BUDGET RESOLUTIONS AND ECONOMIC SITUATION

HC Deb 16 April 1964 vol 693 cc606-725

3.52 p.m.

The Financial Secretary to the Treasury (Mr. Alan Green)

This is the second successive Budget introduced by my right hon. Friend the Chancellor of the Exchequer, the Resolutions of which have been accepted by the Opposition without a vote. This is the first point to be noted amid the welter of words employed by some hon. Members opposite as a substitute for actually opposing it. The right hon. Gentleman the Leader of the Opposition called it a lame duck Budget. I suppose that that is by comparison with the spectral pony suspected to be sheltering in the Opposition's stab le. I say "suspected" because the Opposition have so far shied away from the Chancellor's clear challenge to state exactly what their alternative proposals would be. Perhaps I should not make too much of this, although it is clear that they have refrained from accepting my right hon. Friend's challenge.

It is true that heavy hints have been dropped about taxing profits rather than, for example, tobacco, and that the mystic change was made by the Opposition's "shadow Chancellor" yesterday that we halve been shifting the burden of taxation from profits and dividends to persons. Those were almost his exact words. It seems to have escaped his notice that profits are taxed and that the level of taxation on company profits was raised three years ago. I am left with the impression, perhaps I am wrong, that he would have raised this level of tax on company profits further and have done it—if we are to believe his right hon. Friend—in some ruthlessly discriminating way as an encouragement to that purposeful industrial development, which is the current jargon of the Opposition.

It seems also to have escaped the hon. Gentleman's attention that dividends are actually paid to persons, in whose hands they are taxable at the rate appropriate to the individual recipient's total income. A special extra tax on dividends would, therefore, involve a further tax on persons, many of whom have incomes too small to attract the existing standard rate of Income Tax.

Perhaps while on this subject I might refer to the interesting suggestion put out by the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins) about the income equalisation tax. All I can do at present is to assure him that this notion is being carefully considered. I cannot say any more than that to him and I think that he will understand why that is so. He will appreciate, however, that interesting though the idea is from the point of view of distribution—namely, from the company point of view—the objections must obviously be considered because it would also fall as an extra tax, or rather, deduction of receipt, in the hands of the same people I have been mentioning, many of whom have very small incomes indeed.

It is open to question whether, because of the apparently otherwise useful regulating effect of this idea, those people should suffer a deduction in their incomes, many of which are small and inelastic. That will have to be considered along with what is otherwise at first glance an attractive thought.

As a helpful note to the Committee in general and the Opposition in particular, I have asked for and obtained the proportion of direct to indirect taxation for the years 1951–52 onwards. I hope, since reference was made to the whole 12 years of Conservative rule, that this is not an unfair base from which to start. The comparison is usually based on the proportion of Customs and Excise taxation to total central Government taxation; that is, the ratio of Customs and Excise revenue to the total, which comprise Customs and Excise revenue, Inland Revenue taxes and the motor vehicle duties.

In 1951–52, indirect taxes thus defined were 41.8 per cent. of the total. By 1963–64, they were 41.6 per cent. of the total, notwithstanding the reductions in direct taxation made in that and previous years. This is relevant to the rather unguarded reference to this matter in the speech of the hon. Member for Cardiff, South-East (Mr. Callaghan) yesterday. For 1964–65 the estimated proportion, after the Budget changes, has been put at 41.2 percent.—and that is, therefore, less than last year and less even than in 1951–52. The final piece of information which I hope is helpful on this aspect of the Budget is this: it is calculated that the indirect tax increases will add nine-tenths of one point to the cost-of-living index. This piece of information is, I think, required by the right hon. Member for Battersea, North (Mr. Jay). If he wishes, I am able to break down further even that small percentage.

The attack mounted by the Leader of the Opposition, a formidable one, has taken the form that the growth in imports outmatches the growth in exports and thereby imperils the maintenance of a policy of growth in real terms in this country. I hope that that is a fair summary of what the right hon. Gentleman said. He is rightly concerned—as are the Chancellor, the House and the country at large—with the maintenance of and an increase in the real resources of this country, vis-à-vis the rest of the world in which we must seek our living. This is the heart of our economic problem.

My right hon. Friend the Chancellor devoted a great part of his speech to this very central problem and it would be improper to accuse him of not having done so. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) paid proper attention to the importance of this matter, not only to ourselves but to the outside world as well. I will leave it to other of my hon. Friends to examine the likely effects of the Opposition's declared domestic spending proposals on this central problem. Perhaps they would like to think about that in the meantime.

