New Clause.—(PURCHASE TAX: 10 per CENT. RATE REDUCED TO 5 PER CENT.)

HC Deb 26 June 1963 vol 679 cc1347-95

Subject to any order of the Treasury made after the passing of this Act under section 39 of the Purchase Tax Act, 1963, all goods hitherto chargeable to purchase tax at the rate of 10 per cent. shall be chargeable at the rate of 5 per cent. and no more; and accordingly Part I of Schedule 1 to that Act shall be amended by substituting for any reference to a rate of 10 per cent, a reference to a rate of 5 per cent.—[Mr. Houghton.]

Brought up, and read the First time.

3.56 p.m.

Mr. Douglas Houghton (Sowerby)

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

Mr. Speaker

We could discuss this proposed new Clause with the new Clause No. 21—(Purchase tax: 15 per cent. RATE REDUCED TO 5 PER CENT.)—in the name of the hon. Member for East Ham, South (Mr. Oram) and other hon. Members.

If that were considered appropriate, I would call the second of these new Clauses, when we get there, for a Division if required. I do not see any of the hon. Members concerned with it here at the moment.

Mr. Houghton

Thank you very much, Mr. Speaker. I am sure that it will be for the convenience of the House that we should discuss both these Clauses together. We could decide later about a Division on the second of them.

The Clause which I am moving proposes to reduce the existing Purchase Tax of 10 per cent. to 5 per cent. The associated new Clause proposes to reduce the Purchase Tax of 15 per cent. to 5 per cent. This is not intended to be merely a repetition of the last debate that we had in Committee on 28th May. We then had a spritely speech from the right hon. Gentleman the Chief Secretary to the Treasury, in better form that day than he was last night, if I may say so, and a boastful and rude speech from the hon. Member for Kidderminster (Sir. G. Nabarro), whom I do not see in his place at the moment.

I want, if possible, a little later to go rather more deeply into this question of Purchase Tax, but the House will recall that on the occasion of our last debate we heard quite a lot about what I would describe as the "crackpot" side of the Purchase Tax. We heard how blackcurrant juice has been swept into the same group as orange squash and how, if hon. Members opposite dry their tears of anguish with a linen handkerchief, the Chancellor has his cut of 10 per cent., whereas if they dry their tears with a paper handkerchief their tears, if not unchecked, are at least untaxed.

Then we heard of the failure of the authorities to distinguish between a music stand and a bandstand and of the difference, Purchase Tax-wise, between a trombone and a piano which, although they make quite different noises, are both musical instruments, more or less. Nor must we overlook the challenging and as yet unsolved problem of how much chocolate makes a chocolate biscuit. We hear that chocolate on one side only makes it a biscuit which is untaxed. Chocolate in the middle as a sandwich makes it still a biscuit which is untaxed. But if there is chocolate on both sides it becomes a sweetmeat and is caught by the 15 per cent. tax.

4.0 p.m.

So while scandals rock the Government and the Prime Minister is deeply, if not mortally wounded, the absurdities of the Purchase Tax, in a manner of speaking, take the biscuit. [Hon. Members: "Oh!"] Well, that is good enough to be getting on with. What a wonderful world this is! I can quite understand why people sit down in Trafalgar Square to protest against the end of it. It is much too entertaining to be blown up, especially when one comes to the entertaining side of Purchase Tax.

On 28th May our proposed reductions in Purchase Tax were more drastic than we now propose. We then asked that the 10 per cent. group should be exempted altogether. We also asked that the 25 per cent. group should be relieved of 5 per cent., making it 20 per cent. Thirdly, we asked for the 15 per cent. group to be reduced to 5 per cent. Those three proposals would cost, we were told by the Chief Secretary, £266 million a year in revenue.

We have taken note of that and have reduced our demands. Now we propose that the 10 per cent. group shall be reduced to 5 per cent., to leave the 25 per cent. as it is, and to renew our earlier proposal to reduce the 15 per cent. group to 5 per cent. I estimate the cost of the new Clause which I am moving to be £85 million and the cost of the other new Clause which we are considering at the same time to be £36 million, a total of £121 million, and that is much less than half of the total cost of our proposals on 28th May.

The Chancellor may say, as, indeed, the Chief Secretary said in so many words last time, that this is such a substantial reduction in revenue that the Opposition must show either that the economy is in need of this extra stimulus or that these proposals should take the place of some already taken either in this Bill or otherwise. My answer is that a Labour Chancellor, in the circumstances in which the Chancellor found himself on 9th April, would, I feel sure, have done more and would have done it differently. But I shall not particularise on this, because it is always difficult when concessions have been announced and when they either have been implemented or are in the course of being put into operation for anyone to suggest that this or that should not have been done and that something else and something different should have been put in its place.

In putting forward these new Clauses, what the Opposition say is that had a Labour Government been introducing the Budget we should certainly have made room for greater reductions in the Purchase Tax. The Chancellor himself, as an advance measure before the Budget, slashed the 45 per cent. rate of Purchase Tax and reduced it to 25 per cent, in two bites, in November on one group of goods and on 31st December on another, at a cost in revenue of almost £100 million altogether.

In fact, the Chancellor has been busy ever since he was appointed to his present office almost a year ago. I think that it will be a year a fortnight Saturday since the right hon. Gentleman be- came Chancellor of the Exchequer—on 13th July last year. On 27th September, 1962—I am just giving a few extracts from the Chancellor's diary of reflation—he released special deposits, £80 million. On 3rd October he increased public investment for 1962–63 and 1963–64, £70 million. Then he released additional post-war credits, £40 million. On 11th October a strident voice at the Conservative Party conference said, "Stop dawdling, Maudling."

On 5th November, an appropriate anniversary—the Chancellor of the Exchequer cut tax on motor cars—£50 million to £60 million—and announced the increase in capital allowances. On 8th November the building programme was expanded; on 27th November the road works programme was extended in the North-East; and on 29th November there was a further release of special deposits—another £80 million—and so on. There were on 31st December Purchase Tax cuts of £30 million a year. Then we come to the Budget on 9th April when there was a £269 million release in taxation. So in all that catalogue of what the Chancellor has done over the months to reflate the economy there was certainly room for further reduction in Purchase Tax had the Chancellor wanted to make it, and we think he should have done so.

I think that the way in which the Government have dealt with Purchase Tax and Customs and Excise duties since 1961 is nothing but a fiddle. It is a conjuror's trick. In 1961, the then Chancellor asked for the regulator. In July, 1961, he used it, and up went all indirect taxes by 10 per cent.—not for revenue purposes, but for the better regulation of the economy, as a damper on spending. "Pay more as you spend or buy less" was the Chancellor's message. "Make room for exports" he said. Very well, we damped down, and some folk were soon out of work. Then came 1962, and the then Chancellor, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), was still in an austere mood. He reduced direct taxation by only £8½ million, most of that in aid exemption and age relief. He abolished the surcharge which was made under the powers given to him by the 1961 Finance Act, thereby letting go £196 million a year revenue. But he tidied up the Purchase Tax groups and scales, and he did that on an all-round basis at the higher level. He moved the 5¼ per cent. rate, as it then was, up to 10 per cent. He introduced a new tax on sweets and ice cream at 15 per cent., thereby increasing the indirect taxation by over £210 million. So by this sleight of hand £196 million of revenue from the surcharge vanished, and out of the magic money box came £210 million, £14 million more than before, as the result of the reconstruction of the scale of indirect taxation and the introduction of the new tax at the 15 per cent. rate on sweets and chocolate biscuits.

The new Chancellor comes along, as a result, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) has suggested, of the sacking of the wrong half of the Cabinet, and he came and opened up the floodgates, it was said, and he reduced—most properly, I think—the highest rate of Purchase Tax below 45 per cent. He brought it down to 25 per cent. But he has left untouched the austerity taxes imposed by his predecessor last year. We have not really had an answer to the question why he has left those alone.

It is the natural thing when taxation is imposed expressly as an economic measure to reduce those taxes when a period of relaxation or of expansion follows, but the Chancellor has left the Purchase Tax at the 10 per cent. rate alone and he has left untouched the 15 per cent. new tax introduced last year, though, as I said, he has reduced the top rate of Purchase Tax from 45 per cent. to 25 per cent. But it is the Chancellor's failure to reduce the emergency taxation of 1961–62 that we are now attacking.

We want to put the 10 per cent. group back where it was before—to 5 per cent. That covers clothing, boots and shoes, mattresses and many other essential articles from which the Chancellor exacts a tribute of £170 million a year. Then there was the new tax group of 15 per cent., the "sweet meat" tax. We ask for this to be reduced to 5 per cent. Thus, instead of a three-tiered Purchase Tax of 10 per cent., 15 per cent. and 25 per cent., the right hon. Gentleman would have a two-tiered Purchase Tax of 5 per cent. and 25 per cent.

I admit freely that a two-tier Purchase Tax with a difference of 20 per cent. is open to objection, but we have to do the best we can with the structure of the Purchase Tax as it is. The right hon. Gentleman will probably ask whether we are seriously suggesting that the Chancellor can bring the cost of these proposals—£121 million a year—within the framework of the Bill. But I wonder whether it is generally realised that after much heralded and welcome tax reliefs in the Bill, the Chancellor is getting an extra £45 million from the taxpayer in the current finacial year than he got last year and that £40 million of this extra taxation is in indirect taxation.

The figures are all to be seen on page 29 of the Financial Statement. Despite reductions in Income Tax, mostly from the increases in personal allowances and adjustments of the reduced rate bands—there is £131 million less in Income Tax shown in the Schedule this year, £169 million in a full year—the gross receipts from Income Tax and Surtax in 1963–64 will be only £22 million less than last year. In the Customs and Excise details, there will be an increase, despite reductions, in the top rate of Purchase Tax of £64 million in indirect taxation. The net increase in revenue from taxation is, as I have said, £45 million, of which £40 million is in indirect taxation.

I suppose that the right hon. Gentleman will ask why we should give up perfectly good Purchase Tax when—and I quote from his speech on 28th May— As a pure matter of fact, the Purchase Tax does not have any very substantial effect on the cost of living. The right hon. Gentleman went on to show that the Purchase Tax as put on in 1961–62 put prices up, but would not bring them down if it were taken off. He said that if the 10 per cent. were abolished altogether it would reduce the retail price index by only three-quarters of I point. Therefore, presumably, under our proposals to reduce the 10 per cent. to 5 per cent. the Retail Price Index would be reduced by three-eighths of a point. He will probably ask, "Why surrender £85 million of revenue a year merely to reduce the index by so small a fraction that no one will feel it?".

4.15 p.m.

Just to show how unimportant Purchase Tax was from the point of view of the level of prices, the right hon. Gentleman continued, in that speech on 28th May, To abolish the Purchase Tax as a whole…would make only a reduction of 1.8 in the index."—[Official Report, 28th May, 1963; Vol. 678, c. 1210.] He added that this put the matter in proportion

I suppose that it puts a good deal in proportion because there is a flood of evidence that the increase of 1961–62 did, as a matter of pure fact—to quote his own phrase—increase prices. Incidentally, I would like to ask what is so "pure" about facts which are only conjecture? In forming any judgment of the effect on the Retail Price Index of reductions in the Purchase Tax, there can be no certainty either that a reduction in prices will follow or that it will not.

