new rating valuations for Schedule A purposes so far as these owner-occupiers of residential property are concerned. On the contrary, for the reasons which I have set out, we will make proposals for bringing this tax on them to an end. I cannot say now whether this will be done in a single operation in one year. It will mean giving up about £50 million a year. Whether we can manage to get to that position in one year will depend on revenue considerations. I say that because at least one newspaper said that I had announced the complete abolition of the tax in the next Budget.

Perhaps I may say a word about the Scottish position. Schedule A values there are frozen at 1956–57 levels and their current valuation for rating is not affected. Thus, I can give the same guarantee in this case as in the case of England and Wales: we shall not seek to use the new rating valuations for Schedule A purposes in regard to owner-occupiers of residential property—

Mr. William Ross (Kilmarnock)

The Chancellor could not possibly do so even if he wanted to, because that was the purpose of the amendment made in the 1957 Act; that was made in view of the revaluation. The point is that if he really means that it was right to give people warning, he could have given the warning he has given to England and Wales to the people of Scotland at that time.

Mr. Lloyd

I understood that there was some uncertainty about the position—[HON. MEMBERS: "NO."] Then, if there was no uncertainty, I cannot understand why the matter was ever raised. I understood that there was some uncertainty, and tried to put it right.

I have watched with interest and enthusiasm the desire of hon. Members opposite for the ending of this tax on owner-occupiers of residential property. The hon. Member for Sowerby (Mr. Houghton) said that up to now the Opposition had been voted down on that proposition. Last year, they carried their passionate conviction that the tax should go to the ultimate sanction of abstention. What I have done is entirely consistent with what I said, during the course of last year's statement, I would do—

Mr. Hugh Gaitskell (Leeds, South)

The Chancellor voted against us last year.

Mr. Lloyd

What I then said was that I intended to deal with it in connection with next year's Finance Bill, and that is exactly what I have done.

The next point which was raised concerned the regulator. The hon. Member for Sowerby referred to this as a useful and novel device, but he said that it was wrong to end it, and asked for it again. I believe that the hon. Gentleman is wrong. It would be quite wrong for me not to have told the Committee, "I think that the rates for the full year should be fixed by this Committee at Budget time." It would be quite wrong to say, " Let the regulator run on until the end of August, and I will continue it by some device or special power."

The right thing to do is that at Budget time we should fix the rates for the full year, even if they are rates added to by the regulator. That is a matter for the Committee to decide at this time for the whole year. I think that is the right way to tackle it and then ask for a new regulator, if that is what the Committee is disposed to give.

The question of sweets has caused a great deal of synthetic indignation, but this proposal is felt, generally, to be sensible on broad grounds. The British Dental Association talked yesterday of the ravages of dental disease reaching alarming proportions, and the hon. and learned Member for Kettering did not have much about that in his speech. I think that it is wholly reasonable, when we consider what else is taxed. Indeed, a great deal of the yield will not come from the cheaper sweets which are eaten by children. A great deal will come from the expensive confectionery consumed by adults.

My noble Friend, the Member for Dorset, South talked with approval of what goes on in Sweden in another connection. Sweden has a tax of over 100 per cent. on this sort of thing. France has a tax of 25 per cent. Having regard to the broad sweep of taxation in this country, it is a very reasonable proposition to extend Purchase Tax to these commodities.

With regard to the rest of the Purchase Tax, I do not think there was any argument based on logic to be put against my proposals. The hon. Lady the Member for Stoke on Trent, North (Mrs. Slater) talked—it is reported in column 1085 of the OFFICIAL REPORT—about a poor woman buying £100 worth of furniture and having to pay more taxation, and the hon. Member for Gloucestershire, West (Mr. Loughlin) defended emphatically—and I agree with him—the right of those who live in council houses to have motor cars.

That shows the complete change in what constitutes the standard of living of ordinary people at the present time. There is not this distinction between these various commodities, and I think it is much fairer and much better to try to equate them and bring them to a more equal rate. I do not say that we shall come to an identical sales tax for all of them. All I say is that I am certain that it is right to bring the extent of the rates closer together.