In framing his Budget my right hon. Friend had to consider certain major factors not in isolation from one another, but in connection with one another. If Opposition speakers, if I may put it to them in this way, have a fault, it is a remarkably common tendency to argue from the particular to the general and not from the general back to the particular. It is because they do this that I think that they occasionally get into some sort of a muddle. For example, my right hon. Friend had to consider whether the existing rates of taxation, coupled with the experience and the reasonable expectation of savings, would suffice to cover the expected outlays of public expenditure, themselves substantially increased.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) raised this matter in what I thought was a very eloquent passage. [Interruption.] I did not find myself altogether departing from the philosophy of my right hon. Friend on this matter. There is no reason why I should, as I hope to demonstrate during the course of my speech.

Again, my right hon. Friend the Chancellor had to consider whether the known plans, both public and private, would fully engage existing resources; whether that full engagement would result in too much consumption at home, with a relative stoking of imports and a relative slackening of exports; whether, within the whole very large area of public expenditure, there was a reasonable and sustainable balance between the needs of defence and of the social services, of education and transportation, of housing and the associated environmental services. These are the essential, but not the only, budgetary considerations. Some of the others we shall doubtless debate on the Finance Bill.

My right hon. Friend listed a number of major factors, upon the actual behaviour of which the continuance of balance would be bound to depend, regardless of what party was in power. Because the balance cannot be maintained at home if we are not competitive in overseas markets—this is one consideration that any party would have to have in mind—the attainment and the maintenance of a sensible incomes policy is in the forefront of these factors.

This is not something than can be centrally directed. Even Communist countries have their recurrent problems of wage differentials and wages drift. But it is an area in which Governments have great influence by processes of persuasion and education and by securing, as far as possible, that the resources to be employed in the public sector are covered by a combination of tax yield and savings and, where appropriate, by the prudent deployment of reserves. I do not think that I am so far removed from the philosophy of my right hon. Friend the Member for Wolverhampton, South-West.

The balance is, admittedly, difficult to achieve, and would be for any Chancellor; and is very difficult to maintain, for it does not wholly depend upon the judgments and actions of any British Government. The actions of other Governments may cause major and abrupt adjustments, as the Labour Party itself found in the period of the Korean War. The winters of 1947 and 1963 were both severe enough temporarily to affect the balances then sought, so that these things are not wholly within the gift of Governments to achieve. Again, I find myself not straying too far from the general philosophy of my right hon. Friend the Member for Wolverhampton, South-West.

Last year, by what is generally accepted to have been judicious judgment, m} right hon. Friend the Chancellor achieved balance in a way which led to exceptionally rapid growth in pretty well all the desired directions. It was quite obvious, as my right hon. Friend himself has pointed out without any prompting, that one consequence of the achievement would be a mounting import bill. To meet this virtually certain consequence, better buttresses for sterling had to be secured; a id not only for sterling, because the health of other major currencies is almost as important to us in the long run as is the health of sterling. This is a fact which we would all accept and agree upon.

Now today better buttresses for sterling and, for example, the dollar, have been erected. They are not perfect, and a lot more work needs to be done. However, the point that I am making is that, without that past work, without that real planning, the balance struck by my right hon. Friend the Chancellor would have had to have been at a lower level and the hopes of further progress correspondingly dim. The point I hope I am observed to be making is that a very great deal of real planning has, in fact, preceded this period of growth.

For this Budget my right hon. Friend had to consider whether he could simply leave the balance just as it was trimmed in the circumstances of last year, or whether the rate of growth now visible in the economy was not itself a factor which required some steadying, so that the general momentum might be maintained. By a remarkably general consensus of opinion, it is accepted that some steadying is required. Of course, there will be different opinions about the degree of that steadying and the method thereof, and I have not so far heard any alternative very seriously pressed. It may, or again it may not, come later; but so far I have not heard any alternative seriously pressed. I can promise that it will be very seriously considered if it is so pressed. Indeed, my right hon. Friend is all ears for such suggestions.

There are certain other matters in my right hon. Friend's statement which, I think, by tradition, are probably better left to the Finance Bill—for example, his proposals for dealing with new forms of avoidance, which it would not, perhaps, be appropriate for me to talk about. What we are here concerned with—it is the central point of the Budget—is whether a proper balance has been achieved, in view of the assessment of the economic forces now operating on this country. I would accept at once, as I am sure everyone would, that, if the ratio of imports to exports became seriously wrong, steps would have to be taken further to correct the balance proposed in my right hon. Friend's Budget.

Mr. John Diamond (Gloucester)

The hon. Gentleman is dealing with a most important point. Would he tell us what action he has in mind to deal with that eventuality?

Mr. Green

A very great deal would obviously depend on what happened. We are dealing with a hypothesis. I do not think that it is too sensible to answer a hypothesis in detail.

My right hon. Friend is seeking, in the Budget, a greater degree of flexibility within the powers previously accorded to him. For example, he is seeking to make the regulator more flexible than it has been so far. That is one example. He is seeking flexible weapons to meet what may be changing circumstances. This seems to me to be a most sensible practical approach, but I would not like to answer categorically the hypothesis that is put to me. It would be very foolish of me if I attempted to do so.