The pure fact is—I stick to purity—[Laughter.] Purity is not a dirty word in this House. [Laughter.] Well, let us stick to the Chief Secretary. The pure fact is that, during 1962, there was an increase of 2.3 per cent. in the Retail Price Index and in 1961 an increase of 3.8 per cent. I think that there is no doubt that some of this increase was the consequence of the higher levels of Purchase Tax introduced by the regulator in 1961, and confirmed or increased in the Finance Act, 1962.

Hon. Members have only to read the informative statement produced by Cadbury's, on Purchase Tax on chocolate biscuits—there were no samples by the way—and the memorandum produced by the Co-operative Union to see that Purchase Tax did have a marked effect on the price level in the last two years.

The prices of clothing and footwear were pushed up by the additional tax imposed last year. The increase was four points in the case of furniture, five in the case of men's clothing, four or five in the case of women's clothing and six in the case of footwear—and boots and shoes are very close to the heart of my hon. and learned Friend the Member for Kettering (Mr. Mitchison), which enables me to say that men's clothing happens to be close to my heart because I have a constituency interest in it.

Now we are told that increases in Purchase Tax invariably result in higher prices, which is the idea behind them, but that marginal reductions in Purchase Tax make no noticeable difference. That is a very interesting proposition. If the Government keep the taxes on because no benefit will befelt by the consumer if they are taken off, then I think that some further inquiry is necessary into price fixing and profit margins. It will be astonishing if increases in Purchase Tax are a good reason for increasing prices, but that a reduction in Purchase Taxis no reason at all for reducing them. There is something there which the consumer wants to know. To use a phrase in common currency just now, we are entitled to know. This great Purchase Tax mystery should be cleared up.

Finally, we ought to hear from the Government where they are making for with Purchase Tax. Is this just a holding operation until the added value and other turnover taxes have been explored? We ought to have a statement of policy. The Chancellor should reveal his mind. We have a pretty good idea of his views on other branches of our tax structure. Our present difficulty is whether it is worth while asking any Minister to reveal his mind now.

Mr. Cyril Bence (Dunbartonshire, East)

We have had enough revelations.

Mr. Houghton

We have to proceed with our business as though the status quowas to continue for a little longer. The moment has not come for those of us on this side of the House to discuss these things merely among ourselves. We must still address ourselves to the Government in case they have a further opportunity of doing something about our proposals.

I stress that in his reply on 28th May the Chief Secretary skirted round the main issue of Purchase Tax. He had great fun with much that had been raised in the course of the debate. He challenged the Opposition on cost and to declare what these reductions in Purchase Tax would replace in the Budget proposals. I tried to deal with those two points intelligently and reasonably.

I think that we should now ask the Government to say more about their present attitude towards Purchase Tax, especially in the lower ranges, where price increases are felt by a large number of poor people. Otherwise, we shall have to say that there can be little confidence in the Government to continue to rule the country when they cannot give a sensible definition of a chocolate biscuit.

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

I understand that we are discussing two new Clauses, a common feature of both being that the level of tax proposed is 5 per cent. If the Government accept both, they will be continuing the process in which last year's Chancellor of the Exchequer took some pride—that of the simplification of the rates of Purchase Tax.

Last year, the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) told us that he was taking the opportunity to make some simplification and reduction in the number of rates of Purchase Tax. It was a little illogical that it was in that Budget that he introduced the new rate of 15 per cent. on sweets and soft drinks. The Opposition are now giving the Government the opportunity to simplify the rates by reducing both the 10 per cent, and 15 per cent. rates to that of 5 per cent.

I was very glad that my hon. Friend the Member for Sowerby (Mr. Houghton) took up the subject of the effect of Purchase Tax on the cost of living. He reminded us that we were told last year that to reduce Purchase Tax would not have a great effect on the cost-of-living index. He gave some figures of where it had had a direct effect. One figure which he did not give was that of the substantial reduction from 100 points last year to 96 points this year for radio and television sets. That shows, what should be self-evident, that reductions in Purchase Tax directly affect the cost of living. It is largely on those grounds that we are putting forward these two new Clauses.

May I give the House a few figures of the way in which the general cost of living has been behaving since hon. Members opposite have been in power? Almost every year there has been an increase in the cost-of-living index of between three and four points. Last year, the increase was nearly five points. Consumers want to know when this relentless upward turn of the cost of living is to be stopped. We admit that some factors in this process may be beyond the Government's control, but there are others which are directly within their control, and the use of Purchase Tax is one obvious way in which the Government can affect the cost of living.

I particularly urge on the Chief Secretary the second new Clause, which proposes that the tax on soft drinks and ice cream and sweets and confectionery, which ought not to have been introduced in any case last year, ought to be, if not removed, at least reduced by the amount we suggest. The impact of cost-of-living increases is particularly harsh on old folk and large families. The old-age pensioners and families with many children are those who would gain most direct benefit from a reduction in expenditure on soft drinks and sweets, and so on. I hope that the Chief Secretary will give a favourable answer on those grounds.

One of the effects of Purchase Tax on these items has been a distinct decline in the production of soft drinks. According to the Financial Times of 21st May, soft drink production has declined from 442 million gallons last year to 411 million gallons this year. According to the Financial Times of 21st April, ice cream consumption has been reduced by 20 per cent. There are similar, if not quite so steep, declines in the consumption of chocolate biscuits.

Was this the Government's intention? Did they have it in mind to bring about a decrease in the production of these items when they introduced this form of Purchase Tax? Will the Chief Secretary give us some idea of the effect of that reduction on estimates of revenue? Last year we were told that the tax was expected to yield £30 million during that year and £50 million in a full year. What effect has the decline in production had on those estimates?

Almost all the concessions which the Chancellor felt able to make this year—and we welcome them—were in direct taxation. There were no concessions in indirect taxation, whereas, as my hon. Friend the Member for Sowerby pointed out, last year, particularly in the lower ranges of Purchase Tax, there were considerable increases in indirect taxation.

Taking the two budgets together, I consider that this represents a considerable injustice. Taxes have been imposed on consumers and the switch of taxation in this way is distinctly harmful. I hope that by the acceptance of one or perhaps both of these new Clauses something will be done to rectify the ill-effects of last year's Budget and this one.

4.30 p.m.

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

The easiest task of an Opposition at any time is to propose reductions in taxation, knowing that they will never have to implement their proposals. It stems from a sense of irresponsibility which we have noticed in a big way with the Labour Party at the present time.

The hon. Member for Sowerby (Mr. Houghton), with a facility which we all admire, makes quite a case for this reduction, but he does not attempt to tell us how, if the Clause is accepted, the loss of revenue which the Exchequer will sustain will be made up. Is it to be made up by direct taxation? Is it to be made up by increases in other forms of indirect taxation? How is this money to be recouped?

Mr. Houghton

At the moment, it would add to the borrowing requirement, which is big already, but which could be bigger.

Mr. Cooper

So we are no longer to live within our income? We are to borrow more and more and sustain greater interest charges as we go on building ourselves up into a worse inflationary position than this country has sustained since the end of the war.

The hon. Member for East Ham, South (Mr. Oram) referred to the increase in the cost of living over the past few years, and gave a figure of 3 to 4 per cent., but what he did not tell the House was that wages and old-age pensions had increased each year by a percentage greater than that, so in point of fact the working man, the salary earner, the wage earner and the old-age pensioner are much better off today than they have ever been in the history of the nation, and no amount of double talk by hon. Gentlemen opposite can gainsay that.

The hon. Member for Sowerby and his hon. Friends, through their Leader the right hon. Member for Huyton (Mr. H. Wilson), have put forward the proposition that if they are returned to power we shall no longer have fee-paying for universities. They have not told the country what this will cost, or where the money will come from. I will tell hon. Gentlemen opposite that this will cost £8 million. It may be said that £8 million is not very much in relation to £6,000 million, but it must be remembered that hon. Gentlemen opposite have also said that they propose to raise the school-leaving age to 16. They have not told the country how much this will cost for more teachers and more buildings, or even where they will get the extra teachers and the new buildings from. In fact the right hon. Member for Huyton and his hon. Friends have put forward a prospectus which, if it were put forward by a private individual, would land him in gaol.

Let us come back to the basis of these two new Clauses under discussion. I can understand the economic argument put forward by the hon. Member for Sowerby. Indeed, I have put it forward myself in this House on many occasions. The point is that we must have a balance between direct and indirect taxation. This is a matter for honest argument between both sides of the House, and between economists within the same area of political thinking. Many economists who support the Conservative Party hold differing views, just as economists who support the Labour Party put forward differing cases when arguing the matter among themselves.

I have long held the view that if it were possible the best way to run the economy would be to make all earnings free of tax and tax only spendings. I recognise that this is impossible, for the simple reason that under the proposals put forward not only by the Conservative Government but by the Labour Party when it was in office a number of people have been eliminated from the tax paying range. I do not know the figures, but I believe that about 6 million people pay no direct taxes at all.

Obviously, therefore, if we were to impose a system such as I think would be right, all these people at the lower end of the scale who pay no direct taxes would immediately be affected if indirect taxes were increased. This may not be an insuperable problem. It might be possible by an increase in wages or by various adjustments in pension rates, and so on, to get it, but it certainly would be an extremely difficult problem to overcome and, therefore, what we in Parliament have to address our minds to is the balance between direct and indirect taxation.

Purchase Tax obviously comes into the category of indirect taxation. The question is whether this forms too large a share of the demands which the Chancellor makes on each and every one of us. This is the nub of the problem. If we think that it is too big a proportion, then I say to the hon. Member for Sowerby that we must be honest and tell the people from where we are going to get the balance of the money. It is no use hon. Gentlemen opposite or my hon. Friends making demands on the Government for more schools, more roads, more hospitals, more housing, and all these things without honestly telling the country where the money will come from to pay for them. The problem really is as simple as that if we are prepared to face facts.

I still think that Purchase Tax rates at some levels are too high.

Mr. E. Shinwell (Easington)

The hon. Gentleman said that if his hon. Friends wanted hospitals, schools, and so on, the money would have to be found to pay for them. But that is precisely what hon. Gentlemen opposite have been demanding. They have been demanding more hospitals, more schools, and so on. Where will the money come from?

Mr. Cooper

The right hon. Gentleman is being a little disingenuous. We are demanding these things, and we are prepared to face the bill. What the hon. Member for Sowerby is doing is proposing reductions in taxation which will make it impossible for the Government to provide the services which we feel are necessary for the country.

We have to be honest about this. It is no use running around the country saying that we are to have these things if we are not prepared to foot the bill for them. The argument which we have to face is whether we want more direct taxation and less indirect taxation, or vice versa. We cannot have it both ways. It must be one or the other.

I think that direct taxation is still too high, and that it is to indirect taxation that we should look for more revenue which the Government need to provide the services which hon. Members on both sides of the House consider are necessary. I have no objection to the hon. Member for Sowerby putting forward his new Clause—it is obviously necessary for him to do so at this time—but I do not believe that in doing so he is facing the real problems of our time.

