HC Deb 14 May 1963 vol 677 cc1141-58

Question proposed, That the Clause stand part of the Bill.

Mr. Douglas Houghton (Sowerby)

Before we pass this Clause, I think that it would be convenient to spend a few moments discussing the past use and the proposed future use of the regulators. As was explained by the Financial Secretary during the Second Reading, by this Clause it is proposed to extend the Customs and Excise regulator from August, 1963, to August, 1964. That is a positive act of extension of the power in the hands of the Chancellor to make orders increasing or reducing certain taxes subject to approval by the House of Commons.

The Clause also proposes a procedural change. In the case of reductions in taxations the period of time during which the Chancellor of the Exchequer must receive the approval of the House is defined as 21 sitting days instead of 21 calendar days. As the Financial Secretary explained, that brings a desirable flexibility to the procedural obligations of the Chancellor when he proposes to use the regulator to reduce taxation as distinct from increasing it.

If the right hon. Gentleman proposes to use the regulator to increase taxation within the prescribed limit he has to receive the approval of the House within 21 calendar days, which, in certain circumstances, may involve the recall of Parliament for that purpose. That we all understand, and hon. Members on this side of the Committee are in agreement with the proposed procedural change.

Of the proposal to extend the regulator for a further year, during the Second Reading debate the Financial Secretary said: I doubt whether anyone in the House will dissent from the renewal of this power …"—[OFFICIAL REPORT, 6th May, 1963; Vol. 677, c. 38.] While not dissenting from the renewal of this power, I think it worth while to consider whether the power retains the potency which it was designed to have when the former Chancellor of the Exchequer introduced it, along with another regulator, in the Finance Act of 1961.

As the Committee will remember, there were originally two regulators and a good deal of discussion took place on both of them when the Bill which became the 1961 Finance Act was being considered. The regulator giving power to levy the payroll tax, though written into the Finance Act of 1961, was never used and was finally discarded in the Finance Act of 1962. When the former Chancellor of the Exchequer produced this it was contemplated that the new powers would be used as a sort of double-barrelled regulator. In the discussion on the proposed payroll tax many flaws and difficulties of administration were revealed.

What the former Chancellor of the Exchequer had overlooked when he proposed the payroll regulator was the length of time it would take to print National Insurance stamps of higher denominations, and, since that was to be the means of imposing the additional tax, the swift impact of the payroll regulator would be destroyed by the weeks—perhaps extending into months—that would go by before National Insurance stamps of the required higher value could be obtained.

Ill-conceived or not, administrative difficulties great or small, last year the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd) proposed to drop the payroll regulator entirely, so that now we are left with the survivor of the Act of 1961 which is virtually confined in present circumstances to Customs and Excise duties. The Chancellor has used those powers since the Finance Act of last year to bring about much more drastic reductions in Purchase Tax than were open to him by the use of the Customs and Excise regulator.

So far as I can discover, there is not a single rate of Purchase Tax which remains the same today as it did last year, with the sole exception of the 15 per cent. tax on confectionery and ice-cream. The Chancellor reduced other rates very substantially indeed and, presumably, he has in his hands the same power to use it again to reduce Purchase Tax between now and the Budget of next year, if he wishes to do so.

But he has not got power, as I understand—apart from the regulator—to increase or reduce Customs and Excise duties and it is those, therefore, which are the principal content of the regulator now in use and which the Clause proposes to extend until August, 1964. Is this regulator worth retaining in its present form? Is it likely to do what the Chancellor wishes to do in certain economic conditions? While not dissenting from giving the right hon. Gentleman this reserve power, I think that the Committee will probably judge the retention of the regulator as of a great deal less importance now than was envisaged for it two years ago.

Furthermore, the use so far of this regulator is open to some criticism. The right hon. and learned Gentleman the Member for Wirral waited for the ink on the Third Reading of the Finance Bill of 1961 to dry a little before he used one of the regulators given to him in that legislation. That was on 27th July, 1961. Then, last year, the right hon. and learned Member for Wirral asked the House to consolidate into permanent legislation many of the increases which had been brought about by the use of that regulator. The former Chancellor of the Exchequer said, in effect, "And from here we can start all over again."

