New Clause.—(EXTENSION OF RELIEF UNDER S. 9 OF FINANCE ACT, 1956.)

HC Deb 29 May 1962 vol 660 cc1277-319

(1) Subsections (1) and (2) of section nine of the Finance Act, 1956 (which provide relief from income tax on certain savings bank interest), shall, subject to the provisions of the next following subsection, apply in respect of dividends on shares of a society registered under the Industrial and Provident Societies Acts, 1893 to 1961, or under the Industrial and Provident Societies Acts (Northern Ireland), 1893 to 1955, and in respect of interest on deposits with such a society or with a registered friendly society, as they apply in respect of interest on deposits with the Post Office savings bank.

(2) Where by virtue of the last foregoing subsection the amount of surtax payable by an individual would exceed the sum of—

1. (a) the amount of surtax which would have been payable by him, if that subsection had not been passed, and
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2. (b) the amount of relief, if any, to which he is entitled by virtue of that subsection, that excess shall be disregarded for all the purposes of the Income Tax Acts.—[Mr. Sydney Irving.]

Brought up, and read the First time.

Mr. Sydney Irving (Dartford)

I beg to move, That the Clause be read a Second time.

The Chairman

With this new Clause it would be convenient to discuss the new Clauses—Savings (pay as you earn) —Relief from tax on certain dividends —Relief on savings policies.

Mr. Irving

In the Finance Act, 1956, the Government provided for the exemption from Income Tax of the first £15 of interest on savings in the Post Office and in the ordinary departments of trustee savings banks. The conditions for this exemption were twofold—first, that these savings were at a fixed rate of interest, and secondly, that they were moneys loaned directly to the Government. Each year since 1956 successive Treasury spokesmen have stuck inflexibly to these conditions and refused to consider any variation to cover other institutions concerned with small savings.

The Clause seeks to extend this exemption to apply in respect of dividends on shares in societies registered under the Industrial and Provident Societies Acts. The co-operative movement, which has been the main sufferer under this discrimination, occupies a very special, and indeed in some respects, unique position in our national life. For over 100 years it has been one of the main instruments in the encouragement of thrift among the working classes. Through its dividends on purchases it has made it possible for millions of people to accumulate small savings in a way which would otherwise have been quite impossible. Its total capital amounts to over £300 million, of which £254 million is share capital, the result of the small savings of its 13 million members. This represents roughly £20 per head. Since the war it has distributed in dividends over £1,000 million. In the last financial year dividends amounted to over £60 million. These are very considerable sums and in social and economic terms they have made a very valuable contribution both to the small savings of the nation and to the well-being of millions of ordinary people.

Our submission is that, in defining the conditions of the original concession, the Chancellor did not take sufficiently into account either the character of the co-operative movement and its work or the possible damage it could suffer because of a discrimination in the refusal of this concession to its members. The first condition which was laid down was that this exemption should apply only to savings where the rate of interest was low. But the co-operative movement limits its interest on its share capital to between 2½and 3½per cent. Its share capital is limited to small savings, as there is a statutory limit on the holding of any one member.

The Clause does not seek to extend this exemption to loan capital, precisely because there is no limit by Statute on loan capital and this, therefore, does not come into the same category. So far I have been talking about the retail consumer movement. This concession would be equally significant, if not more so, to members of the agricultural co-operative movement, which has had favourable treatment at the hands of the Government. The agricultural co-operatives, being fewer in number, therefore have a bigger personal contribution to make, and this discrimination may discourage them from making that contribution.

9.15 p.m.

Members of the co-operative movement feel a stinging and continuing sense of injustice at their treatment by the Government. The Royal Commission on the Taxation of Profits and Income warned against unfairness in the distribution of this relief, and also against what it galled "delusive savings". The Chancellor was and is anxious to encourage small savings, and this discrimination against co-operative investments places a handicap on the movement. What is worse, it will mean the transfer of past savings, which was certainly not the object which the Chancellor had in view at the time.

The cost of the concession would be no more than £2 million, and it could well lead to an overall increase in small savings. Government spokesmen profess to be well disposed towards the co-operative movement, but how can they maintain this claim so long as these glaring examples of discrimination against the co-operative movement continue year in and year out? I ask the Chancellor to take a more flexible view of the matter and to end this deep sense of injustice by accepting the Clause.

Mr. Geoffrey Lloyd (Sutton Coldfield)

I wish to speak on the proposed new Clause—Relief on savings policies —in the names of many of my hon. Friends and myself. For quite a long time many of us have been seeking a method of fiscal savings, especially savings in equity shares. Some very interesting schemes have been produced, but they have never got anywhere. The reasons have been either that they have been too complicated in the mechanism which they sought to establish, which has caused people to be frightened off, or that there has been a difficulty in establishing a precise basis to which to attach the Income Tax concessions.

For these reasons my right hon. and hon. Friends and I have approached the problem in a completely different way. We seek to provide a method of great simplicity, which we hope is also circumspect, practical and moderate. We propose that the existing Income Tax concession—two-fifths of the standard rate, with no application to Surtax—which at present attaches to life assurance policies, should be extended to savings policies which do not involve death benefits. In other words, the single legislative act involved would be the removal of life cover or death benefit as the essential condition of the granting of Income Tax relief to an insurance policy. This would mean that encourage-meat would attach to a pure endowment policy without life cover. We believe that this would be important, because, especially in the later years of life, the cost of life cover is considerable.

The Committee will appreciate that we have avoided setting up any new and complicated machinery. Instead, we have taken advantage of an existing piece of fiscal machinery which has already attached to it the precise base to which the concession is attached, which is working smoothly, and is well policed, from a revenue point of view, by long practice and custom.

This rather simple and practical plan has another advantage. Because we are adapting an existing form of relief, it involves automatically twelve annual contractual payments, because one of the existing conditions of the relief in life assurance is that the premiums must not be more than 7 per cent. of the capital sum. This amounts to about twelve years of contractual payments. While this is necessitated by the technical form of the scheme, we feel that it has great practical advantages. The intention to save is one thing but a contractual method of saving involves a degree of personal self-discipline which over many years has been found to be a useful method of stimulating savings.

There is one other extremely important point. We are trying to encourage the small man to become an investor. I think everyone will agree, from long experience in our constituencies, that the practice of regular saving for particular objects is a widespread working-class tradition in this country and has been for many years. What we are doing, therefore, is to take a long established working-class practice, formalise it and attach to it a fiscal advantage.

We feel that this is a method of considerable importance. I wish to emphasise that this Clause aims at the small man, and that is why we have limited the premiums which can attract tax advantage to a maximum of £150 a year. There is nothing in this for the rich capitalist or the man with the high salary. As a matter of fact, most of the premiums would be much less than £150 in our estimation, but £150 would be the absolute limit. This scheme is beamed towards the £15 to £40 a week man.

I should like to remind the Committee of a little bit of history in this respect. It was in 1853 that Mr. Gladstone reintroduced life insurance relief which was originally in Pitt's Income Tax. He did so to encourage the new lower middle classes to make provision for their dependants. We are trying to attract the new emerging middle classes which we see in the country today. Everyone would agree that they have far more income money than was the case years ago, but they still find it difficult to get any capital. We ask the Committee to give favourable consideration to this scheme which would enable the emergent middle classes to get a bit of capital. We hope that the Government will give favourable consideration to it and perhaps improve it.

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

The right hon. Member for Sutton Coldfield (Mr. G. Lloyd) has made a reasoned case for the Motion he proposed. Would it be fair to interpret the right hon. Gentleman as supporting the case presented by my hon. Friend the Member for Dartford (Mr Sydney Irving)?

Mr. Lloyd

The proposals are different. Those to which I have referred are designed to encourage equity investment.

Mr. Mitchison

Are the savings policies in any way different from the endowment policies?

Mr. Lloyd

They differ essentially in the fact that death benefit would not be compulsory.

Mr. Donald Wade (Huddersfield, West)

I am very interested in the observations of the right hon. Member for Sutton Coldfield (Mr. G. Lloyd) and I think they deserve serious and favourable consideration. I look forward to hearing the comments of the Chancellor. You have indicated, Sir William, that in discussing this group of new Clauses consideration may be given to No. 57—Relief from Tax on Certain Dividends. The object of that Clause—it is simpler than the one referred to by the right hon. Member for Sutton Coldfield—is to provide relief from tax on the first £25 of investment income.

There is another proposal on the Order Paper which would increase the limit from £15 to £25 for savings bank interest, and taken together the result would be relief up to £25 on all investment income. That is one of a number of proposals which my colleagues and I have in mind for encouraging small savers. There is, of course, the underlying assumption that it is desirable to encourage savings, and I think that in this Committee that is accepted. It is not accepted quite so widely in all sections of the community.