Mr. Neil McBride (Swansea, East)

I support these two new Clauses to reduce the Purchase Tax to the maximum of 5 per cent. proposed. At the outset, I refer back to the Budget of 1962, when the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) said that his proposals, by their general balance, are designed to maintain the improvement in our affairs clearly to be seen since July last."—[Official Report, 9th April, 1962; Vol. 657, c. 994.] As the House knows, the success of his deflationary measures resulted in a series of "little Budgets" being proposed by the Chancellor to arrest the decline in our national economy. They were very strange words indeed, in the light of the present unemployment figures, which are many thousands mere than they were at a similar period last year.

In 1962, the then Chancellor of the Exchequer—this is to be found in column 991 of Hansard of 9th April—announced that the 13¾ per cent, and 5½ per cent. rates were to be consolidated at 10 per cent. The result was an increase of tax on furniture and on clothing, except for children's clothing, which is tax-free The hon. Member for Kidderminster (Sir G. Nabarro)—who, unfortunately, is not in his place at the moment—has said that he regards as contemptible persons who, outside the House, declare that the imposition of a 15 per cent. tax on sweets and soft drinks amounts to taxing children's sweets and small pleasures. But there are many millions of people who take that view and who consider that this tax is an unjust one, which should be abolished.

It is necessary in this context to put the case for two defenceless age groups and for another group of people who are by no means defenceless, I listened with interest and a sense of wonder to the hon. Member for Ilford, South (Mr. Cooper) when he spoke about the old-age pensioners. The old-age pensioner has a pride and dignity, as I know very well at first hand. In Tory Britain. my father, in his eightieth year, is still working. He should have had a decent pension to reward him for a lifetime spent in industry. He is no different from millions of others. It was cold, callous, calculated indifference to old-age pensioners to announce in January last, during a winter of the utmost severity, that there would be an increase for them and then not to bring it into operation until May.

The second defenceless age group is the very young, whom the 15 per cent. tax hits most severely. There is, however, another group of people, the housewives, who are concerned all the time with the cost of living. I am certain that, after studying the Government's policy, they have passed sentence on the Tories and will sign their warrant of execution as a Government at the next General Election.

It is the family man earning low wages who is most affected by the Purchase Tax, and it would be a great help to him if the level were reduced. There is a vast difference of outlook between the party opposite and my right hon. and hon. Friends. We should do something to reduce the cost of living if we accepted these new Clauses and put them into effect. Food prices alone have risen 6 to 7 per cent. since January, 1962. Taking the level at January 1962, as 100, the increase by December, 1962, was 2.3 per cent., and in this year, until April, the increase was 1.9 per cent., when the index stood at 104.

There is great cause for alarm in the increases in prices of essential commodities. Everyone knows about it. Women, particularly, know what happens. The rise goes on almost imperceptibly, now a penny, now a halfpenny, and so on. The process has been accelerated ever since the Tory Partytook office. Yet the Government seem powerless to do anything while, in the words of their own spokesmen, the value of the £ is steadily eroded. There is an abiding need for a reduction of taxes, yet Tory affluence seems always to mean increases all round. Government supporters may declare that Income Tax cuts are on the way, but many married men with families will not accept that they will necessarily receive any benefit since what little may come to them by way of relief is eaten away in increased fares.

In 1959, the Tory boom year, when the right hon. Member for Bromley (Mr. H. Macmillan), during that famous General Election, told us how well we were doing, the cost of a season ticket from the constituency of the Chancellor of the Exchequer to London, that is, from High Barnet, to Charing Cross, was £9 3s., whereas two days ago it became £12 17s., an increase of 40 per cent.

Mr. Cooper

If all the hon. Gentleman says is true, how does it come about that the nation today is better housed, better fed, better clothed and better shod than at any time in its history?

4.45 p.m.

Mr. McBride

It would be a poor thing if that could not be said of any country which makes any pretence to progress. There has been progress in this country, of course, and it has been hastened not least by the party of which I am a member.

To return to my theme, the weekly cost of travel from the Chancellor's constituency to London has risen from 18s. 9d. to 26s. 3d.—

Mr. Deputy-Speaker (Sir Robert Grimston)

Order. I am sorry to interrupt the hon. Gentleman, but in specific references to fares on the railways we are getting very far from the new Clause.

Mr. McBride

With respect, Mr. Deputy-Speaker, I made those references by way of illustration.

Everywhere one turns—the cost of meals in cafés, the cost of telegrams, and so on—one meets rising prices. The adoption of these new Clauses would give considerable benefit. I draw particular attention to the price increases influenced by the proposals in the 1962 Budget which extended the Purchase Tax to 15 per cent. on the wholesale value of sugar confectionery, including chocolate biscuits, soft drinks and ice cream from 1st May, 1962. At that time, the Chancellor met criticism by saying that he was not prejudicing the position of soft drinks in relation to alcoholic drinks, but he was undoubtedly, by that increase in price, bringing many soft drinks very near to the price level of some alcoholic drinks. Moreover, in taxing confectionery andice cream, he was forgetting that, in modern Britain, these things are not luxuries. Every family expects to have them, and they are much appreciated by many people. It is high time that the level of tax on commodities in Groups 34, 35 and 36 was reduced.

The right hon. and learned Member for Wirral said that the yield from soft drinks would be £50 million, but I draw attention to the Answer given to my hon. Friend the Member for Dunbartonshire, East (Mr. Bence) on 14th March, when it was said that the repeal of this tax would cost £10 million a year. Someone's arithmetic must have gone wrong. Of course, production has fallen. The production of soft drinks and ice cream has fallen in every country when taxes of this kind have been imposed.

Some hon. Members may say that we had poor summers in 1962 and 1961, and, therefore, that the soft drink profits are dependent on the last 10 per cent. to 15 per cent. of sales and on the marginal spending of the housewife, who has little margin left today. Over 70 per cent. of soft drink sales are consumed in the home. This shows that products like these are vulnerable to price increases because of the considerable effects of Purchase Tax on them. The Chancellor knows that the operation of this tax brings about a decline in purchasing power, and a decline in the housewife's spending power means less revenue from company tax and Profits Tax.

I think that the new Clause proposing a reduction of 5 per cent. in Purchase Tax would help the ordinary people and would make a real contribution to bringing down the cost of living. Although the reduction may seem to hon. Members opposite infinitesimal, the ordinary people for whom I speak would view the acceptance of these new Clauses with great pleasure.

Mr. Brian O'Malley (Rotherham)

We have had an interesting and often diverting debate.

I congratulate my hon. Friend the Member for Sowerby (Mr. Houghton) on his kind reference to musical instruments which, I realise, is not under discussion. I was pleased to note that, although in musical terms my hon. Friend perhaps did not know the difference between a crotchet and a hatchet, he did know the difference between a piano and a trom- bone, which is more than can be said for the Treasury, which did not know the difference between a music stand and a band stand.

When we were discussing similar new Clauses in Committee, hon. Members opposite strongly supported a simplified Purchase Tax system by which instead of having, as we have had in the past, seven rates of Purchase Tax there would be only three. The hon. Member for Kidderminster (Sir G. Nabarro) said that he would like only one rate. The new Clauses propose to knock the number down to two rates of 5 per cent. and the present rate of 25 per cent. I therefore hope, perhaps innocently, that we shall have some support from horn. Members opposite who would like to see such simplification.

I support the new Clauses on two grounds, economic and human. When one is making economic decisions, which the Chancellor of the Exchequer had to do when he was formulating his Budget, it is particularly important that one should consider not only the economic problems, but also the human problems involved. I have no doubt that every hon. Member agreed with the Chancellor of the Exchequer's belief that the economy of the country was in need of expansion and of an injection of purchasing power.

It was as a result of that belief that we had the Purchase Tax changes in November last year and all the other changes which my hon. Friend the Member for Sowerby mentioned in giving that interesting biographical account of the career of the Chancellor of the Exchequer during the time that he has been in office. My hon. Friend showed that, considering the amount of money involved in these new Clauses, the Chancellor of the Exchequer could have done something about the present Purchase Tax situation within the range of the finance that he was considering.

What the right hon. Gentleman has, perhaps, neglected to do is to consider the human problems involved in the present rates of Purchase Tax. In the very short time that I have been a Member of the House of Commons it has seemed to me that the Chancellor of the Exchequer is a very pleasant man and I therefore appeal to him, on human grounds, to give favourable consideration to these new Clauses.

I am particularly concerned this afternoon with the people whom I mentioned during the Committee stage, when similar Clauses were being considered, namely, the old-age pensioners. We all know that old-age pensions have recently been increased, but if we are in close contact, as many of my hon. Friends are, with old-age pensioners who have no other source of income we know that even with the recent increases they still have considerable difficulty in arranging a budget so that they may have adequate food. They still have tremendous difficulty in obtaining for themselves things which people who have given a lifetime of service to the community should have no difficulty in obtaining.

I think particularly of the time when old-age pensioners, either single people or married couples, want a new carpet, a hearth rug, or some new furniture. I believe that a reduction in Purchase Tax from 10 per cent. to 5 per cent. would help them a great deal generally, but it would also help them to get the household requisites which they so often badly need.

I have no doubt that my hon. Friends who have been in the homes of old-age pensioners living off their old-age pensions, or getting a little help from National Assistance, realise how often there is this air of shabby gentility in the house, of people, trying very hard to keep up appearances, who just have not the money to buy a new carpet when a hole appears in the old one. We must, therefore, consider the 6 million old-age pensioners in discussing this matter.

We must also look to the people who have gained nothing as a result of the Budget. Apart from the pensioners, a very large number of people are receiving National Assistance. A large number of people are paying no Income Tax at all. I have recently had in my area a number of cases of applicants for National Assistance who have been the subject of an £8 7s. labourers' wage stop. This is the wage which they might be expected to take home as labourers in the Rotherham district.

We have a large number of people, people on National Assistance and people working in unskilled occupations, whose income is extremely low. If we take the judgment of the National Assistance Board, their take-home wage is as low as £8 7s. a week These people are not paying Income Tax. They are not paying direct taxation. I would argue, I think with some justification, that a reduction in the 10 per cent. rate of Purchase Tax on household goods and clothing and a reduction in the 15per cent, rate on soft drinks and ice creams, which, of course, every' family wants and has to buy for its children, help these people.

5.0 p.m.

The first plea that I would make to the Chancellor is that in coming to an economic decision he should take into consideration the human element involved and therefore consider these new Clauses favourably. When we look at the Budget and at the Finance Bill a number of questions arise which are relevant to our consideration of the two new Clauses which seek to reduce the present rate of Purchase Tax. I have mentioned, first, the human considerations. The second consideration is whether, on present signs, the amount of money which is being injected into the economy is sufficient to produce the degree of expansion without inflation which all hon. Members desire. The third is that we have to look at any factors militating against such expansion of demand, or other desirable aspects of policy, which the acceptance of these two new Clauses could help to prevent.

I should like to refer briefly to some of the comments made by my hon. Friend the Member for Swansea, East (Mr. McBride) and my hon. Friend the Member for East Ham, South (Mr. Oram), who spoke about the rise in the cost-of-living index. Surely, when the Chancellor talks in terms of incomes policy, however desirable it may be to prevent inflation in an expanding economy, it is nonsense to expect the co-operation of the trade unions in this policy if wage standards are being undercut all the time by a consistent and steady increase in the cost of living, such as we have had in the last few years.