I criticise the use of the regulator in those conditions. I criticise the putting up of taxes under the regulator, which was intended to be a temporary measure, then consolidating them into permanent taxation and asking for the same powers all over again, both to increase and reduce. The former Chancellor thought that it was a fitter and tidier job to clean the slate and embody the increased taxation into the permanent structure as far as seemed expedient—and then to ask for similar powers for use in the future, whenever conditions might demand.

In this Budget the Chancellor has not proposed to reduce any of the Customs and Excise duties to the level they were before the regulator of 1961 put them up. I have already explained that the increases of 1961 were embodied into permanent taxation in 1962. There they stay. If one looks at the assortment of Customs and Excise duties increased as from 26th July, 1961, one sees how many of them stay at that level. The regulator which is asked for in Clause I could reduce them to the level that they were in July, 1961. It could increase them beyond the 1961 level. I hope that if the Chancellor comes to use this regulator he will bear in mind the desirability of reducing the increases in taxation which were justified at the time as a temporary measure to meet particular economic circumstances and not maintain the temporary level of taxation as a permanent feature of our tax system.

What I have said seems a reasonable comment to make on the Clause, having regard to the power it seeks. It would be a pity if the Committee took this sort of regulator for granted and voted it into the Bill year after year without re-examining the conditions under which it got there, the use that has been made of it and what potentialities it has for its purpose in the future.

I feel that it is of little value to the Chancellor in present circumstances. There is new thinking now on the whole question of taxation in particular economic conditions. One might say that if a regulator of this kind is to have the fullest use which the Chancellor may wish to make of it, then the range of adjustment upwards or downwards of these particular taxes is too narrow and that it could, with very good reason, be made wider; that is, if it is going to be a real economic weapon. After all, this is not a revenue-yielding operation. It is part of the armoury of taxation being used for economic purposes.

In these circumstances, we want to know whether it is or is likely to be used for that purpose and whether it will be effective. I hope that the Financial Secretary will be able to make some observations about the desires and designs of his right hon. Friend in regard to the extension of this regulator. Is it just something he would like to have, something he intends to use, or is it something which is, as a matter of routine, now more conveniently put into the Bill than left out?

Mr. Raymond Gower (Barry)

I do not think that any hon. Member would dissent from the suggestion of the hon. Member for Sowerby (Mr. Houghton) that this power should be queried and examined, along with its exercise, each year we discuss the Finance Bill in Committee. On the other hand, I suspect that he under-estimated the possible value of this instrument.

The hon. Member for Sowerby said that there was new thinking today about taxation. The implication of his remarks was that the result of that new thinking might make unnecessary the sort of flexible instrument represented by the regulator. I respectfully suggest to him that in an economy so finely balanced and subject to so many pressures at home and abroad as is ours, we would be wise to retain an instrument of this kind, even if we have that new thinking on long-term taxation.

My right hon. Friend was absolutely right in not merely retaining the regulator, but in retaining it in its present form. Whatever new methods we may frame or conceive, it is a very valuable weapon which should be retained in our armoury.

4.0 p.m.

Mr. William Warbey (Ashfield)

My hon. Friend the Member for Sowerby (Mr. Houghton) has thrown some doubts on the merits of the Clause. I want to throw a few more.

It will be recalled that when the proposal for a regulator was first put to the House, two years ago, some of us opposed its conception outright, not because we were against economic regulators in principle, but because we thought that one should discriminate between those which were good and those which were bad. We happened to think that this was a bad one and we now think that it has become worse with the passage of time.

The arguments which we adduced against it two years ago are still valid. Some additional reasons why it is a bad form of regulator have been accumulated over the last two years. We objected to it when it was first introduced because it involved a form of discrimination between people who made their contributions to taxation mainly through Income Tax and those who made them through indirect taxes.