In reply to the questions which my right hon. Friend the Member for Thirsk and Malton (Mr. Turton) raised about the small reliefs I was able to make, the age exemption will give complete relief to 100,000 incomes and some relief to 170,000 incomes, the small income relief to rather more than 50,000. Therefore, I think that there will be between 400,000 and 500,000 people who will benefit from these small reliefs.

The next point on which I was tackled from time to time was in regard to export incentives. Here, I would remind the Committee of the main conclusions of the Forbes Report, because I think that they were very important findings. I quote: The introduction of Government-financed export incentives in this country is undesirable. The policy of seeking international agreement against Government-financed export incentives has had a wide measure of success. The use of these by other countries is confined to a few isolated cases. Her Majesty's Government should seek through international co-operation the abolition or limitation of the Government-financed export incentives remaining in use overseas. I think that those are very important findings by a very representative Committee, and I hope that that puts an end to this argument.

The Committee goes on to say: The primary solution to the country's export problem lies in the achievement of sound and stable policies for the economy as a whole. I entirely agree. It continues: The present pattern of distribution of taxation and the type and scope of indirect taxes under the United Kingdom fiscal system are not necessarily the most suitable for the encouragement of exports. That is an observation which we should carefully take into account.

However, I do not think that the Committee should leap to the conclusion that exports would necessarily be helped by a change in our system of taxation, such as the adoption of a turnover tax. We are looking at the various possibilities very closely. I think that it may well be that at the end of the day we shall find British industry in this, as in some other ways, is better off as it is at present.

The turnover tax is now receiving extensive criticism from German industry. However, I will not pronounce on that today. There is also the French system to be examined. But we must look at these with a fairly open mind. I do not think that there is a quick solution by saying that the turnover tax is necessarily the answer to this problem. The main thing is that we want sound and stable policies for the economy as a whole.

In connection with these taxation matters, the right hon. Member for Batter-sea, North (Mr. Jay) sought to maintain in his speech that there had been a shift in the burden of taxation. He is not a person with whom it is difficult to bandy statistics, and there are many statistics to bandy on this matter. I have asked for some statistics and have been given some. They deal with the percentage of the yield of direct taxation on individual incomes.

In 1956–57, the year that the right hon. Gentleman took, for those earning under £10 a week the figure was 78 per cent. of the total. For those earning between £10 and £20 a week, it was 32.2 per cent. of the total. The total yield of taxation on individuals earning over £20 a week was 60 per cent. For 1961–62, for those in the lowest income group, instead of 7.8 per cent., the figure was 4.4 per cent.; for those in the £10 to £20 group, instead of 32.2 per cent., it was 30.9 per cent.; and for those in the over £20 a week group, instead of 60 per cent., it was 64.7 per cent.

The right hon. Member will probably say, "What about the National Insurance contribution? "That is not included in my figures. There are two reasons for that. First, there are increased benefits for the National Insurance contributors, and retirement pensioners do not pay the National Insurance contribution.

There is, however, another factor, and I say that anyone who uses figures in this connection without revealing this other factor is not being straightforward with those whom he addresses. Government expenditure on social services must be taken into account. Whereas that was £1,180 million in 1950–51 and £1,680 million in 1956–57, the year to which the right hon. Gentleman referred, it was £2,460 million this year. It is grossly misleading to deal in these figures without taking into account the very large increase—nearly £800 million—in the expenditure on social services.

Mr. Jay

What I said was that if one takes incomes from £10 a week downwards, and includes direct and indirect taxation and the insurance contribution, we find that the percentage is larger as we go down the scale. Does the right hon. and learned Gentleman deny that?

Mr. Lloyd

I should like to look at that proposition again, just as the right hon. Gentleman can look at my proposition. As I say, it is easy to bandy statistics in this matter, but I think that the main factor is the massive increase in social service expenditure. Which really helps those who are least well off.