When quoting instances of fares, my hon. Friend the Member for Swansea, East was ruled out of order, but I think that we should pay attention to the way in which products like eggs, butter, fish, meat, sweets and soft drinks have risen in price in recent years. These are things that we should take into consideration. We have seen since last year's Budget consistent and steady increases in the price of foodstuffs, in the price of domestic furniture; in fact, in the prices of the goods upon which the Purchase Tax rate was either increased or imposed for the first time. We must look at the increase in fares, in the cost of meals bought out, in the increase in National Insurance contributions the increase in the cost of housing, rents and rates, and the way in which the rates will inevitably move upwards, and the continued indebtedness of local authorities.

Another example is that it was announced this morning that gramophone records have gone up in price quite considerably. It is the responsibility of the Government to do what is within their power to contain and hold steady the cost of living. If the Government are to push for an incomes policy they must do that. I suggest that the acceptance of the Clauses put forward from this side of the House will be doing something to keep the cost of living steady in the interests of the Chancellor's own declared national incomes policy.

The last point that I would raise is the state of the manufacturing industries which produce the goods which are at present taxed at the rate of 10 per cent. and 15 per cent. The Chancellor has stated in recent weeks that there are signs that the economy is beginning to expand, that we are getting the healthy degree of expansion which the Chancellor has stated that he desires. This is not surprising. It is obvious that as a result of the money injected into the economy by the Budget there will be some expansion of industry and of the economy. There has to be, because a General Election is coming, so something has to be done about it from the point of view of the Government.

The question that we must ask is whether, on the signs available so far, the amount of expansion is so favourable as to indicate that we shall get the degree of expansion that we need, and a 4 per cent. increase in our gross national product during 1963. Is the expansion sufficient to remove by the end of the year the slack which we have in almost every industry in the country?

Without going into details, I can only say that a number of signs point to the fact that the expansion that we are getting, and the confidence that is being engendered as a result of the Budget, indicates that the amount of money pumped into the economy is perhaps not sufficient. In the Federation of British Industries inquiry into industrial trends, at the end of May, the question was asked of firms, "What are the most important factors likely to limit your output for the next four months?" At the end of May, 1962, 67 per cent. of the firms replied "Lack of orders or sales".

At the end of January, 77 per cent. gave this reply, and at the end of May this year, in spite of the Budget, 71 per cent. of the firms participating in the inquiry still said that it would be orders that would limit their expansion and keep the slack in their industry. In fact, it would appear that the necessary expansion, confidence and orders are not coming forward.

I would suggest that in view of the slack in the economy, in view of those answers, and of the sluggish state of the retail trade, which has shown very little change from the earlier months of this year, and the fact that there is still no sign of a hire-purchase boom which is an indication of increasing demand, it could be argued in detail that there are very strong economic arguments for injecting further money into the economy.

I would support these Clauses on the human grounds which I have raised, because it would help to peg down the cost of living, which we all want to do, and because I believe that these Clauses, while serving a useful social purpose, would, at the same time, serve a useful economic purpose and achieve the ends of expansion without inflation which the Chancellor has said that he desires.

Mr. W. A. Wilkins (Bristol, South)

I apologise to the House for breaking into the rather placid tenor of our ways to make a few comments on the two new Clauses, but more especially upon the speech which we had to endure from the hon. Member for Ilford, South (Mr. Cooper). I have been in the House of Commons a long time and I have a clear recollection of coming into this Chamber on the occasion of Committee and Report stages of the Finance Bill and hearing the hon. Member make the same speech almost every year without fail.

The hon. Member always takes the same line. The usual Tory challenge is offered to us, as it is on the occasion of General Elections, about the things that we on this side promise the nation that we will do if we are given the power, and we are challenged about where we would find the money. If the hon. Member is willing to sit in his place and listen to me, and provided that I am not ruled out of order by the Chair, I shall be pleased to tell the hon. Member some of the ways in which we would find the money.

We would not find it by the trickery and jiggery-pokery that we have witnessed for so many years from the Government when they have messed about with the nation's finances, taking money with one hand, paying it back with the other, taking it from National Insurance contributions or devious means of that kind, handing out £400 million, as was done by the Tory Chancellor in 1958, and then clawing it back by taxation or regressive legislation which is brought in six months later. I could go through a whole catalogue of the actions of succeeding Tory Chancellors and the way they have manipulated the country's finances to curry favour at General Elections.

One of the reasons why I am intervening is because the same pattern is being followed again this year. We have had £250 million already proposed to be given away in tax reliefs by the Budget and today we are pleading with the Chancellor to make remissions in Purchase Tax. I do not think that we will get them. We are kicking against the wall. If these remissions are to come at all, they will come in a few months' time, assuming that the election takes place in the autumn. If the election is to come early next year, we should get the remissions towards the end of this year and the 10 per cent. surcharge would probably be taken off, as I said a month ago to a conference which I was addressing. The regulator is likely to be used but it will be held back until a little later. I could go through the whole gamut of the conduct of the party which controls the country's destinies and show it up for what it is worth.

I remember when the former Chancellor of the Exchequer, the late Sir Stafford Cripps, imposed Purchase Tax. At the time, he had good reason for doing so. Although, because of the circumstances of the time, I was compelled to support him, nevertheless I have always objected to him and to every other Chancellor in that I am opposed to this type of taxation in principle. This exposes a fundamental difference between myself and, at least, the hon. Member for Ilford, South and probably between our two parties.

I am opposed to indirect, hidden taxation, to taxes which people are called upon to pay, which they assimilate after they have been in operation for a short time—for example, the tax on tobacco, which stops people smoking for, perhaps, two or three months, after which they drift back to it again and, perhaps, ignore the tax.

Mr. Cooper

The hon. Member said that he supported the late Sir Stafford Cripps, but he has not told the House that to the one and only Budget presented by the late Mr. Hugh Gaitskell, who also increased Purchase Tax, he gave his support.

Mr. Wilkins

I do not happen to be in the fortunate position of being Chancellor of the Exchequer and I cannot impose my will upon Chancellors of the Exchequer. I am giving a personal opinion, which I have always held, that direct taxation—payment according to ability to pay—is the only fair form of taxation. After that kind of payment is made by direct process, the individual can spend his money as he wishes and without the hidden taxation on the various goods or articles which we use. There is, therefore, a fundamental difference of opinion on this point.

I appeal to the First Secretary—[Hon. Members: "Chief Secretary."] I get so muddled with alt the different titles that the Prime Minister gives his subordinate Ministers these days. I appeal to the Chief Secretary to the Treasury to give the most serious, sympathetic consideration to the proposals which we are making in the two new Clauses for the reduction of Purchase Tax.

5.15 p.m.

I speak from a fundamental objection to this type of tax, but there are other considerations which should weigh with the Government when considering it. They want, I understand, to reflate the economy, as my hon. Friend the Member for Sowerby (Mr. Houghton) would say. This is an obvious necessity and it is one of the answers to the hon. Member for Ilford, South. It is a prerequisite of everything we do. I constantly tell people when addressing public meetings that the Labour Party cannot hope to succeed in its programme unless it is able fully to implement its proposals in "Plan for Progress", which I commend to the hon. Member. Then, he might not come here chiding us about how we are to find the money.

I appeal to the Chief Secretary to consider our request, for two reasons. The first is the incidence of Purchase Tax upon the goods which are comprised in the two groups in question and which bear most hardly upon masses of the general public. They are items which must be used every day in the week, things which people have to buy almost continuously, for they are the means whereby we live and clothe ourselves.

I refer, first, to footwear. If the Chancellor wants to help and to boost the economy and give it a thrust forward, I suggest that he might turn his attention to footwear. I know that footwear of infants and young children is not affected by the tax, but that does not alter the fact that it is extremely expensive to buy. The cost of all forms of children's clothing is appalling. Having had to find the means of rearing four children, I have an abundance of sympathy for those who are trying to raise young families today, with the extremely high costs, not so much of feeding them, but of finding their clothing and shoes. It may be that if we can do something to increase the prosperity of the boot and shoe industry, that might reflect itself in lower charges at least for children's footwear.

My reason for asking the Chief Secretary to consider our proposals is that the incidence of short-time working in this industry, which hitherto has flourished, in post-war years at least, is far and away higher than in any other industry. My figures, which I believe to be correct, show that something like 15 per cent. of workers in the footwear industry are working short time.

In the bedding industry, which is allied to the furniture industry, my figures show that 14.6 per cent of workers are on short time. All Members of Parliament have received representations from these two industries asking us to do something to assist them. The only way we can do so is to make their product more easy to purchase, and one of the ways in which we can help—although we know the Treasury answer, because we have had it in Written Answers to Questions—is by reducing Purchase Tax on furniture.

If the occupants of the Treasury Bench are serious, as I imagine they are, because it is only natural that they should want to present the best possible case to the country when they appeal to the electorate at the General Election. If they want to inspire and reflate the economy, I urge them to consider the two ways which I have suggested by which they could stimulate consumer demand. In stimulating consumer demand they perhaps could help to remove some of this burden of short-time working which so many workers in these industries are experiencing at the moment.

Mr. Laurence Pavitt (Willesden, West)

I wish to join in the pleas which have been put forward by my hon. Friends on this side of the House in support of these two new Clauses, and in particular the very sincere contributions made by my hon. Friend the Member for Swansea, East (Mr. McBride) and my hon. Friend the Member for Rotherham (Mr. O'Malley) on very humanitarian grounds. I share in the plea which my hon. Friend the Member for Rotherham made to the Chancellor of the Exchequer's humanity, but perhaps with a little less faith and a little less hope. I would inform my hon. Friend that an affable exterior does not of necessity mean that there is a heart of gold beating beneath it and that I am afraid that he will find that at the end of the debate the Chancellor of the Exchequer and the Chief Secretary will be their usual flint like, rocklike selves and that we shall have their resistance to the nthe degree.

I sympathise a good deal with my hon. Friend the Member for Bristol, South (Mr. Wilkins). I happen to have the misfortune to be misrepresented in this House by the hon. Gentleman the Member for Ilford, South (Mr. Cooper). He knows he does not get my vote. I have the misfortune not only, like my hon. Friend, of having heard the hon. Gentleman the Member for Ilford, South make that speech in this House before; I have also heard it many times outside.

Mr. Wilkins

But perhaps he will not be heard here very much longer.

Mr. pavitt

We on this side are arguing on quite a narrow front. I think we should be grateful to the hon. Gentleman the Member for Ilford, South, for he stated the fundamental difference between, the two parties.

Mr. Wilkins

Oh, he is a good Tory.

Mr. Pavitt

We on this side are seeking as far as we can to reduce the impact of indirect taxation on people least able to pay it. The hon. Gentleman the Member for Ilford, Southis anxious not to do that because in his mind he feels that the priority is reducing the amount of direct taxation, which, in his view, is too high. I know his argument and the reasons for it. I do not agree. This is the vital difference between the two sides of the House in this debate.

Our plea has been advanced on three main fronts during this debate, firstly, consideration of that section of the community who happen to be old—the pensioners and the old people; secondly, the tax on soft drinks and ice cream, sweets and chocolates, a tax which affects the children, and for that reason ours is a plea for the family; and thirdly, the housewives. I would add to this last point made by my hon. Friend the Member for Swansea, East a special plea for the young marrieds. This range of tax hits the young couple trying to start out in present circumstances and conditions, and carrying the tremendous responsibilities of trying to get a house. The only way they can do it invariably is to find a huge mortgage deposit, and then on top of that they have to buy commodities on which they have to pay Purchase Tax, the incidence of which has a crippling effect upon them.