Indirect taxation is very largely a form of poll tax. We therefore objected to the principle that the Chancellor should be able, without engaging in the exercise involved in the presentation of a Budget and a complete review of the country's economic position, to increase indirect taxes without at the same time increasing direct taxes. We objected, also, because its form is a global one and, therefore, it is not possible to discriminate between various components of the whole. This point has become much more serious in the situation with which we are now confronted.

We also objected because this was a device which opened the door wide for political manipulation. I do not think that there would be any dispute between the two sides of the Committee that the whole system of taxation in this country makes it quite possible for Chancellors of the Exchequer to use variations of taxation for political advantage. This has been done quite regularly by Tory Chancellors of the Exchequer over the last twelve years. I think that they would now hardly deny that they have had an eye to the effect on the electorate when they have framed their Budgets. Through this addition of the regulator, we are giving to such a Chancellor additional power of political manipulation.

I do not wish to imply that the present Chancellor is any worse in this respect than his predecessors. On the whole, he is probably better. He has probably a more objective view of the economic position of the country than almost any of the Tory Chancellors under whom we have suffered in the past eleven years, but even he cannot remain aloof from the pressure of his own party. Therefore, he cannot remain proof against the kind of temptations which are put in his way. I am astonished that he should widen the door to temptation so much more on this occasion when everyone knows that we are approaching a year in which we shall have a General Election.

My hon. Friend, referring to subsection (2), said that on this side of the Committee there would be general agreement with this proposed change. I am one who is not in general agreement with it, because I think that the subsection makes far more possible the kind of political manipulation with which we might be faced in coming months than would have been the situation if the procedure had not been altered. It will be recalled that the procedural question was one in which we on this side took a great interest. We argued at the time when the whole matter was discussed that it was quite wrong for any Chancellor to be given these wide powers, involving variation of taxation by as much as £200 million, without getting the approval of Parliament and without in so doing submitting the whole economic argument for making these substantial changes.

As a result of views expressed from this side of the Committee, a compromise was arrived at and procedure adopted by which, although the then Chancellor was unwilling to concede our demand that parliamentary approval should be sought before an order was made, nevertheless it would lapse unless it was confirmed within 21 days. This would still be the position but for the change which the Chancellor is now proposing to make. The effect of the Chancellor's proposed change is extremely important, particularly this year, because, if the change is approved, it will be quite possible for him to make a 10 per cent. reduction in indirect taxes two or three days after the House has risen in August and for those orders to be effective, come into operation and be applied, although Parliament will not be able to do anything about it for three months.

Even more important, it might not be able to do anything about it until after a General Election. There have been suggestions in some quarters that the Prime Minister may be contemplating having a General Election in October. I do not know any more than he does, but that is one of the possibilities which we certainly have to consider. There is a very real possibility that the Chancellor might make an order under this Clause on 4th August, or 5th August, the Prime Minister arrange for a dissolution of Parliament some time in September and go into a General Election without Parliament having had an opportunity even of saying whether or not it approves of the changes in taxation which the Chancellor had made.

Sir Gerald Nabarro (Kidderminster)

The hon. Member says that Parliament would have no opportunity, but the electors would. That is much more important.

Mr. Warbey

Certainly the electors would. The hon. Member for Kidderminster (Sir G. Nabarro), by his intervention, gives a great deal of support to the suspicions which are at present in the minds of hon. Members on this side of the Committee. I was trying to get away from those unpleasant suspicions and to appeal to the Chancellor on another ground.

It is wrong in principle that Parliament—which means the sitting Parliament—should not have an opportunity of pronouncing upon the changes which he proposes to make in taxation. I therefore ask him to look into the possibility, between now and Report stage, of further amending this subsection so as to ensure that any order he makes would lapse if Parliament were dissolved before it had an opportunity of confirming the order or otherwise. That is a very fair proposal. If the Chancellor wishes to avoid any suggestion of political manipulation, he should take it seriously.