Mr. James Callaghan (Cardiff, South-East)

Then I am wondering why we should be expected to do so.

Mr. Green

I am not expecting the hon. Gentleman to answer hypothetical questions. I put to him real questions.

Here is the Chancellor's Budget, with the Resolutions and the proposals that he is making. Can the hon. Gentleman devise better ones in the circumstances which my right hon. Friend has so clearly outlined? After all, the circumstances, as set out in all the Treasury papers, are now quite well known. The hon. Gentleman is not asked to embark upon a hypothesis, as I was asked to just now. He is asked to suggest, if he has them, any real alternative proposals to those that the Chancellor has put forward. So far, there have been no such proposals.

Mr. Diamond

I am sorry to interrupt the Financial Secretary again. I did not pose the hypothesis. The hon. Gentleman posed it in his speech—very properly, if I may say so, because he is dealing with a most fundamental point. The Chancellor himself referred to this, and said that, if things got worse, he still had the regulator. Now the hon Gentleman is saying that, if things got worse in the sense of a disproportion of imports, the Chancellor would have further measures in mind. The Committee is entitled to know what these further measures are.

Mr. Green

With the greatest respect to the hon. Member, there is, for example, the existing regulator, which can be used. One hopes that it does not have to be used. I am drawing attention to the fact that my right hon. Friend's proposals include a more flexible use of the regulator, which gives him additional room for manoeuvre. What other measures my right hon. Friend might consider in the unlikely event of a real deterioration this year it would be presumptuous for me to put into his mouth, and I shall not do it.

Mr. G. Mr. Mitchison (Kettering)

I counted 15 separate proposals in the speech yesterday by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), not to mention the reference to N.E.D.C., which would bring in a number more. Is there any Government answer to any of them?

Mr. Green

For the most part, those proposals, if they are to be called proposals, were vague and unspecific, as the hon. and learned Member well knows. Many of them, however, were dealt with by my right hon. Friend the Secretary of State for Industry and Trade. It has already been pointed out that the export suggestions made by the hon. Member for Cardiff, South-East had all been made with monotonous frequency on many occasions before anti had been dealt with. I cannot help hon. Members opposite if they do not want to understand what they read or hear it is not possible for me, in those circumstances, to help them. Those suggestions have been dealt with.

The hon. Member for Cardiff, South-East went along another path, also—I have just dealt with it—and that is the ratio of direct to indirect taxation. His proposals, which were put blankly, although I do not blame him for that, were to transfer, by some magic, taxation from persons to profits and dividends. I have devoted a passage of my speech to that. Perhaps the hon. Member will do me the courtesy of reading it in print if he did not understand me when I said it.

In these circumstances, with no real alternative proposals and no vote against any of the Budget Resolutions, the only surprising comment—1 nearly said, but I am much too well-mannered to say, witless comment—is to call the Budget irrelevant. It is extremely relevant to the circumstances of the year in which it is proposed and framed and I believe that it will be seen to be increasingly so.

4.13 p.m.

Mr. Douglas Jay (Battersea, North)

it is a little surprising that the financial secretary to the Treasury has no more to say than that. If one wished to be charitable o this so-called Budget, one could at least say of it that it is a condemnation pf the pre-election Budgets of 1955 and 1959. Then, with the balance of payments weakening and an election approaching?:, taxes went down. Now, with the balance of payments weakening and an election approaching, taxes go up. If the Chancellor of the Exchequer is right, it is clear that, in 1955, the present Foreign Secretary and, in 1959, Lord Amory, must have been wrong.

In his general strategy, the Chancellor has at least done better than his predecessors. He has at least shown that he is not prepared to run away from the economic facts quite as blatantly as the Prime Minister is running away from the electorate. Nevertheless, I cannot help wondering whether the Chancellor has not been too optimistic. The Secretary of State to for Industry and Trade, who has not stayed for an answer, was astonishingly complacent yesterday.

The Chancellor faces a worsening balance of payments with an internal inflationary gap far wider than any of the unofficial expert commentators had thought prudent. Yet, although he did not make it is clear in his Budget speech, he has increased the overall Budget deficit this year, even allowing for £150 million of local authority borrowing transferred to the Budget, by £150 million over and above where it stood last year, when we had a great deal of unused capacity. Does the Chancellor believe that that can possibly be right?

It is difficult to understand this Budget, unless one assumes that it was designed to precede a General Election, in June, with the regulator to follow and put up tams in July, or perhaps, October. I should like to know what the Chancellor will do if he turns out to be wrong and all the unofficial experts turn out to be right.

The Chancellor of the Exchequer (Mr. Reginald Maudling)

I hope that the right hon. Gentleman will tell us whether he thinks that I should put up taxes more.