To consider first the old-age pensioners. The hon. Gentleman the Member for Ilford, South—asthe Chief Secretary probably will, for I have on many previous occasions heard him deploy the case in this Chamber—pointed out that the old-age pensioners have never had it so good. He could show his figures and statistics to show that by so many points they were better off last year or by so many points their pension was not so good another year—and there is that usual reference to the three years after the war as well. We shall probably get that one again. Against those sorts of statistics I should like the House to realise how the last winter showed how those getting on in years and not very affluent came up against the extreme problem of acute poverty, due to the cost of living and also to the failure to raise the rates in time to meet the need for fuel during that very cold spell. I blame the Prime Minister and his right hon. and hon. Friends for most of the misfortunes of this country, but I cannot blame them for the cold winter.

Mr. Wilkins

They blamed us for the cold spell in 1947.

Mr. Pavitt

If my right hon. Friend the Member for Easington (Mr. Shinwell) were in his place I am sure he would underline that point.

Mr. O'Malley

I am sure the House would be interested to know that in fact the pension of a single person in 1946 was about one-quarter of average earnings whereas the pension of a single person in 1962 was rather less than one-fifth of average earnings.

Mr. Pavitt

I am very grateful to my hon. Friend, but I do not want to deploy figures. That is the kind of thing which hon. and right hon. Gentlemen opposite are adept at, and if I had to award the price for making debating points of statistical comparison I should award it to the Chief Secretary, who makes debating points about statistics far more efficiently than I can.

I want to tell the House how I see it, and how I saw it last winter, from the human angle. I happen to serve on the board of the Central Middlesex Hospital. During that cold spell an old-age pensioner, a woman, was brought in dead. Her body temperature when she came to the Central Middlesex Hospital was 70 degrees. This happened in 1963—a woman died because she could not afford adequate coals and heating in her home. That is the situation I am presenting to the Chief Secretary, the sort of situation which comes from the taxing of commodities which these people need to buy, not as luxuries but in order to live. Of course, one could follow this example with many others.

I know that many of us in this House try to follow up cases of our old people, by accompanying services such as meals on wheels. We go into their homes, and we find these tragic cases. I know that many hon. Gentlemen on the other side of the House do so as well. We meet these old people and we know that they have still got their pride, and it is a job to persuade them to take National Assistance, to which they are entitled. We try to persuade them to take it, but we find they are living in dire poverty, not having the necessities, and living alone at the age of 75 or 76 or 77, surrounded by their bits and pieces accrued through a lifetime. We have seen this sort of thing time and time again. They cannot afford the price of fuel, which is a high priority in their necessities. In my constituency last winter many went to bed with hot water bottles because they could not afford the price of fuel. So the plea I make is that we get away from statistics and have a look at the realities.

Now I come to the question of the large families and the lollipop tax for kiddies. I was interrupted in a debate yesterday when one of my constituents came with a housing problem of statutory overcrowding—five children and mother and father living in one room. I had to tell him I was sorry, but we have 390 people in my constituency who are statutorily overcrowded out of 4,000 on the waiting list. Time after time, Friday after Friday, I have to meet families of five or six or seven or eight living in inadequate accommodation. It is on these families, the larger families, that this Purchase Tax falls most heavily. The more children one has the more difficult the expenditure and the greater the impact of the incidence of Purchase Tax. The priorities have to be altered, and we ask the Government, in making their rearrangements, to accept these two new Clauses.

When the lollipop tax was imposed there was a specious argument, that because of the high incidence of dental caries it was right to tax sweets so that the children would not eat so many. This is one of the very few instances in which that sort of argument is used. I should probably be out of order if I were to explore this, but one could instance other things which are either socially or from the health point of view harmful but about which no such action is taken. But it would be far better to do something about the woefully inadequate dental care than to tax children out of eating too many sweets and out of incurring dental caries by this high rate of Purchase Tax.

Like most people who get called at the tail end of a debate. I find that many of the points I had thought to make have already been made more effectively by one's colleagues. I do not want to reiterate the arguments about the various effects on industry. In my constituency we are heavily affected by all these things. Wall's ice cream factory is in my constituency. On the tape this afternoon there is a news item about a biscuit factory in my constituency being the subject of a take-over bid. The makers of Coco-Cola or Pepsi-Cola are in my constituency, and this tax affects not only these firms, but my constituents who work for them.

I ask the Chief Secretary not to give us one of his brilliant debating speeches, scoring debating points off my hon. Friends, but to deal with these two items of Purchase Tax as put forward in the proposed new Clauses with less brilliance but a little more heart.

5.30 p.m.

Mr. Bence

I was rather interested in the proposition of my hon. Friend the Member for Bristol, South (Mr. Wilkins) and of my hon. Friend the Member for Willesden, West (Mr. Pavitt), that we should be indebted to the hon. Member for Ilford, South (Mr. Cooper) for being so explicit in his remarks about these two new Clauses. The hon. Gentleman made his position perfectly clear, and I have no doubt that he expressed the opinion of many in the ToryParty outside the House—that in order to relieve direct taxation, more and more taxes should be gathered by the spread of indirect taxation. I have heard the view expressed many times before, that since modern industry is a mass-producing system for mass consumption, one way of getting money is to tax the consumers when they consume the mass products.

I disagree with my hon. Friend. As an engineer, I am a supporter of mass production, and, therefore, of mass consumption. All my life I have bent my energies to improving the techniques of design and the mass production of consumer products in the hope that my fellow human beings will find it easier to consume those products.

When we introduced Purchase Tax we applied a brake and reduced consumption. The object of Purchase Tax was to curb the mass production of products. It has been said from time to time—and there may be occasions when this is justified—that Purchase Tax curbs consumption at home, stops too much money chasing too few goods and enables more of the manufactured products to be exported. I am afraid that in 1963 it is not quite as simple as that. Export markets will only be gained through the superiority of our design and if we produce products at a competitive price in the world markets. This process is helped by stimulating mass consumption of mass produced products.

The hon. Member for Ilford, South said something which I thought had died a long time ago. When we talk about improving the physical and material standards of our people, where is the money coming from? I remember hearing this argument as a boy in 1914 when the Prime Minister was Mr. Asquith and when the Bank of England said that the First World War would have to be stopped because there was no money in the bank. Mr. Lloyd George said, "You will find the money or there will be a new governor of the Bank of England", and the money was found. The money is always found when society thinks it worth while.

The question which we should have been asking in the last ten years was not where the Tory Party found the money, but where that money was going. This is the question, I hope, which my constituents will ask, and not only that they will ask where the Government are getting the money but what, having got it, they are doing with it.

I remember in the years 1945–51 the posters saying "Stop the Hole in the Purse". In the last 10 years—

Mr. Deputy-Speaker (Sir Robert Grimston)

This is getting too wide. I allowed the hon. Member for Ilford, South (Mr. Cooper) to deploy an argument which was in connection with the lowering of Purchase Tax and to go into certain things by way of illustration. It is quite obvious that the hon. Member for Dunbartonshire, East (Mr. Bence) has the right to reply, but he is going far beyond it now.

Mr. Bence

It is always difficult when an hon. Member opposite widens the debate, as the hon. Member for Ilford, South did. I appreciate that it is then very difficult to keep within the bounds of order, which he broke.

Mr. Deputy-Speaker

I allowed the hon. Member for Ilford, South to deploy an argument. That is the responsibility of the Chair. The hon. Gentleman did not break the rules of order. I allowed him, within the rules of order, to deploy a certain argument, and I allowed the hon. Member for Dunbartonshire, East to reply. What I am saying is that the hon. Gentleman is going far too wide now.

Mr. Bence

I accept your Ruling, Mr. Deputy-Speaker, and I will desist from pursuing the extravaganza in which the hon. Gentleman indulged and will bring the debate back to the point of indirect taxation as against direct taxation with which the hon. Gentleman was dealing.

The burden of indirect taxation to the lower income group is very considerable compared with what it is to that section of society which is paying direct taxation. For instance, to many of us who pay direct taxation the burden of Purchase Tax is very small indeed.

I had a case this week of a man who is receiving National Assistance and who is subject to the wage stop. The wage stop in Scotland is lower than it is in the South because the average earnings of labourers in Scotland is lower than in the South. But this man pays the same rate of Purchase Tax in Scotland as we do in the South even though he is on a much lower wage. Therefore, the burden of indirect taxation is very high indeed on the lower income group. The burden of indirect taxation to this man on National Assistance in Glasgow is much greater than the burden on his counterpart in the South. This is the problem, but the hon. Member for Ilford, South is in favour of increasing it.

Mr. Cooper

It was entirely the basis of my argument. I said that so long as we have a large number of people paying no Income Tax at all, then, obviously, if we are going to increase indirect taxation these people are going to suffer. I argued that this was the basis of the problem of any change in taxation from direct to indirect. I recognised that.

Mr. Bence

But we cannot alter the system of taxation from direct to indirect because there is such a tremendous gap in incomes. What would be a desirable social objective would be to narrow the gap in the income structure. We should have a more egalitarian society. That seems to me a logical argument. The hon. Gentleman should cross the Floor of the House.

Mr. O'Malley

I think it would be in order for the purpose of this debate to ask my hon. Friend a question. He mentioned the argument of the wage stop, as I did earlier. I mentioned the figure of £8 7s. as the wage stop which exists in my employment exchange in Rotherham which illustrates the wage that an unskilled labourer might be expected to take home. I tried to say that this was inadequate and to appeal on these grounds for a reduction of the Purchase Tax rates. Does my hon. Friend know what the wage stop is in his constituency? Is it £8 7s., or above or below that figure?

Mr. Bence

In my constituency it was, in fact, £9.

Mr. Charles Loughlin (Gloucestershire, West)

Will my hon. Friend explain to the House, and to me in particular, what he means by a "wage stop"? I must confess that I am fascinated but bewildered.

Mr. Bence

I am delighted to explain. As was explained by my hon. Friend the Member for Rotherham, when a man receiving unemployment benefit buys hardware commodities he has to pay this 10 per cent. Purchase Tax. When such a man has exhausted his unemployment benefit, especially in those large areas of the country which in the last 10 years have come lower and lower in the employment scale, he has to go on National Assistance. He has exhausted his stamps. As a labourer, his maximum earnings may be only £9, although his average earnings are supposed to be £13. He may be entitled to £12, but the wage stop is applied and he does not receive more than £9, on the theory that if he gets more he will not work. That is the wage stop. But he still has to pay 15 per cent. and 10 per cent. in Purchase Tax on commodities which he has to buy for use in his home.

I am interested in two products which are made in my constituency. The first is sewing machines. I can never understand why a sewing machine should bear a tax of 15 per cent. The Cabinet that it goes into bears no Purchase Tax, and if the electric motor that drives it is used to drive the starter of a motorcar it bears no Purchase Tax. But if it is put into a sewing machine it bears Purchase Tax. I cannot understand that, because a sewing machine is an essential piece of capital equipment for the young woman who is married and is raising a family, in a society where the cost of railway travel is rising, rents are rising, the rate burden is almost impossible, and the housewife must buy her cloth by the piece and make up clothes herself. I cannot understand why she must pay a Purchase Tax of 15 per cent. on a sewing machine.