I want, finally, to refer to some additional economic arguments against the prolongation of this power in present conditions. First, the reduction in the general Purchase Tax levels has resulted in a situation in which the changes that can be made in Purchase Tax through this regulator are so marginal as to be more of a nuisance to trade than a benefit to the consumer. The actual reductions that can be made in Purchase Tax under the Clause are, in retail prices, two-thirds of 1 per cent., 1 per cent. or per 1⅔cent.

I see the hon. Member for Kidderminster shaking his head. I do not know whether he has not followed my arithmetic, but I will, if he desires, supply him with detailed calculations. The Financial Secretary to the Treasury will be able to confirm whether I am right.

A change so marginal could have no effect on prices. No retailer would reduce his prices by two-thirds of 1 per cent., nor would he reduce them by 1 per cent. Very few would reduce them by 1⅔ per cent. All that would happen, therefore, is that there would be a loss of revenue without any corresponding benefit to the consumer. In other words, the benefit would go into the pockets of manufacturers, wholesalers and retailers.

Secondly, as a result of the non-discriminatory character of the regulator, to make any reduction in Purchase Tax under the Clause the Chancellor must also make a substantial reduction in Excise duties, which are primarily the duties on tobacco, alcohol and oil. Any variation in the tax on oil should be made as part of general economic policy. The Chancellor has already stated his economic policy in regard to the duties upon oil, namely, that they should be retained at their present level to provide some form of protection for the coal industry.

Tobacco and alcohol raise questions of social policy. I wonder whether the Chancellor wishes to place himself in the position in which, to secure a marginal and, indeed, minimal and probably non-effective reduction in Purchase Tax and in the prices of necessities and minor luxuries, he has to give a substantial impetus to smoking and to the consumption of alcohol. That is the position in which he has now placed himself.

In view of the general consideration of what a reasonable social and economic policy in relation to the goods affected by the regulator should be, the matter should be taken back and looked at again. If we are to have a regulator at all, it should be discriminatory and effective and one over which the House of Commons has some control.

4.15 p.m.

Mr. Stanley R. McMaster (Belfast, East)

I take issue with almost every remark which has been addressed to the Committee this afternoon by hon. Members opposite. When the regulators were first introduced, in 1961, the one which we are considering was applied to Northern Ireland and a special concession was made that any revenue derived from its use should be returned to and retained in Northern Ireland. As a result of Amendments which I introduced, the other regulator, the payroll tax was not applied to Northern Ireland. At that time, however, arguments were clearly expressed in favour of these regulators and there was overwhelming argument that the Budget was not the best way of regulating our economy.

We have a finely-balanced economy and in happens from time to time, as terms of trade and business confidence change, that the Government need to Interfere and to try to influence the economy. Until 1961, the main measures which the Government could use were monetary namely Bank Rate and special deposits and also perhaps by influencing hire-purchase arrangements.

The regulators were introduced so that fiscal weapons could be added to the Chancellor's armoury and they have been used most effectively. They are a welcome addition to the Chancellor's powers. The safeguards which are incorporated in subsection (2) of the Clause repeating the provisions of the former Act are perfectly adequate for the House of Commons.

To follow an earlier argument from the benches opposite, I also feel that these methods shift the burden towards indirect taxation. In that connection, we have to consider our entire system of taxation. Particularly if one considers the systems of taxation as applied among our Continental competitors, among whom a sales tax or the French T.V.A. tax is employed, one finds that Europe there is greater concentration on indirect taxation. This concentration on indirect taxation on the Continent helps our competitors there in their export market battles. Therefore, inasmuch as the argument turns on a slight shift from direct to indirect taxation, I suggest that this is an advantage rather than a disadvantage and helps us to compete more efficiently and more effectively with our competitors abroad.

In his Budget speech, my right hon. Friend the Chancellor of the Exchequer said that the whole system of T.V.A. was to be referred to a special inquiry to be conducted by Mr. Gordon Richards. I welcome that. I hope that some suggestions will result which will be incorporated in next year's Finance Bill and which will help us in our competition.