I remember an interesting observation from an elderly lady in the West Riding of Yorkshire. She said, "My husband and I are getting along very nicely, thank you. We have managed not to save." Further inquiries elicited the fact that her parents had invested all their savings in cottage property which had caused a great deal of trouble and had landed them in considerable loss of capital. She therefore took a very poor view of saving. Hon. Members will also know of people who have put money in 3½per cent. War Loan with rather sad consequences. There is risk in all investments, as anyone who looks at the stock market today realises, but this is not an argument against saving and, from the point of view of the national interest, the question is how to achieve a high rate of investment without inflation. One of the answers is undoubtedly by more individual savings.

The question arises, therefore, how this is to be done. Taking the long view, the greatest benefit both to the individual and the community as a whole is obtained by ensuring that saving should be as widely spread as possible and should include equities. I do not think that there is any case today for limiting tax relief to one particular form of saving, for example, the Post Office Savings Bank. We have reached a stage of development when we can go beyond that. I would encourage savings in equities as well as in Government securities and the Post Office Savings Bank.

I should also like to see greater uniformity. An article in the Westminster Bank Review, written by Basil Taylor states: Equality before the tax law surely requires that all citizens should be allowed to save for retirement and other purposes the same maximum proportion of their true remuneration free of tax—no matter what their employer may have chosen to provide them with by way of pension. Many readers will no doubt be surprised at the value of the tax relief for capital accumulation already permitted under the existing law in the form of ad hoc concessions. That raises the different point that there are great divergencies in tax relief between one person and another.

The article continues: …in varying degrees all employees whatever their salaries appear to be discriminated against vis-à-vis their self-employed brethren who are business proprietors. I believe that this is true, but the Amendment with which I am dealing is concerned with a rather more limited point, namely, the unevenness of the spread of tax relief.

I should have thought that the time had come when if it is right for the Post Office Savings Bank it is equally appropriate for other forms of saving. My only purpose in referring to this specific amendment is to urge that there should be more equality of treatment and that it should apply to all investment income up to £25 per annum. The time has come for that. There is need for a rationalisation of tax relief for personal savings and I hope that this will be regarded as one way of achieving it.

9.30 p.m.

Sir Lionel Heald (Chertsey)

It is a great privilege to be able to take part in this debate, and I very warmly welcome the proposal of my right hon. Friend the Member for Sutton Coldfield (Mr. G. Lloyd). I say at once that I can claim no expert knowledge of this subject at all, but I have in the past had an opportunity of learning something about it—one might say from the other side of the Table—when I had the honour of assisting my right hon. Friend the Home Secretary, when Chancellor of the Exchequer, in resisting certain proposals that were made during those years.

I learnt something of the possible classic objections to proposals of this kind, and perhaps the Committee will allow me to seek to show that those objections do not have any serious application to my right hon. Friend's proposal. The first of them has always been that it is a revolutionary departure from principle that there should be any relief of this kind. On the contrary, I would say that this proposal is a logical, sensible and long-needed extension of the principle that has been recognised since 1799. Going back over 160 years, that principle has been accepted, and acted upon progressively—with certain backsliding from time to time—by Governments of very varying kinds and colours.

In the very first Income Tax introduced by Pitt, there was a provision for relief in respect of insurance policies. There was a reaction in the Granville Coalition Government of 1806, when those reliefs were very severely curtailed. All parties deserve praise, and some blame, in this matter because, as my right hon. Friend mentioned, the next stage was Mr. Gladstone's first Budget in 1853, when he redressed the balance and allowed up to one-sixth of income for purposes of insurance.

The principle was carried gradually further until 1916, the time of Mr. McKenna. There was then an unfortunate reversal, because endowment policies had by then become common and the view was taken that a wrong line was being followed. So, in 1916, there was a successful effort to reverse the process, and it was laid down quite definitely that no policies could be eligible for relief unless they contained full life cover.

But in 1956, when my right hon. Friend the Prime Minister was Chan- cellor of the Exchequer, progress began again, and we found then, as we find today, that there provision could be made without the requirement of life cover in respect of retirement pensions and provision for dependants. That was a tremendous step forward, because it finally killed the idea that there was a necessity for life cover.

It had another effect. In the books I had to read at one time on taxation, written by great pundits of the past, there was the idea of some lack of equity in giving relief in respect of insurance policies, and so on, because there were other forms of savings, and one had not the principle of absolute equality. That, again, has now gone, of course, so we have a very different position today, and I cannot help thinking that it is in keeping with the modern outlook that that should be so. We must go further because we find that the limitations are tied up with death and old age. That is the position. There must either be provision for life insurance or there must be some requirement for old age in respect of retirement or dependants.

I suggest that today, irrespective of party politics, we should look at the matter from a different point of view. It is not only a question of the dead and the dying. We are concerned today with the living and with the younger generation which wants to be able to save for their lifetime, and that is what the proposal before the Committee would enable us to do.

I do not wish to delay the Committee because I realise that a number of hon. Members wish to speak. It is pleasant to find that we have no ground for difference between us from a party point of view. Our proposal may be different, and while my hon. Friends and I say that ours is better than theirs, I will not quarrel about this because other hon. Members will no doubt say the same about their proposals. I must, however, mention one or two classic objections which are always raised. It is said that the Government should not be tied to any alteration in the taxation structure. But that must not be pressed to doctrinaire limits because, in this case, I do not believe that that argument can apply. Another argument which one frequently finds in the textbooks and which is often used by Ministers is that of the complications of the provisions for relief, the difficulty of understanding those provisions and the administrative problems involved. Those matters are always legitimate objections, but I hope that they will not arise on this occasion.

I am sure that my hon. Friends will agree that those sort of arguments cannot apply in this case for there could not be anything more simple than what we have proposed. We frequently hear about so-called evasion. I understand that to be a technical term used by the Inland Revenue, a term one might translate into the phrase "advantage may be taken of these proposals by people who are not concerned with saving in the strict sense of the word." No doubt some of my hon. Friends with experience of this matter will deal with this, but I believe that that objection is largely theoretical. I am told by those who should know that the idea that the millionaires will rush forward as soon as this proposal becomes law—as I hope it will—and take advantage of it has no foundation. I am sure that 12 payments amounting to £150 a year for a relief of £23 will not set all the millionaires' houses on fire.

I hope, therefore, that those objections will not be advanced on this occasion and that we shall receive a sympathetic reply from the Government, because after all we are concerned more than ever today with savings. There may be complicated and difficult arguments about what are savings or real savings, but it is an obvious fact that a large number of people today do not find sufficient outlet on terms they can afford for their desire to save. If we accept the principle that saving is desirable, it is the duty of the Government to set an example, and I believe that this proposal provides the means by which they can do that.

Mr. Mitchison

I have a great respect for the right hon. and learned Gentleman in many ways, particularly for his legal knowledge. Are these savings policies of insurance, and, if so, against what do they insure?

Sir L. Heald

I do not propose to enter into a legal discussion with the hon. and learned Gentleman. If he would like to take my opinion and to pay for it, I should be glad to give it.

As I was saying before the hon. and learned Member helpfully intervened, surely if savings are of great national importance, the Government should show that they are anxious to support them. Some action is necessary in this matter. Since the opinion of those who know about these things, not of those who merely talk about them, is that additional outlets are required, let us see what we can do to help. If the savers are encouraged, they are good citizens, and if they are good citizens that is to the advantage of the country.

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

The right hon. and learned Member for Chertsey (Sir L. Heald) said that savers, particularly small savers, should be encouraged, that the Government needed these small savers and therefore that something should be done to encourage them. We agree. We have been advocating that for many years, but we have not achieved very much.

The right hon. and learned Gentleman said that his proposal was advocating help not for people who saved in order to leave their savings to somebody else, but for those who wished to use their savings in their own lifetime. The cooperative movement has been encouraging small savers so that they could benefit from their savings in their own lifetime. It has been doing that in a very simple but effective way, and many thousands of people have benefited from it in their lifetime. Ordinary folk have been able to buy necessities and to go for holidays which they otherwise would not have been able to do. All sorts of simple advantages have accrued to them through saving with the co-operative movement.

One of the fundamental principles of the movement is that it encourages thrift. It was started in order to help people to help themselves. By its principle of thrift, it has encouraged people to leave in their dividend, to add to their small penny bank savings accounts, thus building up their share capital, and to transfer their penny bank savings to their share capital.

Both new Clauses seek to achieve a sense of justice in taxation: The one dealing with the co-operative movement seeks to secure treatment equal to that given to Post Office savings and to savings in trustee savings banks. At the moment, the first £15 of interest on money deposited in trustee savings banks and the Post Office is exempt from tax. The co-operative movement has no such exemption. The proposal seeks to achieve equal treatment between all three forms of saving.

9.45 p.m.