In our modern productive society, in some respects it is unfortunate that things are discarded by people not when they are worn out but when they are out of date. Goods are now being scrapped because they have been replaced by new models out of the productive machine. Technology grows so fast in our modern industrial economy that we have to change our models from time to time. Competition demands it. There is this rat race, to keep up with the Joneses. One manufacturer has to improve his model to keep up with another. Therefore, one markets on the proposition that people will be changing from one product to another from time to time.

In those circumstances, Purchase Tax becomes a very heavy burden. None of us can escape it. We are all aware of it in connection with the purchase of motor cars, or whatever it may be. There is always a change-over to the latest model. When this phenomenon is present in a modern industrial community—and I am not criticising, or arguing the merits of it—Purchase Tax becomes a very serious matter.

In my constituency I have the Singer Sewing Machine Co., on Clydebank. It is the only one of any consequence in this country. In fact, it is the biggest sewing machine manufacturing unit in Europe.

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

It is in this country.

Mr. Bence

It is not in this country, because this country is England. Scotland is in the United Kingdom, but it is not in England. Scotland is a nation. We have this huge plant, which is undergoing tremendous modification, with an investment of £4¼ million. A sewing machine can last for twenty years. In fact, there are machines still in use which were manufactured sixty years ago. But we know that the whole advertising campaign of this country is directed towards the idea that products should be scrapped not because they are worn out but because they are out of date. The Singer Sewing Machine Company has been marketing its product against severe competition from Japan, America and Germany.

The Japanese, who are our biggest competitors at present, have a much lower labour content cost, which means that the Singer Company has to face that added competition. Although a duty is imposed on imparted sewing machines, Purchase Tax inhibits a proper rate of sale of our sewing machines.

5.45 p.m.

Two other factories in my constituency manufacture products which are liable to Purchase Tax. Why the product of one should be subject to Purchase Tax is beyond my comprehension, but it does not come into this group; it is in the 25 per cent. group. But the other product does come into this group—soft drinks. There is a soft drinks factory in my constituency which moved there not very long ago. Shortly after it came this tax was imposed, and it immediately affected sales. I can see no object in encouraging industriaists—by giving them capital allowances and free depreciation—to increase their productivity and to produce more and more, while, at the same time, the Government impose Purchase Tax on their products.

This is the craziest system I have heard of. I can imagine visitors from Mars looking down on earth and saying, "Here is a Government, in 1963, handing out £400 million in tax concessions in order to encourage industrialists to produce more and more goods and, at the same time, imposing a 33 per cent. Purchase Tax in order to ensure that as little as possible of their products are sold." That seems to me to be completely contradictory. This factory is frustrated, just as is the biscuit factory which was built in Liverpool.

There is another factory in my constituency which produces general gymnasium equipment. The situation in this case is the last word in craziness. In Committee I said that 95 per cent. of its products were sold to a Government agency. I was wrong. The figure is 97.3 per cent. Only 2.7 per cent. of its products are sold to individuals on non-Government institutions, including local authorities. Almost all its products are paid for by the Treasury, which collects the Purchase Tax and then pays it.

What sort of nonsense is this? What crazy financing and economic system are we going in for when the Government impose Purchase Tax on products of which, for all practical purposes, it is the only purchaser? If this firm manufactured a steel bracket for use in a glider there would be no Purchase Tax, but if that steel bracket were used in a vaulting horse in a gymnasium it would have to bear Purchase Tax—so we had better give up using vaulting horses and use gliders instead.

We can all remember when the Chief Secretary to the Treasury was in Opposition. Then he was not interested in public enterprise. Now he is in the Treasury, and his main interest should be the stimulation of private enterprise. He ought not to be a saboteur of private enterprise. When he was in Opposition he said that any big businessman who agreed to run a public enterprise was a Quisling. Many of my hon. Friends will remember when, with all his debating skill and agility, he used to argue that point. Now he is supposed to be supporting private enterprise, but he is a Quisling, because the imposition of Purchase Tax on gymnasium equipment and on sewing machines is causing grave injury to important industries in Scotland. I ask him to accept the Amendments, confident that if they are accepted Great Britain will soon find alternative ways of producing the necessary revenue, by the increased industrial activity of its people.

Dr. Alan Thompson (Dunfermline Burghs)

So much ground has been covered in the debate that I do not intend to detain the House for long, but I want to underline one or two points which seem to me to be important. The first concerns the fact that indirect taxation weighs heavily on one section of the community.

I saw it suggested the other day that Purchase Tax was not necessarily regressive because the tax on luxury goods was higher than the tax on necessities. This is a complete misunderstanding of what regressive taxation means. "Regressive" does not apply to the percentage of the cost of the goods. It applies to the proportion of a person's income which he spends on this form of taxation. Even though a wealthy man pays a high tax on luxury goods for his wife, it forms a much smaller proportion of his total income than the tax paid on the range of necessities bought by a working class man.

In this sense indirect taxation is regressive, and we regard it as socially unjust. It hits at vulnerable groups of people, particularly old people and children, and it also hits young married couples who are not just consuming but are engaged in a form of what I would describe as domestic investment. They are building and furnishing their house, and they are buying many consumer durables which will last for many years. This spending occurs in a period of three or five years, and it is not consumption spread over a long period at an average rate; it is an intensive period of spending on what I call domestic investment for the good of their families and their living standards and for their long-term welfare. Young married couples are particularly badly hit by this tax.

Equally serious is the whole effect of the high rate of Purchase Tax on the expectations of business men, producers and retail traders. There is no doubt that high rates of Purchase Tax reduce consumption. Any business man in the House, any manufacturer or retailer of furniture, shoes or anything else, can give detailed evidence of how changes in Purchase Tax affect his sales. If they affect his sales, they also affect his long-term expectations and his investment.

A crying need of British industry, not only on the manufacturing side but on the retail side, is for the adoption of new technological inventions and new methods which will keep us in step with the rest of the world. Unless the manufacturer has some expectations of the market ahead, he will be affected. If his expectations are continually being disrupted by the extraneous element of Purchase Tax, clearly this will affect him. In the nineteenth century we could always extend our markets geographically because we could push back the frontiers of the world. Now we face a much tougher proposition in extending our markets, and there can be very little doubt that Purchase Tax in this respect distorts the markets.

My hon. Friends do not agree with me in my next argument, but it has never been a condition that hon. Members on this side of the House should all say the same thing on every topic; but I am against too wide variations in Purchase Tax. I would favour a lower tax spread over a much wider range of articles. I think that discriminatory taxation of this kind sometimes injures an manufacturer who may be quite efficient—more efficient than people paying a lower rate of tax. He is working hard and becoming more efficient, and he is using new techniques, but a tax is put on for reasons quite extraneous to his efficiency. I therefore believe that too wide variations can distort the pattern of our industry.

I should like to see a low Purchase Tax. I should like this on grounds of social equality and because I do not think that it would injure producers' expectations so much. I should also like to see it because it is a kind of tax which can be more easily used as a regulator. We on this side of the House will need to use regulators with effect from next October, May, August or whenever it is. Of course we shall not use regulators as they have been used by the Conservative Party—to rescue the Government from the consequence of a disastrous economic policy or for purely electoral reasons. Regulators should be used very sparingly indeed, because they injure expectations of spending and the policies of manufacturers and distributors and they injure employment. They should be used only for the most compelling international needs, the most pressing balance of payments needs, and not for the kind of reason for which the Government have used them.

We urge the Government to accept these Clauses on behalf of the vast majority of the people of the country—the economically vulnerable people, the consumers; and also on behalf of the producers whom, as my hon. Friend the Member for Dunbartonshire, East (Mr. Bence) said, the Conservatives claim to represent. We know that they no longer represent the majority of young married couples or old-age pensioners or children, but we had assumed that they claim to represent manufacturers and business men. I suggest that this category of people is as badly injured in their long-term policies and planning by high rates of Purchase Tax as are the other categories which I have mentioned.

Mr. Tam Dalyell (West Lothian)

The Economic Secretary may recollect a long correspondence which we have had about a constituent of mine in Roxburgh—a manufacturer of soft drinks. I wish to say straight away that neither the Economic Secretary nor his officials could have been more helpful. They have been extremely helpful in this instance to my constituent, perhaps more helpful than they need have been under the strict regulations.

At the same time, I think we can make the general point that the problems of soft drink manufacture are not confined to any one constituency. Is it not a fact that the soft drink trade is peculiarly sensitive to changes in prices, that there is a highly elastic demand and that the trade has had a hard time during the rough weather? Will not the Minister make some arrangement whereby, as winter comes in, some reconsideration can be given to the tax position of manufacturers of soft drinks? Perhaps when he replies the Chief Secretary will give us some idea of the fraction of the total of £36 million which the tax brings in which is derived from soft drinks.

Mr. Loughlin

I will not keep the House for more than two minutes, but I wish to add a plea on the question of soft drinks, I have in my constituency perhaps one of the largest producers of soft drinks, Beecham and Carter, who produce Ribena, Tango and various other soft drinks. There is some fear for the employment prospects in the industry. It seems to me, on balance, that there has been a deterioration in the trade in soft drinks since the Purchase Tax was imposed.

Will the Chief Secretary address himself to this problem, because he would not accept that a tax should be continued if, as a result of its continuance, there was a danger of unemployment arising in the industry. Will he indicate that he will examine the possibilities of relieving the industry of this tax?

6.0 p.m.

The Chief Secretary to the Treasury and Paymaster-General (Mr. Boyd-Carpenter)

When the hon. Member for Sowerby (Mr. Houghton) moved the first of the new Clauses which we are discussing, he said that he did not intend that the debate this afternoon should be a repetition of that which took place in Committee. I must admit that in one respect he fully carried out that intention. The House may remember that when the hon. Member for Cardiff, South-East (Mr. Callaghan) moved a similar Clause in Committee, it was widely noted that he made no reference at all, in the course of a very agreeable speech, to the cost of the concessions which he was advocating.

Mr. Callaghan

I did not know the cost.

Mr. Boyd-Carpenter

The hon. Member says that he did not know that—which, perhaps, is a rather startling admission for a shadow Chancellor of the Exchequer advocating wide reductions in taxation. I only say to the hon. Member, may his shadow never grow less.

The hon. Member for Sowerby characteristically faced this and, if he will allow me to make a small correction, gave substantially the cost with which I would agree. The first of these two new Clauses would cost, we estimate on the latest figures, £83 million and the second new Clause would cost £36 million. Therefore, we are discussing together proposals for an abandonment of revenue to the extent of no less than £119 million. The question immediately arises—and arose during the hon. Member's speech—as to how the change in the shape of the Budget which a remission of taxation to that extent would entail would be dealt with. The hon. Member for Sowerby was somewhat elliptical about this. He said that a Labour Chancellor would have made room for further reductions in Purchase Tax, but my hon. Friend the Member for Ilford, South (Mr. Cooper) said, with his usual skill—

Mr. Wilkins

And tedious repetition.

Mr. Boyd-Carpenter

Those of us who have served in this House for a number of years know what an extremely good debater and Parliamentarian my hon. Friend is. This was an example. He drew the hon. Member for Sowerby into interjecting that this would be met by an increase in Government borrowing, I understand that the hon. Member for Sowerby meant that he would simply forgo this amount of revenue without imposing compensating increases in taxation. Therefore, we have to deal with this matter on the basis that what is advocated, apart from the limited merits of Purchase Tax changes, is a very substantial change, to the tune of £119 million in the shape of the Budget. It is proposed, in other words, that the net release of purchasing power through the Budget should be increased by £119 million.