Mr. F. J. Bellenger (Bassetlaw)

I do not think that it lies in the mouths of the Opposition to object to the Government reducing taxation. Indeed, I always thought, going back to the days of Mr. Gladstone, that it was the duty of the House of Commons to resist taxation. Therefore, per contra, I should have thought that it is our duty to encourage the Government to reduce taxation. Therefore, I do not disagree with the principle.

I think that my hon. Friend the Member for Ashfield (Mr. Warbey) was quite right in his suspicions, but it is nothing new for a Tory Chancellor of the Exchequer, even in his budget, to offer all sorts of bribery to the electors in the form of a reduction of taxation. I do not see what the difference is between giving the Chancellor the opportunity of the regulator, which he might use immediately before a General Election, and giving it to him in his Budget, where he does exactly the same thing. My hon. Friend must not be too sure that the General Election is coming this year. I believe that his example, when he quoted August, would be very inappropriate.

I rise merely to put this point before the Committee. Is this the right way to do our financial business? If the Chancellor of the Exchequer is once granted the power to reduce taxation—I do not say that we should give him, or even that he would ask for, power to increase taxation in this way—is not the Committee parting to a certain extent with its power to control the Executive and the Treasury over the whole pattern of taxation?

Therefore, I think that my hon. Friend the Member for Ashfield was quite right. There may be very important reductions—for example, in Purchase Tax—which the Opposition might want to push to the extreme and to advocate before a General Election, whereas the Chancellor might use a much more popular means of inducing the electorate to vote for his party and reduce another form of taxation. In that respect the Committee is thereby losing that control over finance that we ought to have and which we have insisted on year in and year out.

We have argued that we should not send certain Clauses of the Finance Bill upstairs to Standing Committee because finance is so important that the House of Commons must be in supreme control. Here, I think, we are losing some control.

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

This is an important Clause and I agree with the hon. Member for Sowerby (Mr. Houghton) and my hon. Friend the Member for Barry (Mr. Gower) that it would not be right to pass it without some discussion and, indeed, some explanation.

The explanation of the Clause as given by the hon. Member for Sowerby was broadly correct. The purpose of the Clause is really twofold: first, to extend for a further year the power to apply the surcharges and rebates to Customs and Excise duties; and, secondly, as the hon. Member pointed out, to provide that regulator changes involving reductions in taxation should be subject to an affirmative Resolution of the House of Commons within 21 sitting days instead of 21 calendar days. I am grateful to the hon. Member for Sowerby for saying on behalf of at any rate a great body of the Opposition that he does not dissent from our proposals. Indeed, I think that it is true to say that renewal of this power has been generally welcomed.

I was sorry that the hon. Member for Ashfield (Mr. Warbey) took a rather different view. As I understood it, one of his principal objections was that the Clause is concerned with indirect taxation rather than direct taxation. I am sure that he will recall from our earlier discussions, both in 1961 when the regulator was first discussed by the House of Commons and also last year, that one of the great advantages of this way of regulating the economy is that the effect is immediate, because one is acing on indirect taxation rather than on, shall we say, Income Tax where one makes changes which take some time to become operative.

My hon. Friend the Member for Belfast, East (Mr. McMaster) pointed out that one great advantage of an economic regulator of this kind is that it provides the Chancellor of the Exchequer with an alternative, or, at any rate, an additional, means of influencing demand. I should have thought that this is one of the principal reasons why it is generally accepted today.

I certainly do not want to be in any way provocative on this Clause, but I should perhaps say that I did not quite follow the hon. Member for Ashfield's incursion into party politics. I can only say that in matters of party manœuvring I think that the hon. Gentleman has a somewhat different approach from my right hon. Friend the Chancellor of the Exchequer.

This regulator power was first introduced in 1961, The hon. Member for Ashfield referred to the discussions we then had. The Committee will recall that when we discussed the matter then it was assumed that there would be a common period within which the matter had to be brought before the House of Commons for both surcharges and rebates. Indeed, so far as I can recall, no other suggestion was made. What the Committee was primarily concerned with in those discussions at that time was the power to increase taxation by over £200 million a year, as it were, overnight. Clearly, if this were done at the beginning of, say, the Summer Recess, it would be right that Parliament should be recalled. Therefore, it was provided in 1961, and the same provision was contained in last year's Finance Act, that the Order should lapse if it was not affirmed by the House of Commons within 21 calendar days. I am sure that the Committee will think that that was the right sort of procedure and, certainly, in those circumstances no change is proposed.