Mr. Jay

I was coming to that; I shall answer all those questions.

Whatever the Chancellor's general strategy, however—there will be plenty of chances for voting in Committee; if hon. Members opposite want Divisions, they can have them—his real failure is in selecting the right taxes to increase this year. I say emphatically that in present circumstances he should have raised not consumer taxes, but profits taxes. As everybody knows nowadays, we have to rely on a great deal of help from indirect taxation; but that does not mean that any required increase in revenue must come wholly from indirect taxes and not from direct taxes.

Sir Douglas Glover (Ormskirk)

Does this mean that it was in an absent-minded Fit that the opposition did not vote against the resolution dealing with taxes On cigarettes>?

Mr. Jay

The hon. Member has been here long enough to know that it is usual to vote in committee on the Finance bill rather than on the budget resolutions (HON. MEMBERS:"NO"] If hon. Members opposite are so enthusiastic for divisions they can have plenty starting next week Then no doubt they will vote on different sides.

With the selection of taxes which the chancellor has made it is not surprising that the stock exchange finds the budget so exhilarating To the ordinary public however it is a bit of a shock that at a time when the prime Minister was telling us that the economy has never been stronger we find the chancellor Being forced to raise consumer taxes so steeply People ask whether this will not simply force up the cost of living and consequently wage rates even more quickly and so provoke just that upwards spiral against which the chancellor has given us so many pious warnings.

Sir Cyril Osborne (Louth)

Of course not.

Mr. Jay

The hon. Member had better listen to his Friend the financial secretary who told us today that these taxes have already raised the cost of living by just on one point The hon. Member must know that a great many wages are directly and in-directly that will be the first consequence of the Budget.

I believe that the ordinary man is right here and that the chancellor is wrong. It is not really economic analysis, but simply political prejudice, that has persuaded the right hon. Gentleman to prefer indirect to direct taxes at this time. His argument that indirect taxes do more to restrain consumption than direct taxation is sheer nonsense. If one cuts a man's income or his dividends, his consumption is cut just as effectively as if we tax tobacco and drink, as the Chancellor well knows.

The Budget must be looked at in the light of the fact that it follows a 12-year series during which the Government have been steadily shifting the burden of taxation from profits taxation to consumer taxation and the National Insurance contribution. The fallacy in the Financial Secretary's figures this afternoon was that he quoted indirect taxation and omitted the National Insurance contribution.

This has had two effects. One must look, on the one hand, at taxation and, on the other, at benefits, and this afternoon we are looking at taxation—[Interruption.] We are looking at direct and indirect taxation, because the Government have made a shift between them.

This has had two effects. It has led to steep increases in dividends—which have increased far faster than wages and Salaries-and, together with the rise in rents engineered by a Government policy, to a rise in living costs, in wages rates, and in the cost of producing our exports. I do not doubt that this is one reason why the United Kingdom percentage of the world's manufactured exports fell again in the four years between 1958 and 1962 from 18 per cent. to 15 percent., and why our balance of payments is so persistently weak.

Some few voices have tried to resist this conclusion by attempting to argue that the taxation of company profits is really equivalent to the taxation of the consumer, because the business man always adds the tax on to the price. It is of great assistance to our debates this year that we have the Gordon Richardson Committee most decisively refuting that particular fallacy. The Richardson Committee has found that businessmen generally would regard a value-added tax—the particular tax that it was considering, and the same is true of other indirect taxes …as a charge or cost which they would seek to recover in prices. On the other hand, the Committee does not regard the Profits Tax as entering directly into prices and would not expect an increase or decrease in it to affect prices either way—

Mr. Eric Lubbock (Orpington)

Will the right hon. Gentleman say how the £100 million extra which the Chancellor is seeking to raise would have been raised by increasing Profits Tax? And, accepting the right hon. Gentleman's argument that an increase in Profits Tax would not lead to increases in costs, and that boards of directors would keep dividends constant, would not the effect be to reduce their investment in new stock and machinery?

Mr. Jay

I did not say that they would keep dividends constant, but that Profits Tax affects dividends. I was quoting the Gordon Richardson Report, which says: There was unanimity that the actual changes in profits tax and income tax in recent years had no, or at any rate no discernible, effect on prices. The authors of the Report conclude from this that the substitution of an indirect tax for Profits Tax would mean that Wage and salary earners would suffer an increase in the cost of living at the same time as company profits were receiving the benefits of lower taxation.

The Committee then says—and these are the Committee's words, not mine—that this …would greatly add to the difficulties of working out an incomes policy… and that: The consequences for the balance of payments would then be injurious. That is a fairly formidable indictment, for which we now have the powerful authority of Mr. Donald MacDougall as well as that of Mr. Gordon Richardson, of any policy of substituting indirect taxation for profits taxation. But that is precisely what Tory Chancellors have done over the last 10 years—

Mr. Green

I know that the right hon. Gentleman does not wish to be unfair. I gave him the ratio in total of indirect to direct taxes, which I am sure he will study. What the Richardson Committee was talking about was a particular form of indirect taxation, namely, the value-Added tax.