In 1960, about £59.5 million was returned by co-operative societies in dividends. Much of that money was left in as share capital. Not everyone draws out his dividend. More and more people tend to leave it in. My hon. Friend said that over the last fifteen years £1,000 million had been returned as dividend in co-operative societies. In addition to the normal dividends paid in co-operative societies, many of them have what we used to call the "penny bank" but which is now the small savings deposit account. In 1960, £7.6 million was deposited in that way. The Government ask that such savings shall be encouraged because the country needs this kind of small saving. Last year over 32 per cent. of this kind of co-operative saving was reinvested in Government securities. That is another argument for justice to be done to the co-operative movement in thus respect. The movement not only encourages small savings by ordinary working people. It also does a very good job of work in reinvesting some of the small savings in Government securities.

Another discouragement to co-operative savers is the Government discrimination against the co-operative movement, inasmuch that when these people become old or ill and have to apply for supplementary benefits, their co-operative savings are exempted only up to £125 before the rest is taken into account. Yet if a person has put his money in the Post Office or in the trustee savings bank, the first £375 is exempted.

I said this last year, and I say it again: the response of the Government to this Clause moved by my hon. Friend is another indication of deliberate discrimination against the co-operative movement. If the Government are really serious in carrying out support for small savers, I see no reason why they should not accept this Clause. They would at least give a sense of justice to small savers and to the co-operative movement.

Mr. W. Clark

The principle of the new Clause—Saving (pay as you earn)—was fully debated last year and I shall not detain the Committee by canvassing the arguments afresh. But ease of savings is something to which we should pay attention. Since there are 24 million people under P.A.Y.E., I cannot see why the Treasury cannot utilise the P.A.Y.E. machinery as a method of saving. There are industrial savings groups covering 3¼million people, saving about £100 million a year. But of that figure only £20 million can be considered as long-term saving, As the hon. Lady has said, some £80 million is put by for such things as holidays or new clothes and thus may be called short-term savings.

That is why I am delighted to support my right hon. Friend the Member for Sutton Coldfield (Mr. G. Lloyd) in his ingenious suggestions for savings. They would give a great boost to long-term saving. Each of us wants to do something for the small saver. The only way in which we can assist him is to make saving a little easier and give him some fiscal incentive. I know that the Treasury will put up many administrative difficulties in explaining why this, that and the next should not be done. But we have reached the stage when we must tell the Treasury that it must overcome these difficulties because of the paramount importance of the need to assist small savers. Each of us in the Committee is prepared to say that we will help the small saver. On the objective we are agreed. What we have to consider is the method of achieving this objective.

I should like the Chief Secretary to the Treasury to give a firm undertaking that between now and the next Finance Bill he will introduce concrete methods of encouraging small savers by giving fiscal incentives. That is something that we can quite easily ask for in view of the fact that we so often say, "It is essential to save. We must help the saver, but the administrative difficulties are so great." I do not believe that we should over-emphasise this argument of the administrative difficulties.

We say that we are a property-owning democracy. I am firmly convinced of this and unashamedly a supporter of giving small savers a tax incentive. It does not really matter which method is used to give the small saver some incentive. What is important is that something should be done for the small saver, and I suggest that the Government, with their expert advice from the Treasury and Inland Revenue, could easily come forward with a scheme which would help the small saver who is obviously doing a first-class job of work for this country.

Surely that is the object of all of us in the Committee, and we must make it easy for people, as my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) said, to acquire capital while they are alive. Let us have this capital saved during our lifetime and enjoy it during our lifetime. Do not let us always be waiting for death before anyone can benefit.

Mr. Callaghan

Would the saving policies have a surrender value? Would they be with-profits policies or without-profits policies? What would happen if a man decided that he would pay no more? Would his premiums, or his savings, be repaid, or how would they be accounted for?

Mr. Edward du Cann (Taunton)

The hon. and learned Member for Kettering (Mr. Mitchison) asked a particular question, and other questions have been asked by the hon. Member for Cardiff, South-East (Mr. Callaghan). To some extent the details of this matter are unimportant. One imagines that a number of institutions, which I shall proceed to name, would formulate plans and submit them to the Inland Revenue which would then approve them as being responsible and sensible suggestions and thereafter they would be offered for sale to the public.

Mr. Callaghan

Are they not important to this extent, that if the hon. Member and his friends wish to bring them under life insurance relief there is a case for demonstrating that they are equivalent to other forms of life insurance relief? I am not saying that there is not a case for them but asking what is the case for treating them as life insurance.

Mr. du Cann

That is absolutely true, and I agree with it. I was going on to elaborate. We are talking about total premiums of £150 in one year and we are talking about perhaps a twelve-year period. What I am endeavouring to say is that these details could remain to be settled and be a matter of judgment and that it is not necessary for the Committee to decide them tonight. What seems important to many of us is that we should get clear agreement, as now seems to exist between the two sides of the Committee, that we have waited for help for small savers for far too long and that it is time that we had practical action. It also seems to us that the suggestions which we are making are a sensible method of achieving the sort of results which we all believe to be desirable.

As to the users of this scheme; I believe that the building societies, the joint stock banks, the co-operative institutions, the National Savings movement, the hire-purchase companies, or at least those accustomed to soliciting deposits from members of the public, and the trustee savings banks would be very well placed to formulate schemes for attracting savings. Any of these policies or contractual schemes would have a proper surrender value. That would be an important part of them. The hon. Member for Cardiff, South-East specifically asked about the with-profits element, and one assumes that there would be some method of reinvesting income so as to ensure that there was a continuous growth of capital and a compounding feature.

But it should be appreciated that members of the public could be offered two types of schemes. They could be offered fixed interest schemes, so to speak, in the categories which I have mentioned, or schemes of equity investment through, for example, unit trusts with which, as you, Sir William, and the Committee know, I am associated and in which I must again declare my interest. In the case of unit trust schemes, contractual schemes have been begun on this type of model in the United States, though without any form of tax relief, at the rate of about 40,000 a month. We in the United Kingdom are opening new schemes probably at the rate of about 50,000 a year. We are just beginning and no doubt the process will accelerate. The usual subscription varies probably between about £30 and £50 a year.

I return to the main issue. Whatever the style of scheme and whichever of all these institutions introduces it, it is surely right that we should have not a situation in which lip-service is paid to the ideal of savings by successive Treasury spokesmen, but rather practical action to enable people to save for those purposes which they themselves deem to be desirable and right.

I should like to give the Committee some statistics. If the average industrial earnings at present are about £15 a week, the average wage earner in the course of his or her lifetime will earn a veritable fortune—between £30,000 and £40,000. How much of that do they have when they come to retire? Many of them have none at all. A recent Gallup poll showed that 33 per cent. of the population have no savings, while a recent survey, introduced by a committee of which my hon. Friend the Member for Halifax (Mr. Maurice Macmillan) is the distinguished chairman, indicated that if contractual schemes for saving were available no less than two-thirds of the population would be only too ready to subscribe to them.

At the other end of the scale, we are only too conscious of the fact that the needs of about 2½million of our citizens were met in the year before last either wholly or in part through National Assistance. The object of the concessions which were given years back and of whose history we have heard something tonight was to encourage working people and middle-class people to stand on their own feet and not to rely on the State to provide for them. Of course it is right that the State should provide for those in desperate need, but it is surely the responsibility of the Committee, and perhaps of the Conservative Party in particular, to encourage people to be proud and independent and to make their own provision in life for their dependants and their families. It is for that reason that we feel so strongly on this subject.

It is my considered opinion, from some little practical experience of these matters, that the proposals which we are putting forward are entirely practicable. I hope that my right hon. and learned Friend the Chancellor of the Exchequer will consider the subject very carefully and do what he can to meet us. The volume of support which these proposals have obtained on this side of the Committee will, I am sure, not have escaped his attention—nor their very favourable reception in the Press as a whole. May I take the point a little further and hope that we shall not have to wait until next year's Finance Bill—

Mr. John Rankin (Glasgow, Govan) rose—

Mr. du Cann

May I finish my sentence—before we see practical action taken in this matter, although it is clear that these matters require very careful consideration. I hope that we might see a little support for these ideas on Report.

10.0 p.m.

Mr. Rankin

Before the hon. Gentleman sits down, will he answer one question for me?

The Deputy-Chairman (Sir R. Grimston)

Has the hon. Member for Taunton (Mr. du Cann) given way?

Mr. du Cann

I said, Sir Robert, that I would give way as soon as I had completed my sentence.

Mr. Rankin

The hon. Gentleman has detailed a number of methods of saving, and there is no disagreement about them. Would he add another method, that employed by the co-operative movement —that of saving as one spends?

Mr. du Cann

I made clear, I hope—if I did not, I apologise to the hon. Gentleman and the Committee—that in my opinion and in the opinion of many of us the vehicle which we are producing, which we believe to be sound, sensible and practical, as my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) said, would apply to the co-operative movement equally with many other financial institutions. Speaking for myself, I would certainly hope that the co-operative society would take full advantage of it.