The position is somewhat different with reductions. Here there is no question of additional burdens on the taxpayer. Indeed, any such proposal as this would generally be welcomed. What is proposed in that event—that is, in the case of reductions, or rebates—is that the order should lapse, unless it is approved by affirmative Resolution within 21 sitting days. I point out to the hon. Member for Ashfield and to any other member of the Committee who has any doubt about the matter, that this is the form which was used in the Import Duties Acts of 1932 and 1958 and also, incidentally, in the Finance Act, 1948, for orders increasing Purchase Tax.

At any rate, I am grateful, as I am sure my right hon. Friend is, for the support of the hon. Member for Sowerby and I hope that the Committee will take the view that the power which my right hon. Friend asks for is a sensible one for him to have in reserve.

Mr. Anthony Crosland (Grimsby)

I wish that the Financial Secretary had given a rather longer and more elaborate statement of how the Government see this Clause, because it is, in fact, a very much more important Clause than most of the others in the Bill. It is a Clause to continue for another year an extremely powerful weapon in the Government's armoury. The Financial Secretary might perhaps have given a rather clearer idea of how the Government see the Clause, in what circumstances they will use it, and so on.

As my hon. Friend the Member for Sowerby (Mr. Houghton) made clear, we on this side of the Committee, with one or two notable exceptions, never opposed this method in principle when it was first introduced. We do not do so now. The case in logic for some regulator of this character is unanswerable. The Financial Secretary could have made it more strongly than he did. I think that everybody on both sides of the Committee, looking back on the history of the last ten years, would now agree that one of the main reasons why we do not get a reasonable speed of growth is that the whole thing is so jerky. If we could get a greater stability of growth, we should have a very much more rapid rate of growth on the average. This means that we must have some firmer regulator than any Government has had at their disposal during the bulk of the 1950s.

When one comes to try to decide what kind of regulator a Chancellor of the Exchequer could possibly use, one is in the end forced down to a regulator of this general sort of character. After all, there is not very much that a Chancellor can do to regulate exports. Export fluctuations—alas—are almost entirely outside the control of a British Chancellor of the Exchequer. It is true that he can do a great deal to regulate the growth of public expenditure. The right hon. Gentleman has accepted, as we on this side of the Committee have, a recommendation of the Plowden Committee that we should try to stabilise this more successfully than has been done in the past.

There is little that any Chancellor can do in any precise fashion to regulate investment demand. He can have a crude influence on it by changes in investment allowances, but this is, to put it mildly, a rather imprecise weapon and there is no method open to any Chancellor of any party by which he can closely and precisely regulate the growth of investment demand. Therefore, in the end a Chancellor of the Exchequer of any party would be reduced to some general regulator on consumption.

The reason why we favour this in principle is that we think that to use this type of regulator would be very much preferable to the way in which Governments have been operating in the last ten years—that is, by suddenly introducing a sort of crisis package deal—high rates of interest, cuts in public investment, etc. If one is to try to regulate the growth of demand, this must in principle be the right way to do it.

Having said that, it is not necessarily clear that this particular regulator on Purchase Tax and Customs and Excise duties is the only way, or even the right way. There are other ways which we ought to consider. It is highly desirable that we should have a debate on the Question, "That the Clause stand part of the Bill", on this sort of Clause every year, otherwise we cannot discuss alternatives to this type of regulator.

4.30 p.m.

We could, instead of this—as the right hon. and learned Gentleman the Member for the Wirrall (Mr. Selwyn Lloyd) suggested, or half suggested, two years ago—have used the payroll tax as a regulator. I wish that he had produced that suggestion in a very much less half-baked form, because it is a serious one. Its advantages were not properly discussed because, as I say, he produced this proposal in a rather half-baked form. True, there are great practical difficulties about it, but it could be looked at as an alternative to this method.