Mr. Jay

But the hon. Gentleman has also given the increase in the cost-of living index, due to the Budget, which must have the effects described by the Richardson Committee. The Chancellor has carried this process further in h is Budget.

I doubt whether the House—and here I reply to the Financial Secretary's figures—even now realises what sweeping reductions in tax revenue from profits have been granted in total over the last 10 or 12 years. On 17th March, I asked the Chancellor how much extra taxation company profits would be yielding if the percentage companies paid in to today were the same as in 1952–53. The right hon. Gentleman gave a figure of £270 million a year. That is his measure of the tax relief given to companies, and it is certainly a large enough figure. As a matter of fact, if we take if a Government's own figures in the National Income Blue Book for the gross trading profits of companies and the taxation paid by them, the total would appear to be more like £600 million. Perhaps the Chancellor will at some time explain the discrepancy.

The President of the Board of Trade yesterday complained that in making this comparison we were taking an arbitrary s election of years, so I will take two s is of years selected by the Government, not by myself. The figures in the right hon. Gentleman's National Income Blue Book show that in the years between 1952 and 1962—which are the years the Government select—gross trading profits of United Kingdom companies rose from £2,780 million to £3,531 million—that is, an increase of 62 per cent.—but United Kingdom tax revenue from company profits fell from £982 million to £944 million. In those same years, ordinary dividends rose by 166. percent. compared with a rise in wages, on official figures of 74 percent.

In those circumstances, is it really surprising that the Government find it difficult to get an incomes policy accepted by the wage earners? I ask, because, of course, the effect of this cut in the taxation on profits has been—and I say this to the hon. Member for Orpington (Mr. Lubbock)—not a fall in prices but a rise in dividends over those years. Indeed, to a large extent it has been a reversal of the redistribution that occurred between 1939 and 1950 when company tax payments went up and dividend payments went down—

Mr. Victor Goodhew (St. Albans)

Will the right hon. Gentleman give us, at the same time, the amount of tax that the Government would have received from individuals had the standard rate of Income Tax not been lowered since 1952–53?

Mr. Jay

If the hon. Gentleman looks at the figures of Income Tax and insurance contribution paid by individuals, he will find the proportion is just about as great now as it was 10 years ago.

To please the President of the Board of Trade, who wanted us to make more than one set of years, I will also give the corresponding figures for the five years from 1958 to 1963, which are the years chosen by the Government in their National Income White Paper, published last week. In those five years, the gross trading, profits of companies rose 28.6 per cent.; United Kingdom taxes on company incomes fell—fell absolutely—12.9 per cent. ordinary dividends rose 81.7 per cent.; rent, interest and dividends rose 48.9 per cent., and wages and salaries rose 34 per cent. Those are the Government's own figures.

Therefore, whichever years we take, it is perfectly clear that Tory Chancellors have carried out a massive shift of taxation away from company profits on to the consumer and the insurance contribution combined. That is the main reason why dividends have risen so much faster than wages, and one of the main reasons why prices have gone on rising continuously. For, quite apart from the vicious effect of transferring income from the poorer taxpayer and giving it to the richer, this tax shift has, as the Richardson Committee agrees, steadily weakened our balance of payments by raising prices and export costs, and made an incomes policy unattainable.

Indeed, the Government through these years, while preaching the need for an incomes policy, have, in practice, been carrying out two policies which, collectively, and cumulatively, were bound to weaken our export efforts and damage our balance of payments. First, as I said, they raised export costs by the tax policy I have described. Secondly, by prematurely liberalising—this was the Chancellor when he was at the Board of Trade—our imports of manufactured consumer goods, they released a flood of very inessential imports before we were able to afford it.

The Chancellor, I know, has persistently attempted to deny that manufactured consumer goods have been any major cause of the trouble. But I expect that he will now have noticed that Professor Austin Robinson as well as Sir Roy Harrod now firmly hold this view. Indeed, if the Secretary for Industry and Trade had troubled to read Professor Robinson's article in the Three Banks Review for December before he spoke yesterday, I think that he would have been less foolishly dogmatic than he was. Professor Robinson shows that between 1958 and 1962—and they are very striking figures—our imports of food and materials rose 11.5 per cent.: but our imports of manufactured goods other than machinery and fuel, that is to say, largely our imports of manufactured consumer goods, rose 115 percent.

We then resorted, in a panic in 1961, to a general deflation in order to keep out somehow these unwanted consumer goods; as, indeed, Professor Robinson puts it, we diminished our gross national product by £600 million to save £200 million of imports. I know that the Chancellor is also trying to argue, and did again in the Budget speech, that the extra manufactured goods were largely industrial goods. The figures I have just given show that that is not so.