The hon. Member proceeded to advocate that by the rather surprising tactics of retailing, with his usual accuracy, the release of purchasing power which my right hon. Friend had achieved before the Budget. As I listened to him it seemed that as he pointed out the very big releases which have been made, he was at every stage weakening the case for a further increase. We had a discussion on this in Committee and I ventured to say something on it, although the hon. Member for Swansea, East (Mr. McBride) and a newspaper columnist between them, apparently in advance of my speech, did not agree. We had some discussion in Committee and I ventured to say that I thought my right hon. Friend's judgment of the shape of the Budget and the stimulus needed for the economy was being shown to be sound and justified by developments since then.

Since we had that debate and I made that assertion, we have had very striking confirmation in the extremely satisfactory reduction in the June unemployment figures and a much more optimistic approach shown by the F.B.I.'s committee in respect of business confidence. What is proposed now, faced by a Budget which seems to be showing every sign of achieving its object of expansion without inflation, is a change, without any further compensating measure, entailing the abandonment of £119 million of revenue. On those grounds alone the House should be very unwilling to contemplate changes of that kind.

Mr. Loughlin

Cut Government expenditure.

Mr. Boyd-Carpenter

The hon. Member says, cut Government expenditure. There is an almost universal consensus of opinion on that and almost universal disagreement about what should be cut. I should be tempted out of order—even with your wide generosity, Mr. Deputy-Speaker—if I were to discuss that question.

Mr. Callaghan

Do I conclude from what the right hon. Gentleman has said that if present trends continue he does not expect to see any further changes in Purchase Tax in a downward direction this year, and no more release of purchasing power?

Mr. Boyd-Carpenter

One of the most foolish things a Treasury Minister can do is to indulge in gratuitous prophecies or forecasts. All I say is that the pattern of the Budget seems to be meeting the needs of the situation and the economy is developing satisfactorily under its influence. The hon. Member for Cardiff, South-East will be aware that the very substantial injection of purchasing power developing from the Income Tax changes does not take physical effect in the great majority of cases until next month.

Mr. Callaghan

The right hon. Gentleman will remember that they will be offset to a great extent by increases in National Insurance contributions, so the net effect will be very little. Why is he so confident that it would be wrong to release this £119 million if he cannot forecast what the trend is likely to be?

Mr. Boyd-Carpenter

Every Chancellor has to exercise his judgment and this is an essay in judgment in the shape of the Budget. All I am saying is that every sign since the Budget is that my right hon. Friend's assessment of the economy appears to be justified. On the other point made by the hon. Member, of course the employee's element in the National Insurance contributions is a very much smaller item; the release in Income Tax is several times larger.

The hon. Member for Sowerby referred to the present shape of Purchase Tax. I was very glad to hear the views of the hon. Member for Dunfermline Burghs (Dr. A. Thompson), who seemed to share my view rather than that of the hon. Member for Sowerby as to what, broadly speaking, is the proper shape for this tax. My view, which I think is borne out by experience of the tax when it was in other forms, is that if we have a number of very high rates and therefore very considerable discrimination between the rates applicable to different articles—sometimes on the edge of a category and obviously turning on quite narrow considerations—it has an adverse effect on employment and trade and distorts the pattern of production. This tax, whatever its merits and demerits, is far more efficient and contributes better to the economy, if it consists of fairly broad bands of fairly low rates. In its present state I think it achieves this.

Sir Harmar Nicholls (Peterborough)

Is my right hon. Friend aware that his argument and the argument of the hon. Member for Dunfermline Burghs (Dr. A. Thompson), so far as I understood it, are strongly in favour of a widely spread sales tax? We cannot go into that in discussion of these new Clauses, but would that not be better?

Mr. Boyd-Carpenter

It would be difficult to relate that question to the debate on these Clauses calling for reductions in Purchase Tax, so I am afraid that I must leave it there.

The hon. Member for Sowerby, my hon. Friend the Member for Ilford, South, and one or two other hon. Members, referred to the balance between direct and indirect taxation. Part of the argument of the hon. Member for Sowerby for his Clause was that this year he felt that too large a proportion of increases in revenue would come from indirect taxation rather than direct taxation. One or two other hon. Members made similar observations. It is interesting in that connection to see what the overall position is. On the estimates of expenditure for the current year, 1963–64, 46.8 per cent. of total revenue will come from indirect taxation, compared with 49.1 per cent. in 1950–51.

That is interesting as showing that over these 12 years the proportion of revenue derived from indirect taxation has actually fallen. In so far as the hon. Member's argument was based on thispoint—the balance of direct and indirect taxation, the merits of which are rather doubtful—I think it is considerably weakened by that fact.

The hon. Member for Sowerby, as did several of his hon. Friends, made a great deal of play about the effect on the Interim Index of Retail Prices. There was a good deal of comment about the hardship caused by increases in prices. Again and again the argument was adduced that because the index had shown certain advances that was an argument for a reduction in Purchase Tax. We had this out at some length during the Committee stage discussion. The fact is that the Clause referring to the 10 per cent. rate would, as was said by the hon. Member for Sowerby, affect the index only, so far as one can calculate, by .375 per cent., or—as the hon. Member said—three-eighths of a point on the figures.

I would stress that, so far as I know, it has never been the view of any Government that Purchase Tax should be used as a direct instrument on the cost of living index. Plainly its effects are too small. I must again call in aid the experience of hon. Gentlemen opposite. They may remember that, between June, 1950, and June, 1951, the index rose by no less than 11 points. Notwithstanding this, the 1951Budget produced a net increase of £28 million from Purchase Tax. Therefore there is no consistency between that and the argument adduced today in. favour of reducing Purchase Tax in order to give some relief which would result from a change in the index. I have no doubt that on that point the hon. Member for Bristol, South (Mr. Wilkins) supported the Government of the day, despite his proclaimed dislike of Purchase Tax on principle today.

Mr. Wilkins

And always.

Mr. Boyd-Carpenter

I believe that at about that time the hon. Gentleman was a Government Whip and used his influence to induce other hon. Members opposite to take the view adopted by the then Chancellor of the Exchequer. The hon. Gentleman's objection to the principle of Purchase Tax seems to be confined to the life of a Conservative Government.

The hon. Member for East Ham, South (Mr. Oram) asked for the yield of the 15 per cent. from the tax to be divided into the commodities and compared with the estimate when it was introduced last year. The 1962 Budget estimate on tax yield from the three groups in a full year was, as I think the hon. Gentleman said, £50 million. That is divided into confectionery, £32½ million; soft drinks, £10½ million; ice-cream, £7 million. The current estimates of yield are, confectionery, £34 million; soft drinks, £15 million; ice-cream, £6 million. The overall figure is £55 million as against £50 million.

The hon. Members for Swansea, East, Rotherham (Mr. O'Malley) and Willesden, West (Mr. Pavitt) all spoke about the problems of what they called the "old-age pensioners". I hope that the House will not think I am going back to my concern with a previous Department if I express the hope that, after 15 years, we might refer to "retirement pensioners", as they are the people of whom we are talking in this context. I can only remind the House that the real value of the benefits which these people draw is higher than it has ever been on any previous occasion. I am quite sure that, as matter of social policy, the right way to deal with the very real problems of the old—I beg the House to agree that I have given as much thought to this subject as at least some hon. Members—is by this steady, successive increase in their benefits, rather than by trying to adjust, at any rate the system of indirect taxation.

I am strengthened in that view by the fact that Purchase Tax has less bearing on the problems on this class of people than almost any other. Anyone who has studied this matter closely knows that the main expenditure of these people is on food, fuel and rent, none of which is affected by Purchase Tax. The family survey shows clearly that the proportion of disposable income going in Purchase tax rises as incomes rise and is lowest at the bottom level of income. There- fore I do not think that the pleas made for the retirement pensioner are material on this question of Purchase Tax.

6.15 p.m.

I wish to remind the House that the burden, particularly of the 10 per cent. rate which we are discussing, can easily be exaggerated. It falls on the wholesale price, which means in general that its effect on the retail price is 6 per cent. or 7 per cent. In general, I do not think that an unduly serious impact. Nor do I think—this is in reply to one or two other speeches—that tax at this level can be said to have a serious effect on employment. I accept at once that the higher rates of Purchase Tax, the old 100 per cent. rate which we had when the party opposite was in office, or the 66⅔ per cent. rate, could, and almost certainly did, have an adverse effect on employment in the trades concerned. But it is one of the advantages of the changes which have taken place, getting the tax down to much lower levels, that one can claim that the effect on employment is unlikely to be more than marginal.

My right hon. Friend who is responsible to the House and to the country—it is a great responsibility—for judging the shape of his Budget, formed a view, which he expressed in the Budget statement, about the amount of extra purchasing power that it would be wise to release. I have said, I do not wish to repeat myself, that it would seem that his judgment is being endorsed by events. One cannot, therefore, approach this Purchase Tax issue without having very seriously in mind that the yield of this tax—in all, I think, about £545 million—plays a major part in our national finances and the management of our national economy. It is a tax about which amusement may be caused. We had some this afternoon. All taxes have their marginal points which seem anomalous and which are suitable subjects for derision. But the fact that such difficulties exist has been weighed against the fact that this tax is producing a very substantial part of the national revenue.

The proposals before us represent a very substantial reduction in the tax, a reduction which, it seems to me, from the angle of employment and of the cost of living, has very unsubstantial support. These new Clauses, if accepted, would result in a serious hole being made in the structure of my right hon. Friend's Budget, and I hope, therefore, that the House will not agree to their inclusion in the Bill.

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

The House divided: Ayes 161, Noes 221.