Mr. A. E. Oram (East Ham, South)

I hope that Government spokesmen are being duly impressed this evening by the concerted efforts that are being made in all parts of the Committee on behalf of the small savers. Each of the main parties has its own new Clause on the Order Paper, and each makes its own proposal in its own way. It is interesting to observe that as the years go by more and more hon. Members are taking an active interest in small savers and the way in which they are taxed.

The proposal with which I am concerned is that which would seek to remove the discrimination between co-operative society savings and small savings in the Post Office. The cooperative movement regards its facilities as comparable with those offered by the Post Office to small savers. The consumer member of a co-operative society has a pass book very similar to that of the Post Office saver, the facilities for making small deposits or easy withdrawals are comparble, and there are many co-operative shops and offices in which transactions can be conducted, which makes it a most convenient institution for small savings for the ordinary man and woman. We cannot see why this discrimination should have been brought about some years ago, and we cannot see why the Government have year after year resisted our proposal to give equality of treatment as between the two institutions.

The fact that we make this special plea on behalf of the co-operative movement does not mean that we do not welcome the increasing interest taken by other hon. Members in their own schemes. I should wish to know a little more about some of the new Clauses about which we have heard this evening before giving my conclusive support to them, but one can at least welcome the fact that more and more hon. Members are putting their names to proposals of this kind.

The hon. Member for Nottingham, South (Mr. W. Clark) used a phrase which we used to hear a good deal from Conservative lips—"a property-owning democracy". The word "democracy" brings to my mind a special feature of the co-operative society which does not seem to me to attach to the institutions on behalf of which other hon. Members have been speaking. It seems to me that the essential thing which counts in a democracy is the principle of "one man, one vote". In the other schemes which have been referred to it is not a question of "one man, one vote". It is a question of voting according to the size of the holding. That does not apply in a co- operative society, in which we have the practice of true democracy. Therefore, in addition to the case which my hon. Friends and I have put forward that the co-operative movement offers savings facilities comparable to those of the Post Office, we claim that on social grounds also, the co-operative movement is deserving of proper treatment in these matters.

I hope that hon. Members opposite who show this keenness on behalf of the small saver and who, over the years, have spoken of a property-owning democracy will, therefore, support us tonight in the Lobby, as they have not done in previous years, and will vote for our new Clause on behalf of the cooperative movement.

Mr. Maurice Macmillan (Halifax)

I do not want to weary the Committee with repetitive argument, although it is remarkably difficult not to do so considering how frequently we have had to repeat our arguments without making much impression on the Treasury. I support especially the new Clause of my right hon. Friend the Member for Sutton Coldfield (Mr. G. Lloyd)—Relief on savings policies—because it has at least some hope of being considered as a fresh departure by the Treasury Bench.

While I have every sympathy with the speeches of the hon. Member for Dart-ford (Mr. Sydney Irving) and of other hon. Members opposite, there is a just complaint against their new Clause that apart from being slightly old-fashioned in its limitation—as if, to use the phrase of the hon. Member for Dart-ford, it is only the institution of co-operation which encouraged thrift among the working classes, a phrase which I should not hope to hear from these benches—as the hon. Member for Huddersfield, West (Mr. Wade) agreed, it is old-fashioned in that the people to whom the hon. Member referred, as the survey mentioned by my hon. Friend the Member for Taunton (Mr. du Cann) showed, engage in many more methods of saving than the Clause indicates.

The new Clause of the hon. Member for Dart-ford tends not to remove discrimination, but merely to extend it. I go with the hon. Member for Huddersfield, West in saying that what we want in dealing with the small saver is to apply terms of equality rather than spreading the privilege of saving a little more widely. On the other hand, the great difficulty in attempting this proposal has always been that it is impracticable because administrative reasons make it difficult.

I have in the past put down similar Clauses to that now put down by the Liberal Party but with the relief limited to £15 and not to £25. Even the Wider Share Ownership Committee was con-vinced by the Treasury that our Amendment last year was impracticable. That is why the new Clause of my right hon. Friend the Member for Sutton Cold-field is even more worthy of attention.

I, too, hope that something will be done before the next Budget. Our proposal is new in that, being based upon an existing principle, it can surely be brought into effect either in this form or in such form as, with greater wisdom, the Treasury dictates. It could be brought in in its present form without extending any principle or involving administrative or policing difficulties for the Inland Revenue, other than those that that Department knows how to cope with. It would do only one thing, and that is remove the necessity of life cover for schemes of this sort to obtain tax privilege.

I know that the cost is unpredictable, but any examination of the likely outcome shows that it probably would not be very great, certainly in the first two years. If the cost to the Treasury of such a scheme rose, that would surely be an indication that its value was great and that it had been effective in bringing about new savings.

There is definite evidence that the absence of outlet of investment for what some people have called small investors, but which I prefer to call new investors of small savings, causes limitation and loss of savings. One of the reasons why there is so small a proportion of long-term savers in the country is the shortage of investment and difficulties of investing in the way in which they want to. The indications are that such a scheme would be useful, that it would be used and, in being so used, would not cost the Treasury an undue amount in concessions, certainly no more than existing tax schemes. Certainly there is no more danger of this scheme being abused than many of the others now in force.

It is not enough to try to achieve a greater measure of social justice and equality purely in terms of income. Our civilisation has reached a point where we must try to obtain a far greater degree of social equity and justice in terms of ownership—not only in ownership of durable consumer goods or a home to live in, but of the real and productive wealth of the country. That is why I hope that the Chancellor will do everything he can this evening, or later in this Bill, to meet us on this point.

Mr. Wade

Will the hon. Member answer one question? I am asking it only for clarification and for the information of the Committee. In answer to a question put to the hon. Member for Taughton (Mr. du Cann), I understood it to be said that the policies could be surrendered In the Clause there are these words: (c) the policy provides that no sum shall become payable until not less than twelve years after the payment of the first premium. except by way of return of premiums and reasonable interest thereon in the event of the death of the individual before the policy matures; (d) the policy includes provision securing that it shall not be capable in whole or in part of surrender, commutation or assignment by the individual; I am rather puzzled by the statement that it may be surrendered.

Mr. G. Lloyd

This Clause has been drawn very strictly. Therefore, there is no provision for surrender except in the event of death. We wish this Clause to be moderate in the sense of being strict and following the full rigour of the attitude which one might expect from the Revenue, but in this particular instance I think we have gone too far. If my right hon. and learned Friend is able to adopt this proposal, I think he will find it will be necessary to have provision for surrender under a certain penalty to make sure that what we are giving is the twelve-year period and allowing for the possibility of ill-luck or circumstances making it impossible for a man to continue. The Clause would need amendment in that particular respect.

Mr. George Darling (Sheffield, Hillsborough)

I wish to assure the hon. Member for Halifax (Mr. Maurice Macmillan) that those of us who support the Clause in the names of hon. Members of the Opposition are not asking for any special concessions or special privileges for co-operative societies. We put the Clause forward in this form because in the past there has been discrimination. I and I think my hon. Friends would agree that if we could get rid of discrimination altogether and treat all small savings in the same way for tax relief we would all be very happy.

I make only one observation. There is a great unity of feeling in the Committee that we should have encouragement from the Treasury in the form of tax reliefs and so on for all kinds of small savings. Apart from the technical discussions which must go on if the Government are to accept all the arguments now put forward, the Government have a moral duty at least to consider all these proposals and to do something on the lines advocated. That moral duty arises from the fact that this Government have been opening betting shops and bingo parlours. To redress the balance they have this moral duty to open savings shops in whatever form they may take to encourage small savings in every way.

10.15 p.m.

I add that, though it may be somewhat old-fashioned, if this country does not return to some of the old-fashioned ideas of thrift which our forefathers supported in the nineteenth century we shall never again get a healthy economy in this country. I am convinced that the views that are being expressed in the Committee this evening are absolutely essential to the well-being of the whole community, and that if the Government do not respond to the appeals being made to them tonight the country will be all the poorer for the neglect of their duty.

Mr. Edward Gardner (Billericay)

The principle which I believe hon. and right hon. Members on both sides of the Committee find so attractive is that small savers should be given the greatest possible encouragement by the Government. In doing this, I believe that the Government would be helping themselves in the most effective way to fight one of the great dangers to our economy, namely, inflation. Inflation is not caused by having too much or earning too much money; inflation is caused by spending too much money. I remember a well-known economist once saying that the danger of wealth comes when people start thinking about spending it.

Mr. Ellis Smith

It all depends on who is spending it.

Mr. Gardner

It is for this reason that I give warm support to the proposal made by my right hon. Friend the Member for Sutton Cold-field (Mr. G. Lloyd) and urge the Government to take account of the advantages that would come from accepting this proposal, bearing in mind the discipline and the reinforcement of the intentions that would follow from introducing the contractual element in this proposal. I hope that my right hon. and learned Friend the Chancellor will see in this proposal a means of helping the small saver and at the same time providing an effective and safe barrier against inflation.