Let us now carry our story on beyond 1962. The National Institute has published a table which shows that from 1962 to 1963 imports of manufactured producer goods actually fell 1 per cent. but imports of manufactured consumer Roods rose another 24 per cent. This process is still going on. The Board of Trade's latest figures show—I am sorry for all these figures, but the right hon. Gentleman argues on the facts—that if we compare the three months December to February of this last winter with the immediately previous three months, imports of industrial materials rose 9 per cent. and imports of finished manufactures another 18 per cent.

The Secretary for Industry and Trade almost spoke yesterday as if it would not much matter if this country were importing and exporting about equal amounts of manufactured goods. In that case, I do not know how he thinks we shall pay for our food and raw materials, the prices of which, incidentally, in his last incarnation, he was trying to raise. After all, this country cannot live unless it exports far more manufactured goods than it imports. I should have thought that that was obvious.

I do not believe, therefore, that in the present situation the Government really serve the national interest by complacently looking the other way and pretending the balance of payments situation is much better than it really is.

Mr. Maudling

I think that we might be clear on this point. As we are exporting far more consumer goods than we are importing, is the right hon. Gentleman, or is he not, advocating a policy of putting controls on imports of consumer goods?

Mr. Jay

I am coming to that point, also. It is all in a logical order, if the Chancellor will only wait and try to understand. At the moment I am saying that I do not think the Chancellor will serve the national interest either by forsaking logic or by ignoring the situation.

The Secretary for Industry and Trade tried to comfort himself yesterday by saying that imported manufactured consumer goods were only 5 per cent. of our total imports. But 5 percent. of our total imports nowadays is £250 million a year, and that is the measure of the whole difference between failure and success in our balance of payments problem.

The Prime Minister recently tried to excuse his blunder over the January trade figures by bursting into jubilation over the February figures. I do wonder whether he knew, when he did that, or whether he did not know, that the visible trade gap in February, which he thought so splendid, was greater than in any month of 1963 or 1962 except for December, 1963, when it was the same. We merely recovered from a disastrous month in January to a very bad month in February.

The Secretary for Industry and Trade, also, yesterday was equally unwise to treat the March trade figures simply as a text for making debating points. What do these March figures show? Exports in the first quarter of 1964 were 2 percent. higher in value than for the fourth quarter of 1963; but imports were 7 percent. higher. Exports in the first quarter of this year were 5 per cent. higher than the average for 1963 imports were 13 per cent. higher. In fact, whichever figures we take, volume or value, and for whichever period, they show that imports are rising much faster than exports. The crude visible gap in March, on the normal method of computation, was £65 million.

Ever since: the war it has been a major danger signal if this gap, thus calculated, has risen to over £60 million in a month. It has now exceeded £60 million for four months in succession.

Mr. Goodhew

It depends upon the overall size.

Mr. Jay

I know the Secretary for Industry and Trade has another way of working it but—

Mr. Green

I am sure the right hon. Gentleman appreciates that to take a constant figure of £65 million regardless of the total increase in volume either way is not real y a safe way of measuring what is a c anger gap—or not.

Mr. Jay

No. That really is not so at all, because, unfortunately, if our imports ate rising higher than our exports, that is causing the gap to increase even faster as a percentage. If the hon. Gentleman does not realise that he does not appreciate the difficulty of this problem.

However, the fact is that the gap has exceeded £60 million for the whole of the last four months. If the Chancellor and the Secretary for Industry and Trade regard it as partisan to point out the truth in this matter, I would quote what The Times City column says this morning. It says: No matter how one juggles with the figures it is impossible to produce a reassurance from them that the United Kingdom's export earnings are growing sufficiently fast to finance the rising level of imports one must expect. … I must say that, repeatedly since the war, whenever I have heard the sort of chirpy debating speech we had from the Secretary for Industry and Trade yesterday it was followed two months or sometimes three months later by a serious balance of payments problem. The real trouble about the right hon. Gentleman—I am sorry he is not here—is that if he goes on to make more speeches of the sort he will not merely deceive his supporters. He will deceive himself, also.

In this situation it rather alarms me to see the Chancellor of the Exchequer taking action just as likely to raise prices and export costs as to restrain imports. I do not believe that what he has done will be enough to get us in balance. If we try to restrain inflation, as he has, by raising indirect taxation, it is as likely to end by making the cost inflation worse.

What ought to be done? The Chancellor asked me. I will answer the question. I will mention, for a start, two major acts of policy which, I think, should be pursued. First, the Chancellor should hold prices and costs down by shifting a fair proportion of the tax burden off the consumer and back on to company profits. If he did that, a real incomes policy might be possible. So far, the only mention of any contribution that we have had in the debate, of lower prices has been the decision of the National Coal Board to lower the prices it charges to the steel industry.