On the question of an incomes policy, which has also been referred to today, I refer to the report of the O.E.C.D. That attaches primary importance to the Government adopting a more positive attitude than in the past to the process of income determination. As I have said on previous occasions, I regard this as one of the most important challenges to a free society in the 1960s. The hon. Member for Cardiff, South-East (Mr. Callaghan), who has had considerable experience of these matters, said in an intervention that twenty-five years' experience had led him to the conclusion that we could do nothing about it.

If we do not have an incomes policy it seems to me that there are three possibilities; inflation, complete state control—and direction of consumption, prices and production—or deflation on a major scale. I think that the people are tired of the first—of inflation—that they would never accept the second—which is complete state control—and that if they refused an incomes policy the only practicable alternative is deflation, unemployment and a lower rate of growth. That is the path which those who refuse their co-operation of an incomes policy are marking out.

To me, that idea is unthinkable, intolerable and, therefore, we must have an incomes policy. It is part of the Government's duty to have a positive attitude towards incomes. That means practising what we preach where we have control and, in every other case, trying to persuade, influence, educate and to reason. At present, there are serious anomalies and inequities. Of course there are. And what we have to do is to find the means of settling individual cases without each automatically becoming a precedent for similar demands elsewhere.

Comparability is all right within reason, but if it is to be used as a device for leap frogging it will not help anyone. It is easy for Opposition parties to cash in on temporary discontents and to exploit this kind of pressure group society without making any constructive suggestions. I have tried to get people to face up to this problem because I believe that it is in the interests of the whole nation, in particular the poorest paid and those least able to protect themselves, that we should have an incomes policy. However, I have not heard one constructive suggestion from either Opposition party on this matter.

Mr. James Callaghan (Cardiff, South-East)

I think that the words are accurately reported in HANSARD. It is not a question of our not being able to do anything, but that the Government could not do anything. The reference I was making, when I interrupted the Financial Secretary, was to the effect that the Government have forfeited their moral authority in this field by their past actions. [Interruption.] I wish that hon. Gentlemen opposite would shut up. At least, I am not an "idle, wet Conservative".

I wish to put this to the Chancellor. There is no difference about the necessity for ensuring that production and incomes march forward hand in hand. The difference between us is that the Chancellor seems to think that if he depresses production he can also keep down wages. I can assure him that if he gets an expansion of production going, then wages will keep pace with that.

Mr. Lloyd

That really is a most skilful piece of evasion. The hon. Gentleman has completely evaded the point. The Government have a positive attitude towards incomes and that means some restraint of incomes and, as I have said, there has not been a single suggestion from hon. Gentlemen opposite. There is nothing in what the hon. Member for Cardiff, South-East said about any restraint of incomes at all.

I have been asked about profits and dividends. I have always maintained that in considering rises in dividends one should take into account the fact that the capital upon which they are paid is increased. I gave the example of the figure of £11,500 million in the past ten years. The right hon. Gentleman argued that it is not enough to look at dividends because the money ploughed back adds to the value of the shareholders' capital. I do not disagree; but, if that is so, why do the right hon. Gentleman and his hon. Friends continue to make so much fuss about dividends? Why cannot we agree that it is profits which really matter, whether they are distributed or not?

If that view is taken, the hon. Gentleman will, I think, see from the excellent book of statistics produced by my right hon. Friend the Minister of Labour earlier this month that, taking 1950 as the base year, the total of wages and salaries had risen by 1961 from 100 to 213.9, and gross trading profits had gone from 100 to 158.7. Another table on the same page shows that, whereas ten years ago trading profits of companies represented 16 per cent. of total domestic income, in 1961 they represented 14 per cent. I hope that these figures will be widely studied, because they show up the falseness of the picture which the right hon. Gentleman was trying to paint, that shareholders are trying to grab a larger and larger slice of the national cake at the expense of wage and salary earners. That is quite untrue and is shown to be so by those statistics.