Mr. Rankin

I have listened to statements from the Government side of the Committee tonight which I welcome, and I want to say how much I regret that I did not hear similar statements last year, the year before and the year before that, when we were pressing from this side of the Committee the very things that are being pressed from the Government side tonight.

A year ago, at this very stage, I made a speech much longer than the one I intend to make tonight advocating—[Laughter.] Well, I do not want to be encouraged to depart from what I have just said. I urged the very things that have been urged from the Government side tonight. I am very sorry that I cannot quote all the hon. Members who have spoken so wisely, but I have listened to them saying things like this: "The small saver should be assisted" and "The Government have waited too long to help." I hope the Chancellor of the Exchequer is listening to those statements. He did not listen to some of the statements when they came from this side of the Committee last year or the year before, and I hope he will listen more closely to them tonight. I even heard one hon. Gentleman suggesting that the P.A.Y.E. machinery should be used as a method of saving.

We on this side do not differ in any way from Tory Members in wanting to encourage saving. I see the Chancellor smiling. I thought that would draw a smile of encouragement from him. We want people to save. We have a method. It is not the machinery of P.A.Y.E. It is the co-operative method of saving. The hon. Member for Taunton (Mr. du Cann) mentioned his methods of saving, with which I do not disagree. He mentioned the unit trust and building societies. I have no quarrel with that, but I should have liked him to add the co-operative method of saving to his list, The hon. Member said that the employee earns an average of about f15 per week. The hon. Gentleman asked the employee to set aside in some form of investment a small part of his wage every week. That is a most desirable thing. That is the husband or the son. He is saving out of his wages.

I should like the hon. Gentleman and his colleagues to appreciate that there is another form of saving. When the husband goes home he gives his wages to his wife—all his wages, as good husbands always do, because she is the Chancellor of the Exchequer in the home. She has to run the home. She spends her husband's wages in the cooperative society, if she is a wise and foreseeing woman. A small portion of what she spends in the society is set aside as a saving. That accumulates. The hon. Gentleman is not going to discriminate between the saving that comes out of the husband's wages and the saving that comes out of the housewife's or the mother's spending.

The Chancellor has been taxing that form of saving ever since he became Chancellor. I hope that hon. Members opposite, who will be supported by us if they come with us into the Division Lobby tonight in their attempt to encourage and spread saving from wages, will help us in our attempt to encourage saving from spending. It is not a new idea, but if it is to prosper, it must receive support from the Chancellor. He has refused it all along. Tonight he is faced with unanimity on both sides of the Committee in the desire to encourage saving. There is support for the idea from his own back benchers. There is support for a comparable idea, although differently born, from this side of the Committee.

The co-operative idea of saving was not born in the purple. It was born in a thatched cottage in Fenwick in Scotland. There must not be any class discrimination in our attitude to these forms of saving. Having secured the support of both sides of the Committee in regard to the need for saving and there being no disagreement as to the method of saving, we have only one individual to contend with, namely, the Chancellor. If both sides of the Committee will co-operate tonight and become good co-operators, we will force —no;we will not force, because I do not believe in force—we will induce the Chancellor in the long run to do the right thing.

Mr. Brooke

The Committee might think it appropriate—

Mr. Rankin

I thought that the Chancellor was going to reply.

Mr. Brooke

The hon. Member's shafts were wrongly aimed. The Committee may wish a Treasury Minister to express some views about the four proposals put before it. All of them have great interest, and the Committee is clearly at one in wishing to see the maximum incentive given to savings. The hon. Member for Glasgow, Govan (Mr. Rankin) said that there was unanimity in the Committee, but having listened to the debate throughout, I do not remember any Opposition Member speaking in favour of either of the Clauses supported by hon. Members on this side of the Committee. Neither do I remember Members of either of the other parties speaking in support of the new Clause to which the hon. Member for Huddersfield, West (Mr. Wade) referred.

Mr. Rankin rose—

Lieut.-Colonel Sir Walter Bromley-Davenport (Knutsford)

Sit down.

Mr. Rankin

On a point of order, For my guidance, Sir Robert, can you tell me who is Chairman of the Committee—the hunting colonel or yourself?

Mr. Brooke

With the greatest respect to the hon. Member for Dart-ford (Mr. Sydney Irving) and others who spoke in favour of tax relief for co-operative societies, I do not recollect any hon. Members behind me speaking specifically in favour of that. Although there is a common thread between all four proposals, it would not be right to say that any one commands the universal assent of the Committee. Yet it is of value that we are all agreed on the importance of increasing personal savings, and I think that my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) was right in saying that there is no ground of difference on that general theme, from a party point of view. Surely we would all wish to see voluntary rather than compulsory saving. The proper management of the economy demands a certain level of saving, and if it is not obtainable voluntarily it must be obtained by stern Chancellors compulsorily, through higher taxation. I believe that the voluntary system is better, and I am sure that I carry the rest of the Committee with me when I say that. Given a buoyant society, such as we have generally enjoyed during the last eight or ten years, the means of saving exist. But something else is needed, which is even more important than tax incentives. I refer to confidence in the stability of the economy and in our policy to maintain the value of the currency. If we cannot convey that confidence to the people at large they may feel that their savings, which appear likely to achieve a reasonable return by way of interest, may nevertheless dwindle in value.

I did not quite follow my hon. Friend the Member for Halifax (Mr. Maurice Macmillan), who I know has given a great deal of thought to the subject, when he said that there was an absence of outlet for savings now. My hon. Friend the Member for Taunton (Mr. du Cann), who is also extremely interested in the subject, said that the Government were liable to pay lip-service to savings but not to do anything effective about it.

Whereas ten or twelve years ago the amount of net personal savings was comparatively small, in 1957 it had arisen to nearly £1,000 million, and last year—1961—it was over £2,000 million. That is not being done just by a small number of rich men; it means that the savings habit is spreading all the time through the country. There is no question that people are finding the means to save and the media to save.

The question before us is: to what extent should we use the tax system to further the savings movement? It has long been accepted that it is proper to give tax concessions on contributions to pensions and superannuation schemes. It has also long been the practice to give tax relief in respect of Income Tax—but not Surtax—on life assurance premiums.

10.30 p.m.

Since my right hon. Friend the Prime Minister was Chancellor of the Exchequer in 1956, there has been this exemption for the first £15 of interest in the Post Office Savings Bank or ordinary department of a trustee savings bank. That equally ranks for Income Tax exemption, but not, of course, for Surtax.

It is right to put before the Committee the general background here. Hon. Members as well as Treasury Ministers have to face the fact that no fewer than three authoritative and independent external bodies in the last 50 years have reported against the use of the tax system to favour savings.

I am not saying that this is a decisive reason, but I am saying that all of us, in considering these matters, should recollect the background. The Royal Commission in 1920, the Royal Commission in 1955, and the Millard Tucker Committee, about the same time, all took the same view. I do not want to bore the Committee, but I think that it is right to quote from paragraph 63 of the Final Report of the Royal Commission on the Taxation of Profits and Income in 1955, which said: It seems to us that in principle such a tax is more fairly distributed between A and B, having equal incomes and otherwise equal circumstances, if A and B pay the same amount of tax than if the tax on one of them is lower than the tax on the other because he has reserved part or a larger part of his income from immediate consumption. We think that any tax preference based on personal saving must be weighed against this general principle of equity. I am not at all sure that the principle which the Royal Commission mentioned should be given absolute overriding authority, but it must be weighed in the balance against other considerations, as the Royal Commission said.

Part of this problem, and a part which particularly troubled the 1920 Royal Commission, is the great variety of schemes, all of them involving some loss of tax revenue, which can be urged if there is a desire to further personal savings through tax exemptions. This discussion in the Committee has underlined that. Three or four schemes entirely different from one another have been brought up and it may well be said that the Government have increased their own difficulties by establishing in 1956 tax exemption for the first £15 of savings bank interest. That concession, as Treasury Ministers recognised at the time that it would do, has accentuated the demand for an extension of the principle to other schemes.

Another difficulty, which has hardly been mentioned in this debate, which we must all face—for there is no party issue here—with a number of the proposals canvassed here and elsewhere for tax incentives to further personal savings, is that, with many of these schemes one simply cannot be sure whether an increase in the holding of that particular savings medium has come out of income at all, that is to say whether it has been genuine saving. That is what we all want to encourage. We want people not to spend the whole of their income but to save some of it. It may be that the increase in the particular form of saving which may qualify for tax relief has not come out of income at all. It may have come through realising some other asset and may not be true saving. It will be common ground on both sides of the Committee that there is no case for tax relief when someone is simply switching his money from one form of investment to another, and—

Mr. Glenvil Hall (Colne Valley)

In order just to earn 2½per cent.?