Here, however, I find it agreeable for once to be able to compliment the Secretary of State for Industry and Trade. He went to Geneva two weeks ago and—incidentally, without breathing a whisper of it previously to us, or, indeed, even explaining it yesterday—made a most sweeping and revolutionary offer on tariffs and Commonwealth preferences.

The right hon. Gentleman offered to extend preferences in the United Kingdom market to all developing countries provided that the other great industrial nations did the same. I take the right hon. Gentleman to have meant that preferences would only be extended, by this policy, by lowering tariffs on goods from the poorer countries and not by raising them on goods from other countries. If so, the right hon. Gentleman's proposals are all the more welcome to us, because they are precisely the opposite of what he was advocating 18 months ago.

At Brussels, 18 months ago, the right hon. Gentleman was proposing to narrow the area of free imports of food and materials into the United Kingdom. Now he is proposing to widen it. These new proposals are also all the more welcome because they are precisely the opposite of the plans for fresh restrictions on food imports which his colleague the Minister of Agriculture, Fisheries and Food is simultaneously, but, I am happy to say, unsuccessfully trying to apply at the present time.

The Secretary of State for Industry and Trade yesterday got into a great doctrinaire passion about the wickedness of import controls—about which the right hon. Gentleman asked me a question just now. But does he not know that the Minister of Agriculture is imposing at this moment a whole series of restrictions on food imports? So we have this situation. The Chancellor says, wisely, I think, that he has no doctrinaire view about import control. The Secretary of State for Industry and Trade is furiously doctrinaire about the idea of imposing any controls on manufactured imports; and the Minister of Agriculture imposes a whole series of controls on our food imports. That, I suppose, is what the posters call, "Going straight ahead with the Conservatives" I believe that that poster was withdrawn just before the Budget.

I shall tell the Chancellor what I would do. In this matter, I agree with the Chancellor and disagree with the Secretary of State for Industry and Trade. I would add this. If controls do become necessary, I would much sooner impose them on inessential goods first and essential goods afterwards; rather than, as the Government are doing, impose them on essential goods but not on inessential ones. I hope that the Chancellor will meditate on that answer.

The second major practical measure which I think—and we have been asked for this—would generally help to give us expansion without inflation, and so ease the rather forbidding balance of payment prospect, would be a really resolute effort to get expansion of employment from now on into the underemployed parts of the country.

If we try to expand 4 percent. a year in all areas, we shall run up against inflation in the Midlands and the South-East, while Scotland, Northern Ireland and the North-East are still under-employed. But if we expand faster—and we are still not doing so—in the underemployed areas, it is quite possible that we might achieve even 6 percent. overall growth for a good deal longer.

The Government professed last autumn, with their White Papers on Scotland and the North-East, that they were really converted to the need for action here. But since then, we have had the extraordinary Report on the South-East which, in my view, largely cancels out the White Papers on Scotland and the North-East, which we had last autumn. This Report on the South-East accepts the prospect of a further transfer of 1 million people over the next 20 years into the South-East over and above the 2½ million natural increase there. The most astonishing thing about this document is that it bases the whole of its estimate, and all its practical conclusions, on the completely unargued assumption that we cannot control office development in the same way that we can control factory development.

on the ground of this utterly frivolous assumption, which the Government blithely accept in their accompanying White Paper without any serious argument at all—we shall have to debate this a great deal more later on—the Report proposes, in effect, a vast programme of capital expenditure designed to transfer 1 million people from one end of the United Kingdom to the other. We say, that in our view, that would be an utterly unjustified extravagance which the country, on top of all its other commitments, really cannot afford. The drift of population which is now depopulating so many areas in the North and West is something that the Government ought to discourage, and not actively finance at enormous public cost.

I was struck just now by the statement of the Financial Secretary that his philosphy was very close to that of the right hon. Member for Wolverhampton, South-West (Mr. Powell) I fear that the trouble on this issue of regional planning is that the real mind of the Tory Party is represented not even by the White papers of last autumn, but by the right hon. Member for Wolverhampton, South-West. He, of course, wants to leave the whole location of employment to the free play of financial forces, which is a very different thing from the free choice of the individual. If he had his way, I believe that within 30 years three quarters of the population of this island would be forced in search of a job to live packed in the southeastern corner of it.

The right hon. Member for Wolverhampton, South-West, whom we are always extremely glad to see here, is, I believe, a great authority on Herodotus. He also preaches the ruthless play of free competition. He has also recently, unless he has resigned during the past week, become a director of the National Discount Company. The discount market practices an extreme form of monopoly by which all the main firms join together in what they call a syndicate; and they tender for Treasury bills at identical rates—

Mr. J. Enoch Powell (Wolverhampton, South-West)

In competition with all comers.