Another alternative, to which probably most hon. Members would not want to go back to, is the method of rather savage changes in hire-purchase regulations falling on a very small range of industries. After a time, everyone came to the conclusion that that was too painful a method for those industries, and was often very inefficient.

Another possibility, which the Financial Secretary briefly mentioned, is that one should have a regulator tied, not Ito indirect taxation but to personal Income Tax. It is clear that, administratively, that would be more difficult. It is also clear that it would not operate nearly as quickly on people's actual spending as would a change in indirect taxation. But, without knowing what has gone on in the recesses of the Inland Revenue, I feel that such a regulator has not been considered in enough detail to see whether or not the administrative snags are decisive. We should look at it again in more detail.

However, this is the regulator we have. It is the best we have at the moment. But it is certainly not without extreme disadvantages. That is why we should search for a better one all the time. One disadvantage that has been mentioned is that it is extremely crude both as between different goods and between different parts of the country. My hon. Friend mentioned the possibility, and it is a serious one, of the Chancellor being in a situation where, because there is a temporary recession, he wants to use the regulator to reduce indirect taxation as a whole.

But when doing so by this regulator he would have to make a really quite sharp reduction in alcohol tax, petrol tax, tobacco tax, and next year, perhaps, a gambling tax. One could easily imagine that for reasons of recession one wanted a broad reduction in indirect taxation while not wishing to bring down the price of a bottle of whisky, or of cigarettes, or, maybe, bingo next year.

Another serious disadvantage when compared with a payroll tax is that it is impossible to make this regulator discriminatory between different parts of the country. One could make the payroll tax discriminatory as between areas of high unemployment and relatively full employment, but it would be impossible, by any kind of human ingenuity to make this regulator operate differently in Northern Ireland and, say Southern England. That is another serious practical disadvantage of this regulator.

Another serious disadvantage is, perhaps, psychological. As my hon. Friend the Member for Sowerby mentioned, this regulator has been rather seriously misused by the Government. The justification for a regulator falling on indirect taxation is that it is only a regulator, by which one means that sometimes it goes up and sometimes it goes down, but does not, on balance, either go up or down. If it is consolidated, as in last year's Budget it was, it means that it is not being used as a regulator, but as a method of increasing indirect taxation. It is a serious point against the previous Chancellor that he used it to make a permanent increase in the proportion of our total tax system that fails on indirect taxation—

Mr. Gower

Surely, that is not a criticism of the regulator, but a criticism of the decision of the House, when discussing the subsequent Budget.

Mr. Crosland

When I said that the regulator had been misused, it was not a criticism of the regulator as such but only a criticism of its use—

Mr. McMaster

I should like to correct the hon. Gentleman with reference to the use of the regulator to help Northern Ireland. It is possible so to use it that the money brought in can be used on public works in these areas as, indeed, it has been suggested might be done in Northern Ireland.

Mr. Crosland

It would be extremely hard to get this discrimination between different parts of Britain, at any rate, even if it could be done in Northern Ireland. The conclusion is that there are serious practical drawbacks to the regulator, but, as I say, it is the best we have. We need some regulator of this kind, and that is why we on this side have never opposed it in principle.

There is also the constitutional point, to which my hon. Friend the Member for Ashfield (Mr. Warbey) referred, My hon. Friend expressed dark suspicions of the Chancellor's motives and intentions, to which I hope the right hon. Gentleman will pay attention, and consider with extreme financial rectitude. I would not myself assent to my hon. Friend's implied proposal that if the Chancellor used the regulator during the Summer Recess to reduce taxation, the Labour Party should immediately demand the recall of Parliament in order to vote against it. It might be desirable, but I would hardly like such action to be automatic on our side. But if the Government are really thinking in terms of an autumn election after the results of the recent local elections, they must be more obtuse than I thought.

Question put and agreed to.

Clause ordered to stand part of the Bill.