Mr. Oram

And does the right hon. Gentleman realise that in the case of cooperative investment there is plenty of evidence that it is genuine new savings;that, indeed, 50 per cent. of it comes directly from dividends which people have decided to leave in their accounts rather than draw and spend?

Mr. Brooke

I was coming one by one to the cases included in the new Clauses, but it seemed right to preface my remarks on them by some general considerations that we have to take into account. If the hon. Member will look up my words in HANSARD, he will see that what I said was that this was liable to occur with a number of proposals for savings subject to tax relief.

If new Clause No. 11, which would extend the tax relief to co-operative and friendly societies, were accepted, it would cost the Chancellor about £2½million a year. That is not a great sum but, of course, it will immediately be asked: "Why stop there? Why should this tax relief be given to savings that take the form of investment in co-operative or friendly societies? Why should it not be extended to building societies, Trustee savings banks? Why not to municipal banks and joint stock banks?" Then, of course, the cost becomes very different from £2½million.

The hon. Member for Huddersfield, West has a different suggestion. His new Clause is designed to give tax relief on the income derived from all company dividends to a total of £15 a year. That is a variant, but there, again, one can ask "Why should it be company dividends, and not certain other forms of investment income? "—

Mr. Wade

My new Clause was intended to cover any investment income. Whether my wording was adequate, I do not know, but my intention was that all investment income should be treated alike.

Mr. Brooke

I am obliged to the hon. Gentleman. I am afraid that I had not read that intention into his wording. If this were to extend to all investment income, I must advise the Committee that it would cost £40 million a year—a very much larger sum.

The specific exemption given to the first £15 of Post Office Savings Bank income is given, as I said, on the basis that two conditions must be satisfied: that the money invested earns only a low rate of interest—not more than 2½per cent.—and that the money invested must be lent directly to the Government. That has a bearing on the monetary policy of the Government, and is of direct assistance there. I think that the hon. Lady the Member for Stoke-on-Trent, North (Mrs. Slater) said that about 32 per cent. or 33½per cent. of the money invested in the co-operative societies was invested in gilt-edged, but that is only one-third of the amount which, if deposited with the Post Office Savings Bank, would be lent directly to the Government. The co-operatives, naturally and rightly, use their money for various purposes; part of it is used to finance their trading, and part is invested in gilt-edged. The Committee will agree that there is a sharp distinction between money so invested that the whole of it is lent directly to the Government and money which is invested in other most admirable bodies, serving their own purposes but which do not exist to pass on to the Government what money is invested in them.

I was not sure as to how far the hon. Member for Dart-ford was pressing his point that co-operative societies were seriously suffering from this. I do not think that one can establish any strong case that the 1956 exemption for savings banks has materially harmed either the co-operative societies or any other bodies which seek to attract investments from the public.

My hon. Friend the Member for Nottingham, South (Mr. W. Clark) raised again a question which was debated last year, when my hon. Friend the Financial Secretary promised to examine it further. I am sorry to have to disappoint my hon. Friend, but I must tell him that further examination of his P.A.Y.E. proposal has only confirmed the view that it would be well-nigh impracticable. I do not say that it is inconceivable, but the more one examines it the more one sees the unattractive difficulties that would arise.

Apart from the practical difficulties, there is the question of the psychological effect, and I am bound to tell the Committee that the National Savings movement as a whole has up to now deprecated the idea of using it to support savings. I think there is a feeling that P.A.Y.E. itself is not a wholly popular operation. Also, most of us have feelings connected with post-war credits which do not make us very enthusiastic about the idea of semi-compulsory savings through the Income Tax system.

I grant that my hon. Friend's scheme would not be semi-compulsory but entirely voluntary, but it would be mixed up with the taxation system, as the post-war credits were.

Mr. W. Clark

I do not understand my right hon. Friend's point in connection with post-war credits. My Clause would give the right to the employee always to have control of his money. Consequently, my right hon. Friend's reference to post-war credits is not quite fair.

Mr. Brooke

I recognise that my hon. Friend's scheme would be entirely voluntary. On the other hand, I was seeking to represent the general view which has been conveyed to Treasury Ministers by the National Savings movement that the whole history of post-war credits has cast a certain cloud over any plans that might link up voluntary savings with the taxation system.

I think that the main disadvantage of my hon. Friend's scheme is that it would involve an enormous expansion of staff. I am advised that, if the scheme proved to be popular, and was widely taken up, it would be necessary to add several thousand to the P.A.Y.E. staff of the Inland Revenue Department. As one who is seeking to keep down Government expenditure, that would not be a very attractive prospect to me.

It would not be a wholly satisfactory plan to would-be savers, because it is extraordinarily difficult, unless one is wonderfully well-informed about this, to know what amount of saving one would actually be providing for by asking for a certain change in one's code number. One cannot just read off, from alterations in the code number, the amount of further deductions from earnings that one is likely to have got by the end of the year as savings—in addition to one's tax liability.

There are one or two other minor points in my hon. Friend's new Clause as drafted which would increase the difficulties. For instance, he is seeking to provide that if money were deposited in the Post Office Savings Bank it would attract interest from the previous 6th April. But that would lead to a lot of Post Office deposits, followed by quick withdrawals. I am sorry to have to speak in this way about his scheme, because the general idea is one that, on various occasions, has attracted me to see if one could introduce some contractual scheme in connection with P.A.Y.E.

10.45 p.m.

But the numbers are frightening There are 22 million people under P.A.Y.E. That is why I say that if the scheme proved popular, it might involve several thousand additional staff. I doubt whether employers who, under this scheme, could not opt out, would welcome a plan of this kind which would add something to their work. When we are trying to get the P.A.Y.E. machine to work as quickly and as punctually as possible, there is no get- ting away from the fact that this scheme would somewhat slow it up.

I come now to the very interesting new Clause of my right hon. Friend the Member for Sutton Cold-field (Mr. G. Lloyd), and I recognise and respect the purpose behind it. He is seeking, as he said, to provide an incentive to people who would like a bit of capital behind them. He is seeking to add another plan by which they could save not for their dependants in the case of death or for their own retirement, but for some specific purpose twelve or more years ahead. He pointed out, quite rightly, that if they were given some incentive to save so much a year for a period of twelve years or so, there would be a greater likelihood of their keeping it up.

There is virtue in this contractual principle if one can find a successful way of operating it. But I must say here and now that my right hon. and learned Friend the Chancellor of the Exchequer does not feel that this is a Clause which he could accept, for reasons which I will seek to explain in a moment. But he is interested in this whole project and prepared to follow up any scheme that might be devised and that seemed sounder than this.

I must equally say that we in the Treasury have been looking for solutions to these problems and we have not found them. We have been no more successful than my right hon. and hon. Friends. I should state what are the difficulties which a successful scheme of this kind ought to seek to overcome. One is the difficulty of switching, which I mentioned. If my right hon. Friend will consider what I am about to say as sympathetically as he considered the purpose which he intended to serve, he will appreciate that, if we were to incorporate his scheme as it stands into the tax law, it would lead to a very great deal of switching before it started to give any great value in the direction where he wishes to serve a good purpose.

As I read the scheme, although it is true that there is no Surtax relief, it would be available to anybody who had some capital and who could draw on that capital to put up to £150 a year into the scheme and claim tax relief, which I calculate at about £23 a year for twelve years. That reduction of £23 a year in tax liability is not unattractive, and I cannot help thinking that large numbers of people quite other than the small savers who my right hon. Friend wishes to encourage would straight away go into this and claim their £23 a year with no loss to themselves and no advantage to the nation.

We must look at what has happened in the past. Reference was made to Mr. McKenna's "unfortunate" reversal of policy when he legislated in 1915 and 1916 to withdraw tax relief from schemes not unlike this. It is important to remember that Mr. McKenna withdrew tax relief from schemes which did not involve a life insurance element simply and solely because they were giving rise to avoidance. What was happening was that somebody entered into one of these contractual schemes for a period of years having made sure that there was a good surrender value if he gave up after a year or two. After a year or two he then gave up, taking the surrender value, and meanwhile he had also enjoyed his tax relief.

My right hon. Friend has very skilfully drawn his Clause so as to safeguard against that. He said he might have dawn it too strictly. There is no possibility of surrender. One cannot get the money back in less than twelve years except on death, unless one simply withdraws one's premiums; one gets no reward unless one leaves the money there for twelve years. That is certainly a very valuable safeguard. But I am bound to ask the Committee how attractive, subject to that condition, this proposed scheme would be to the small saver whom we want to help.

My right hon. Friend spoke of people who would like a bit of capital behind them. But the people who have not got much capital behind them and want a bit of capital behind them want that capital available for emergencies. They do not necessarily want it tied up for twelve years. I am not seeking to make the matter more difficult than it is, but this is a genuine difficulty. If one is to safeguard the scheme against the kind of avoidance use that was made of it before 1916, it is very hard not to render it unattractive to the people who really want money that may be available in case of emergency. I fancy there would be strong pressure to release the 12-year tie on the money. I think that there would be certain other difficulties in the scheme which perhaps at this hour I need not pursue at length.