There have been references to the N.E.D.C. during the debate. If I may say so with respect, the most sensible comments came from the hon. Member for Ashton-under-Lyne (Mr. Rhodes). His words are recorded in column 1396 of HANSARD of yesterday. The hon. Gentleman said that, if I were to allow the Treasury to dictate to the N.E.D.C., that would mean failure for the N.E.D.C.; in other words, failure if I followed the advice of the hon. and learned Gentleman. The hon. Member for Ashton-under-Lyne went on to say that he hoped very much that I would not try to hurry up too much the functioning of the N.E.D.C. He said that we must take time for it to get going and set its work right. I have no time to quote the hon. Gentleman's actual words.

There is no question of the Government abdicating their responsibilities to N.E.D.C. This answers my noble Friend the Member for Dorset, South. Executive action subject to the control of Parliament must rest with the Government for budgetary matters, monetary policy and for matters such as the distribution of industry. But in a free society the Government cannot dictate to the private sector, or, by their own decisions, determine the rate at which the economy will grow. They must rely upon a co-operative effect by the whole community. This is why we have on the N.E.D.C. representatives not only of the Government but of the other partners in industry, public and private, with one or two independent members.

During the somewhat lengthy processes of setting the Council up, I have said that I have no desire that the Council should be a body which just listens to Government decisions and comments or advises on them. I want a body which will have an influence in the formulation of policy both in Whitehall and in industry. The first priority for it will be to undertake an examination of the obstacles to sound growth and of the ways of improving our economic performance. In my view, this examination must take place against an ambitious but realistic target.

For such a target I mentioned 4 per cent. per annum, which is the collective O.E.C.D. target for growth during the decade. It will be open to the Council to fix a higher one if it considers that right. I shall not prejudge that decision. It would be absolutely wrong for me to prejudge it by any kind of Government diktat beforehand. The Council, which is, I believe, a very great experiment—I think it is a wholly new conception to have a body of this sort—can be of tremendous value in securing economic growth.

The hon. Member for Sowerby said that the Budget had very little to do with the economy. That is a complete failure to understand the position. In my view, Budget judgment is of vital importance to the economy at the present time. I thank that the balance I have sought to achieve is about right in the present situation. The hon. Gentleman attacked me on the ground that, as Chancellor, I had been seeking popularity, that I have been at the game of catching votes and that I am part of the Tory conspiracy to hold on to power. Yet I have had to do more unpopular things, I think, than any other Chancellor. There were the Health Service charges and the measures of 25th July last. There were the taxes on heavy oil and on sweets. There was the increased tax on furniture and clothing.

Mr. Callaghan

And the Surtax reliefs.

Mr. Lloyd

I agree that the Surtax reliefs were not very popular.

I refuse to do the nice, easy things—to saunter down the path, as the hon. Gentleman wants me to, of agreeable irresponsibility. He would have me abolish Schedule A this year—at a cost of £50 million. He would reject the tax on sweets—at a cost of £30 million. He would sweep away the bottom two rates of Purchase Tax—at a cost of £150 million. He would relieve tax on fuel for bus companies, which would cost £34 million. He urged a modest incentive to exports. But what is a modest incentive? I suggest 5 per cent., which would cost £175 million. Then we were urged to have selected depreciation reliefs.

I am convinced that the general balance of my Budget is right. The Opposition have claimed that I should have reflated, that the margin I have adopted is far too harsh. They forget the question mark over revenue with regard to tobacco, and that, under our system of accounts, even with the best estimates in the world, there are bound to be supplementaries.

We know already about Service pay and extra money for universities. These agreements were made since the Estimates were published. We know quite well that there may be supplementary demands to meet. But I have many weapons these days to ensure that the economy is kept in proper balance. I have the Bank Rate, Special Deposits and the regulator, if the Committee gives it to me.

I can assure the Committee that I will watch the situation carefully and will not hesitate to relax if need be, if that is what is wanted and it is adjudged right. As I said in my Budget statement, I am certain that events will prove the soundness of our present policies and the wisdom of our present action.

Question put and agreed to.

Resolution to be reported.

Report to be received Tomorrow. Committee to sit again Tomorrow.

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