Division No. 147.]	AYES	[6.18 p.m.
Abse, Leo	Hamilton, William (West Fife)	Padley, W. E.
Ainsley, William	Hannan, William	Paget, R. T.
Allaun, Frank (Salford, E.)	Harper, Joseph	Pannell, Charles (Leeds, W.)
Awbery, Stan (Bristol, Central)	Hart, Mrs. Judith	Parker, John
Bacon, Miss Alice	Hayman, F. H,	Parkin, B. T.
Barnett, Guy	Healey, Denis	Pavitt, Laurence
Bellenger, Rt. Hon. F. J.	Henderson,Rt.Hn.Arthur(RwlyRegis)	Pearson, Arthur (Pontypridd)
Bence, Cyril	Herbison, Miss Margaret	Peart, Frederick
Bennett, J. (Glasgow, Bridgeton)	Hill, J. (Midlothian)	Prentice. R. E.
Benson, Sir George	Holman, Percy	Probert, Arthur
Blackburn, F.	Houghton, Douglas	Pursey, Cmdr. Harry
Bottomley, Rt. Hon. A. G.	Howell, Denis (Small Heath]	Rankin, John
Bowden, Rt. Hn. H.W, (Leica, S.W.)	Hughes, Cledwyn (Anglesey)	Reynolds, G. W.
Bowles, Frank	Hughes, Emrys (S. Ayrshire)	Rhodes, H.
Boyden, James	Hunter, A. E.	Robertson, John (Paisley)
Braddock, Mrs. E. M.	Hynd, H. (Accrington)	Robinson, Kenneth (St. Pancras, N.)
Bradley, Tom	Jay, Rt. Hon. Douglas	Rogers, G. H. R. (Kensington, M.)
Bray, Dr. Jeremy	Jenkins, Roy (Stechford)	Ross, William
Brockway, A, Fenner	Jones, Dan (Burnley)	Royle, Charles (Salford, West)
Brown, Rt. Hon. George (Belper)	Jones, Elwyn (West Ham, S.)	Silverman, Julius (Aston)
Butler, Herbert (Hackney, C.)	Jones, T. W. (Merioneth)	Skeffington, Arthur
Butler, Mrs. Joyce (Wood Green)	Kelley, Richard	Slater, Joseph (Sedgefield)
Callaghan, James	Kenyon, Clifford	Smith, Ellis (stoke, S.)
Carmichael, Neil	Key, Rt. Hon. C. W.	Sorensen, R. W.
Chapman, Donald	King, Dr. Horace	Soskice, Rt. Hon. Sir Frank
Collick, Percy	Lawson, George	Spriggs, Leslie
Corbet, Mrs. Freda	Lee, Frederick (Newton)	Steels, Thomas
Craddock, George (Bradford, S.)	Lever, L. M (Ardwick)	Stewart, Michael (Fulham)
Cronin, John	Lewis, Arthur (West Ham, N.)	Stones, William
Crossman, R H. S.	Lipton, Marcus	Stress, Dr.Barnett(Stoke-on-Trent,C.)
Dalyell, Tam	Loughlin, Charles	Taverne, D.
Davies, G. Elfed (Rhondda, E.)	McBride N.	Thomas, George (Cardiff, W.)
Davies, Ifor (Gower)	McCann, John	Thomas, Iorwerth (Rhondda, W.)
Dempsey, James	MacColl, James	Thompson, Dr. Alan (Dunfermline)
Diamond, John	McInnes, James	Thomson, G. M. (Dundee, E.)
Dodds, Norman	McKay, John (Wallsend)	Thornton, Ernest
Duffy, A. E. P.	Mackie, John (Enfield, East)	Tomney, Frank
Ede, Rt. Hon. C.	Mahon Simon	Watkins, Tudor
Edwards, Rt. Han. Ness (Caerphilly)	Mallalieu E, L. (Brigg)	Weitzman, David
Edwards, Robert (Bilston)	Mallalieu, J.P.W. (Huddersfield, E.)	Wells, William (Walsall, N.)
Edwards, Walter (Stepnay)	Manuel, Archie	Wilkins, W. A.
Fernyhough, E.	Mapp, Charles	Williams, D. J. (Neath)
Fitch, Alan	Marsh, Richard	Williams, LI. (Abertillery)
Foot, Michael (Ebbw Vale)	Mason, Roy	Williams, W. R. (Openshaw)
Forman, J. C.	Mayhew, Christopher	Williams, W. T. (Warrington)
Fraser, Thomas (Hamilton)	Mendelson, J. J.	Willis, E. G. (Edinburgh, E.)
Galpern, Sir Myer	Millan, Bruce	Wilson, Rt, Hon. Harold (Huyton)
George,LadyMeganLloyd(Crmrthn)	Milne, Edward	Winterbottom, R. E.
Ginsburg, David	Mitchison, G. R.	Woof, Robert
Gordon Walker, Rt. Hon. P. C.	Monslow, Walter	Wyatt, Woodrow
Gourlay, Harry	Moody, A. S.	Zilliacus, K.
Greenwood, Anthony	Morris, John
Grey, Charles	Moyle, Arthur	TELLERS FOR THE AYES:
Gunter, Ray	O'Malley, B. K.	Mr. Redhead and Mr. Whitlock.
Hale, Leslie (Oldham, W.)	Oram, A. E.
NOES
Allason, James	Birch, Rt. Hon. Nigel	Channon, H. P. G.
Arbuthnot, John	Bishop, F. P.	Chataway, Christopher
Ashton, Sir Hubert	Black, Sir Cyril	Chichester-Clark, R.
Atkins, Humphrey	Bourne-Arton, A.	Clark, Henry (Antrim, N.)
Awdry, Daniel (Chippenham)	Boyd-Carpenter, Rt. Hon. John	Cleaver, Leonard
Barber, Anthony	Boyle, Rt. Hon. Sir Edward	Cooke, Robert
Barlow, Sir John	Brewis, John	Cooper, A. E.
Barter, John	Bromley-Davenport,Lt.-Col.SirWalter	Cooper-Key, Sir Neill
Batsford, Brian	Brooman-White, R.	Cordeaux, Lt.-Col. J. K.
Bell, Ronald	Brown, Alan (Tottenham)	Costain, A. P.
Bennett, F. M. (Torquay)	Browne, Percy (Torrington)	Coulson, Michael
Bennett, Dr. Reginald (Gos & Fhm)	Bryan, Paul	Craddock, Sir Beresford (Spelthorne)
Bevins, Rt. Hon. Reginald	Bullus, Wing Commander Eric	Crawley, Aidan
Biffen, John	Burden, F. A.	Critchley, Julian
Biggs-Davison, John	Butcher, Sir Herbert	Curran, Charles
Bingham, R. M.	Cary, Sir Robert	Currle, G. B. H.
Dalkeith, Earl of	Johnson Smith, Geoffrey	Redmayne, Rt. Hon. Martin
d'Avigdor-Goldsmid, Sir Henry	Jones, Arthur (Northants, S.)	Rees-Davies, W. R. (Isle of Thanet)
Doughty, Charles	Jones, Rt. Hn. Aubrey (Hall Green)	Ridsdale, Julian
Drayson, G. B.	Joseph, Rt. Hon. Sir Keith	Robertson, Sir D.(C'thn'S & S'th'ld)
du Cann, Edward	Kerans, Cdr. J. S.	Robinson, Rt. Hn. Sir R. (B'pool,S.)
Duncan, Sir James	Kerby, Capt. Henry	Robson Brown, Sir William
Eden, Sir John	Kerr, Sir Hamilton	Rodgers, John (Sevenoaks)
Elliot, Capt. Walter (Carshalton)	Kershaw, Anthony	Roots, William
Emery, Peter	Kitson, Timothy	St. Clair, M.
Emmet, Hon. Mrs. Evelyn	Lambton, Viscount	Scott-Hopkins, James
Errington, Sir Eric	Leather, Sir Edwin	Seymour, Leslie
Erroll, Rt. Hon. F. J.	Leavey, J. A.	Sharples, Richard
Farey-Jones, F. W.	Leburn, Gilmour	Shepherd, William
Fell, Anthony	Legge-Bourke, Sir Harry	Skeet, T. H. H.
Finlay, Graeme	Lewis, Kenneth (Rutland)	Smith, Dudley (Br'ntf'd & Chiswick)
Fisher, Nigel	Linstead, Sir Hugh	Smithers, Peter
Fletcher-Cooke, Charles	Litchfield, Capt. John	Speir, Rupert
Forrest, George	Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield)	Stevens, Geoffrey
Fraser, Ian (Plymouth, Sutton)	Lloyd, Rt. Hon. Selwyn (Wirral)	Steward, Harold (Stockport, S.)
Freeth, Denzil	Longbottom, Charles	Stodart, J. A.
Galbraith, Hon. T. G. D.	Longden, Gilbert	Storey, Sir Samuel
Gammans, Lady	Loveys, Walter H.	Studholme, Sir Henry
Gardner, Edward	Lucas, Sir Jocelyn	Summers, Sir Spencer
Gibson-Watt, David	Lucas-Tooth, Sir Hugh	Taylor, Sir Charles (Eastbourne)
Gilmour, Ian (Norfolk, Central)	McAdden, Sir Stephen	Taylor, Edwin (Bolton, E.)
Gilmour, Sir John (East Fife)	MacArthur, Ian	Teeling, sir William
Glover, Sir Douglas	McLaughlin, Mrs. Patricia	Tempts, John M.
Glyn, Dr. Alan (Clapham)	Maclay, Rt. Hon. John	Thatcher, Mrs. Margaret
Glyn, Sir Richard (Dorset, N.)	Maclean, Sir Fitzroy(Bute&N. Ayrs.)	Thomas, Sir Leslie (Canterbury)
Goodhew, Victor	Macleod, Rt. Hn. Iain (Enfield, W.)	Thomas, Peter (Conway)
Gower, Raymond	McMaster, Stanley R.	Thompson, Sir Kenneth (Walton)
Green, Alan	Macmillan, Maurice (Halifax)	Thompson, Sir Richard (Croydon, S.)
Gresham Cooke, R.	Maginnis, John E.	Thorneycroft, Rt. Hon. Peter
Grosvenor, Lord Robert	Maitland, Sir John	Thornton-Kemsley, Sir Colin
Gurden, Harold	Marshall, Sir Douglas	Tiley, Arthur (Bradford, W.)
Hamilton, Michael (Wellingborough)	Matthews, Cordon (Meriden)	Turner, Colin
Harris, Frederic (Croydon, N.W.)	Maudling, Rt. Hon. Reginald	Turton, Rt. Hon. R. H.
Harris, Reader (Heston)	Mawby, Ray	van Straubenzee, W. R.
Harrison, Brian (Maldon)	Mills, Stratton	Vane, W. M. F.
Harvey, Sir Arthur Vere (Macclesf'd)	More, Jasper (Ludlow)	Vickers, Miss Joan
Hastings, Stephen	Morgan, William	Vosper, Rt. Hon. Dennis
Hay, John	Nicholls, Sir Harmar	Wakefield, Sir Wavell
Heald, Rt. Hon. Sir Lionel	Nugent, Rt. Hon. Sir Richard	Walker, Peter
Heath, Rt. Hon. Edward	Oakshott, Sir Hendrie	Walker-Smith, Rt. Hon. Sir Derek
Hendry, Forbes	Orr, Capt. L. P. S.	Wall, Patrick
Hirst, Geoffrey	Page, John (Harrow, West)	Ward, Dame Irene
Hobson, Rt. Hon. Sir John	Page, Graham (Crosby)	Wells, John (Maidstone)
Holland, Philip	Pannell, Norman (Kirkdale)	Whitelaw, William
Hope, Rt. Hon. Lord John	Pearson, Frank (Clitheroe)	Williams, Dudley (Exeter)
Hornby, R. P.	Peel, John	Wills, Sir Gerald (Bridgwater)
Howard, John (Southampton, Test)	Percival, Ian	Wolrige-Gordon, Patrick
Hughes-Young, Michael	Pickthorn, Sir Kenneth	Woodnutt, Mark
Hulbert, Sir Norman	Pike, Miss Mervyn	Woollam, John
Hurd, Sir Anthony	Pilkington, Sir Richard	Worsley, Marcus
Iremonger, T. L.	Pitman, Sir James	Yates, William (The Wrekin)
Irvine, Bryant Godman (Rye)	Prior, J. M. L.
Jenkins, Robert (Dulwich)	Prior-Palmer, Brig. Sir Otho	TELLERS FOR THE NOES:
Johnson, Dr. Donald (Carlisle)	Pym, Francis	Mr. McLaren and Mr. Hugh Rees.
Johnson, Eric (Blackley)	Rawlinson, Sir Peter