I think that the Committee would wish me to say something about the cost of the scheme. The present cost of the life assurance relief is £60 million a year—a substantial sum. Obviously, one cannot estimate with any certainty what the cost of my right hon. Friend's new Clause would be because nobody could say how much it would be taken up. It would be material, but I do not think one should judge it wholly on the ground of cost because that is so hard to estimate. What I am certainly prepared to say to my right hon. Friend is that the Chancellor is prepared to continue to search for schemes which would overcome the difficulties that I have mentioned but our best efforts in the Treasury have not yet succeeded in finding them. I have, as briefly as I have been able to do, indicated the dilemma which faces anybody who seeks to find a scheme that will serve the wholly desirable purpose that my right hon. Friend has in mind.

I hope that my right hon. Friend will feel that I have dealt with his new Clause not only adequately but sympathetically, because he is on to an important point. His is the most attractive in principle of the new Clauses that we have in front of us, but I am bound to say that, as drafted, it contains objections which up to the present we have found insuperable.

Mr. Mitchison

If I may be allowed three minutes—I will not take more—I am not going to say anything about the schemes that have been put forward with regard to P.A.Y.E. or the scheme that was put forward by the Liberal Party, except that it goes too far, quite obviously. I am not going to say anything either about the scheme which attracted the right hon. Gentleman the Chief Secretary but does not particularly attract me. Of course we want to encourage saving. The question is how far we are going to make exceptional allowances for it in the fiscal system. The insurance companies have done remarkably well out of the life assurance concession in the Income Tax Act. They, much more than the small saver, I believe, would do remarkably well out of this scheme if it went through. I should prefer to see something a little more in the real interests of the small saver rather than in the real interests of insurance companies.

There are two things which can be done about saving schemes. First, where something is happening by way of saving, it should be encouraged to continue and grow. That applies exactly to what is happening in the cooperative movement. It does not apply to any of the schemes that has been put forward tonight. For that reason, I hope that the Committee will take a fresh and fair view of co-operative saving. There is no real distinction between saving in that form and saving in such a form that the result goes direct to the Government. There may be a difference from the Government's point of view for what I may call matters of high financial policy, but when it comes to encouraging saving help to the cooperative movement in this way is just as useful as help in the direction of the Post Office Savings Bank.

We have had a remarkable debate. No one has even mentioned National Savings. I have listened for the words to come out. That is one way in which a concession is made. The £15 tax-free interest on Post Office savings is another. Premium Bonds is yet another. All those things seem to me to make an even stronger case for giving a concession to the effective channel of working-class savings, if I may use those rather old-fashioned words, which the co-operative movement today represents. It was originally founded in the early years of the nineteenth century to protect the rather poor people from extortion, but it has come a long way from that. It now extends to the vast mass of our fellow citizens. It is in their interests that the Committee should support an Amendment to give the movement the modest fiscal encouragement for which we ask tonight.

Mr. Geoffrey Hirst (Shipley) rose—

Hon. Members: Divide.

Mr. Hirst

There is no question about it. I am going to have my say. I cannot let this go as it has been left by my right hon. Friend the Chief Secretary. Whatever endearing qualities he may have, he is a professional stonewaller. Tonight we have had the biggest piece of stonewalling that I have ever listened to. It is as if the offices are changed but the Brooke goes on for ever.

Tonight hon. Members have made out a solid case. Every argument, relevant or irrelevant, which could possibly be deployed has been used tonight. Authoritative reports have been quoted in some instances but ignored in others. Does that impress anyone? It does not impress me. We have been told a good deal about the cost. The Government and the Chief Secretary realise only too well that the old-fashioned idea of the Budget being the be-all and end-all went out years ago. What counts today is the question of the resources and the capacity and production of the economy as a whole. My hon. Friend the Member for Halifax (Mr. Maurice Macmillan) made that aspect only too clear in an extremely good speech. It is the importance of saving to the economy as a whole. If we can influence people to save more and more, we can start to tax them less and less for the purposes we hear about so often.

Tonight my right hon. Friend lectured the Committee about what happened in 1916. The Government must wake up. [HON. MEMBERS: "Hear, hear."] They must. It is intolerable that we should sit here and listen to that sort of speech. I am not going to spare my right hon. Friend the slightest bit on this. It is the worst speech he has made, or that any other Minister has made, in my twelve years' experience here, and the attitude of the Committee has made it perfectly clear that that is the general opinion.

11.0 p.m.

It is vitally important that savings should be encouraged, and as people get increased incomes, and move into the taxable groups, they will become more and more interested in incentives to save, and they should be encouraged more and more to do so, as is suggested in the new Clause in the names of my right hon. and hon. Friends. They will not be able to do that if they are so heavily taxed as they are, but they could if they were encouraged as my right hon. and hon. Friends would encourage them, and if some of their incomes, within reasonable limits and with the hard and fast rules as suggested in the new Clause, were relieved of tax.

To wipe all that away as though it were of no importance and to talk about cost is really not treating the Committee with the respect it deserves on this important subject. We have had an important debate, true; but what speech in reply? I am only too sorry that it is not possible, owing to the different natures of the new Clauses, for them to be combined and the Government shown, as they ought to be shown, and have one day got to be shown, that we

Division No. 208.]	AYES	[11.2 p.m.
Abse, Leo	Hart, Mrs. Judith	Probert, Arthur
Ainsley, William	Hayman, F. H.	Pursey, Cmdr. Harry
Albu, Austen	Henderson, Rt. Hn. Arthur (Rwly Regis)	Rankin, John
Allaun, Frank (Salford, E.)	Holman, Percy	Redhead, E. C.
Allen, Scholefield (Crewe)	Hooson, H. E.	Roberts, Albert (Normanton)
Awbery, Stan	Houghton, Douglas	Roberts, Goronwy (Caernarvon)
Blackburn, F.	Howell, Denis (Small Heath)	Rodgers, W. T. (Stockton)
Blyton, William	Hoy, James H.	Rogers, G. H. R. (Kensington, N.)
Boardman, H.	Hughes, Cledwyn (Anglesey)	Ross, William
Bowden, Rt. Hn. H.W.(Leics. S.W.)	Hunter, A. E.	Short, Edward
Broughton, Dr. A. D. D.	Irvine, A. J. (Edge Hill)	Silverman, Julius (Aston)
Brown, Rt. Hon. George (Belper)	Irving, Sydney (Dartford)	Slater, Mrs. Harriet (Stoke, N.)
Callaghan, James	Jay, Rt. Hon. Douglas	Snow, Julian
Castle, Mrs. Barbara	Jeger, George	Soskice Rt. Hon. Sir Frank
Cliffe, Michael	Jenkins, Roy (Stechford)	Spriggs, Leslie
Craddock, George (Bradford, S.)	Jones, Dan (Burnley)	Stewart, Michael (Fulham)
Cullen, Mrs. Alice	Jones, Jack (Rotherham)	Stonehouse, John
Davies, G. Elfed (Rhondda, E.)	Jones, J. Idwal (Wrexham)	Stross, Dr.Barnett (Stoke-on-Trent, C.)
Davies, Harold (Leek)	Jones, T. W. (Merioneth)	Swingler, Stephen
Davies, Ifor (Cower)	Kelley, Richard	Taverne, D.
Davies, S. O. (Merthyr)	Lawson, George	Taylor, Bernard (Mansfield)
Deer, George	Ledger, Ron	Thornton, Ernest
Delargy, Hugh	Lever, L. M. (Ardwick)	Timmons, John
Diamond, John	Lewis, Arthur (West Ham, N.)	Tomney, Frank
Dodds, Norman	Loughlin, Charles	Wade, Donald
Edwards, Rt. Hon. Ness (Caerphilly)	Mabon, Dr. J. Dickson	Wainwright, Edwin
Edwards, Robert (Bilston)	Mclnnes, James	Warbey, William
Evans, Albert	McKay, John (Wallsend)	Watkins, Tudor
Finch, Harold	MacMillan, Malcolm (Western Isles)	Weitzman, David
Fitch, Alan	MacPherson, Malcolm (Stirling)	Wells, William (Walsal, N.)
Fletcher, Eric	Manuel, Archie	Willey, Frederick
Forman, J. C.	Millan, Bruce	Williams, D. J. (Neath)
Fraser, Thomas (Hamilton)	Milne, Edward	Williams, LI. (Abertillery)
Galpern, Sir Myer	Mitchison, G. R.	Williams, W. T. (Warrington)
Ginsburg, David	Morris, John	Willis, E. C. (Edinburgh, E.)
Gordon Walker, Rt. Hon. P. C.	Oram, A. E.	Wilson, Rt. Hon. Harold (Huyton)
Gourlay, Harry	Owen, Will	Woof, Robert
Griffiths, W. (Exchange)	Pannell, Charles (Leeds, W.)	Wyatt, Woodrow
Grimond, Rt. Hon. J.	Pargiter, G. A.
Hale, Leslie (Oldham, W.)	Parkin, B. T.	TELLERS FOR THE AYES:
Hall, Rt. Hn. Glenvil (Colne Valley)	Pavitt, Laurence	Mr. Charles A. Howell and
Harper, Joseph	Pentland, Norman	Mr. Grey

NOES
Agnew, Sir Peter	Birch, Rt. Hon. Nigel	Chataway, Christopher
Aitken, W. T.	Bishop, F. P.	Chichester-Clark, R.
Allan, Robert (Paddington, S.)	Black, Sir Cyril	Clark, Henry (Antrim, N.)
Ashton, Sir Hubert	Box, Donald	Clark, William (Nottingham, S.)
Barber, Anthony	Boyd-Carpenter, Rt. Hon. John	Cooke, Robert
Barter, John	Boyle, Sir Edward	Cooper, A. E.
Batsford, Brian	Braine, Bernard	Cordeaux, Lt.-Col. J. K.
Bennett, F. M. (Torquay)	Bromley-Davenport, Lt.-Col. Sir Walter	Corfield, F. V.
Bennett, Dr. Reginald (Gos & Fhm)	Brooke, Rt. Hon. Henry	Costain, A. P.
Berkeley, Humphry	Brown, Alan (Tottenham)	Coulson, Michael
Bidgood, John C.	Bullard, Denys	Craddock, Sir Beresford
Biffen, John	Campbell, Gordon (Moray & Nairn)	Crosthwaite-Eyre, Col. Sir Oliver
Biggs-Davison, John	Carr, Compton (Barons Court)	Crowder, F. P.
Bingham, R. M.	Carr, Robert (Mitcham)	Curran, Charles

are growing up as a nation and beginning to realise, as it ought to be realised, the fact that it is not merely a question of cost to the Exchequer—that old-fashioned talk—but a question of how far this continual spending shall continue to undermine the economy. That is the idea behind my right hon. and hon. Friends' new Clause, and it deserves better of the Government than it has got.

Question put, That the Clause be read a Second time:—

The Committee divided: Ayes 122, Noes 192.

Currie, G. B. H.	Leavey, J. A.	Renton, David
Dalkeith, Earl of	Legge-Bourke, Sir Harry	Ridley, Hon. Nicholas
d'Avigdor-Goldsmid, Sir Henry	Lewis, Kenneth (Rutland)	Roberts, Sir Peter (Heeley)
Deedes, W. F.	Litchfield, Capt. John	Robinson, Rt. Hn. Sir R. (B' pool, S.)
Donaldson, Cmdr. C. E. M.	Lloyd, Rt. Hn. Geoffrey(Sut'nC'dfield)	Rodgers, John (Sevenoaks)
Doughty, Charles	Lloyd, Rt. Hon. Selwyn (Wirral)	Roots, William
Drayson, G. B.	Longden, Gilbert	Scott-Hopkins, James
Elliot, Capt. Walter (Carshalton)	Loveys, Walter H.	Seymour, Leslie
Elliott, R. W. (Nwcastle-upon-Tyne, N.)	Lucas-Tooth, Sir Hugh	Shaw M
Emery, Peter	MacArthur, Ian	Shepherd William
Errington, Sir Eric	McLaren, Martin	Skeet T. H. H.
Farr, John	McLean, Neil (Inverness)	Smith, Dudley (Br'ntf'd & Chiswick)
Fisher, Nigel	Macleod, Rt. Hn. Iain (Enfield, W.)	Smithers, Peter
Fraser, Ian (Plymouth, Sutton)	Macpherson, Niall (Dumfries)	Smyth, Brig. Sir John (Norwood)
Freeth, Denzil	Markham, Major Sir Frank	Spearman Sir Alexander
Gammans, Lady	Marten, Neil	Stanley Hon. Richard
Gardner, Edward	Mathew, Robert (Honiton)	Steward, Harold (Stockport, S.)
Gibson-Watt, David	Matthews, Gordon (Meriden)	Stodart, J. A.
Gilmour, Sir John	Maxwell-Hyslop, R. J.	Stoddart-Scott Col Sir Malcolm
Goodhart, Philip	Maydon, Lt.-Cmdr. S. L. C.	Storey, Sir Samuel
Goodhew, Victor	Mills, Stratton	Studholme, Sir Henry
Gower, Raymond	Miscampbell, Norman	Tapsell, Peter
Grant, Kt. Hon. William	Montgomery, Fergus	Taylor, Frank (M'ch'st'r, Moss Side)
Green Alan	More, Jasper (Ludlow)	Teeling, Sir William
Hall, John (Wycombe)	Morgan, William	Temple, John M.
Hamilton, Michael (Wellingborough)	Nabarro Gerald	Thatcher, Mrs. Margaret
Harris Frederic (Croydon, N.W.)	Neave, Airey	Thomas, Leslie (Canterbury)
Harris, Reader (Heston)	Oakshott, Sir Hendrie	Thomas, Peter (Conway)
Harrison, Col. Sir Harwood (Eye)	Osborn, John (Hallam)	Thompson, Kenneth (Walton)
Harvie Anderson, Miss	Page, Graham (Crosby)	Tiley, Arthur (Bradford, W.)
Hastings, Stephen	Pannell, Norman (Kirkdale)	Touche, Rt. Hon. Sir Gordon
Hay John	Partridge, E.	Turner, Colin
Hiley, Joseph	Pearson, Frank (Clitheroe)	Turton, Rt. Hon. R. H.
Hill Mrs Eveline (Wythenshawe)	Peel, John	van Straubenzee, W. R.
Hinchingbrooke, Viscount	Percival, Ian	Vickers, Miss Joan
Hocking, Philip N.	Pickthorn, Sir Kenneth	Vosper, Rt. Hon. Dennis
Holland, Philip	Pike, Miss Mervyn	Wakefield, Sir Wavell
Hollingworth, John	Pilkington, Sir Richard	Walker, Peter
Hopkins, Alan	Pitman, Sir James	Ward, Dame Irene
Hornby, R. P.	Pitt, Miss Edith	Wells, John (Maidstone)
Hornsby-Smith, Rt. Hon. Dame P.	Pott, Percivall	Whitelaw, William
Hughes Hallett, Vice-Admiral John	Powell, Rt. Hon. J. Enoch	Williams, Dudley (Exeter)
Hughes-Young, Michael	Price, David (Eastleigh)	Wilson, Geoffrey (Truro)
Jenkins, Robert (Dulwich)	Prior, J. M. L.	Wise, A. R.
Johnson, Or. Donald (Carlisle)	Prior-Palmer, Brig. Sir Otho	Wolrige-Gordon, Patrick
Johnson, Eric (Blackley)	Proudfoot, Wilfred	Worsley, Marcus
Jones, Rt. Hn. Aubrey (Hall Green)	Pym, Francis	Yates, William (The Wrekin)
Kaberry, Sir Donald	Ouennell, Miss J. M.
Kerans, Cdr. J. S.	Rawlinson, Peter	TELLERS FOR THE NOES:
Kimball, Marcus	Redmayne, Rt. Hon. Martin	Mr. Finlay and Mr. J. E. B. Hill.
Lambton, Viscount	Rees, Hugh
Langford-Holt, Sir John

Mr. Selwyn Lloyd

I beg to move, That the Chairman do report Progress and ask leave to sit again. I cannot pretend to be exhilarated by the progress which we have made so far. I think that we have made a certain amount of progress, and I hope that we shall make rather faster progress tomorrow. In all the circumstances, I think that it would be appropriate, and not very unpopular, if I moved to report Progress now.

Mr. James Callaghan (Cardiff, South-East)

I am not surprised to hear that Motion moved at this stage in the proceedings, when we have just heard the worst speech in the twelve years in which the hon. Member for Shipley (Mr. Hirst) has sat in the House. It does not surprise me that the Government have decided to throw in the towel. This is very welcome to us; we hoped that the Chancellor would move the Motion at this point. But I do not know whether my persuasions were more important or whether it was the stabs in the back which he received from some of his supporters. If the Government could have seen the faces of their supporters while the last series of new Clauses were being discussed, they would feel very worried about Middlesbrough, West and Derbyshire, West.

Mr. Selwyn Lloyd

The hon. Member is trying.

Mr. Callaghan

The complaint of some of the Government supporters is that the Government are not even trying.

We are glad that the Chancellor has moved the Motion. We are delighted to finish on this happy note of the speech by the hon. Member for Shipley, and we shall renew the combat tomorrow with the aid, at least vocally, of the hon. Member. Some day we may even attract his vote.

Mr. Hirst

The hon. Member has had it before now.

Question put and agreed to.

Committee report Progress: to sit again tomorrow.