Mr. Jay

—like any builders' ring tendering to the local authorities. The right hon. Gentleman gives us a new definition of competition. But even accepting that, I could sometimes wish that the right hon. Gentleman would devote some of his undoubted fanaticism to stimulating competition in the discount market rather than to the sacred cause of depopulating Scotland, Northern Ireland and North-East England.

This week's Budget has, at any rate, finally convinced the country that it can no more expect an incomes policy or sound balance of payments than it can expect social justice or regional planning from a Government whose only remaining idea is to cling to office to the last conceivable moment. The Chancellor pronounced a rather weary epitaph on a lifeless and hopeless Government, whose only reason for postponing the General Election is that they know that the country is against them.

4.49 p.m

Sir Cyril Osborne (Louth)

The only comment that I make on the speech of the right hon. Member for Battersea, North (Mr. Jay) is that as a general principle I think it much better to tax spending than earnings. The nation requires more earnings to increase its wealth. There is no necessity for anyone to spend above a certain limit, and so I would rather tax spending than earnings. I have said this so many times that hon. Members on both sides of the Committee know what I stand for. First, if an extra £100 million had to be raised, then from the point of view of the nation's economic situation it would be better to raise it in a way that does not affect the earning power of the nation.

I thought that the right hon. Member for Battersea, North was grossly unfair to my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell), who can well look after himself and will one day show that he can.

I support the Budget because, in the circumstances, it is sensible, sound and realistic. Its aim is steady expansion without inflation, which we all want. I believe it continues the policy of previous Budgets, which have produced the highest standard of living this nation has ever enjoyed. Our people are better fed, better clothed and better housed than ever before in our history. They are spending more on drink, tobacco, amusement and overseas holidays than ever before. Our parents and grandparents would not have believed it possible that we could have reached such a high standard of living. I challenge any hon. Member opposite to refute what I say. Hon. Members opposite talk about "the past 12 years of Tory government," but those years represent the most wonderfully successful economic achievement this nation has ever known. One has only to look at the school children, the hospitals and the housing estates. The right hon. Member for Llanelly (Mr. J. Griffiths) knows what Wales was like 12 years ago. I am proud of what the Government have done.

Mr. James Griffiths (Llanelly)

If the hon. Member is proud of what the Government do today, he must be equally ashamed of what the Tories did in the 'thirties.

Sir C. Osborne

I entirely agree with that. All I say is that in the last 12 years we have had a wonderful economic achievement. Hon. Members opposite do our nation a great disservice by denigrating what the Government have done for our people.

The Guardian yesterday—;it is not a fanatical supporter of the Conservative Party—supported my right hon. Friend's Budget. Its financial column was headed: City pleased with the Budget. The labour correspondent headed his double column on the front page: Following Mr. Woodcock's advice. He claimed that the Budget was a product of the T.U.C., that it was Mr. Woodcock's idea. But hon. Gentlemen opposite seem to dislike what the T.U.C. itself said it wanted. Why do they bellyache about what the T.U.C. leaders regard as sound?

I want to ask some questions of hon. Members opposite. They are sure—they will find they are making a mistake—that they will win the General Election. The electorate is entitled to ask certain questions of them, and I propose to ask those questions now.

What is the alternative of hon. Gentlemen opposite to the Budget? First, they say that they would have an incomes policy. This is the greatest requirement of our nation. However, in 1949 the then Socialist Government, with a majority of 246, led by Mr. Attlee and supported by very able men like Cripps, Dalton, Morrison, Bevan and Bevin, failed to get an incomes policy. If that first XI of the Socialist Party failed, why should this second XI succeed? What guarantee can they give the nation that they will succeed where Mr. Attlee's much more able Government failed?

As I understand it, the Labour Party has three rods in pickle when it comes to power, and I must ask questions about them. First of all, from what the hon. Member for Cardiff, South-East (Mr. Callaghan) said yesterday, apparently the Labour Government will say to those who work hard and earn a bit more, "We will teach you", and to those who save a little more, "We will show you. How dare you be so anti-social as to possess more than your Follows! "The hon. Member said that he would choose, first of all, higher direct taxes. The top limit of Income Tax and Surtax today is 17s. 9d. Would he push them back again to the 19s. 6d. which the last Socialist Government imposed? How far would he put them up? Will he tell the nation? If he does not, he is dishonest, because if that is so the Labour Party is seeking votes under false pretences.

As to the second rod in pickle, the hon. Gentleman has advocated a savage capital gains tax. He says that the present capital gains tax is too mild. How much stronger would he make it? Would he make it restrospective? On whom would he apply it? It is only fair to the electorate, which he thinks will vote for him, to tell it what he intends to do.

The third rod in pickle, and a more important one still, is an annual capital levy. If this is not a Cripps once-and for-all, it must be a year-after-year capital confiscation. How much will the hon. Member take? How much will he leave people? How little does he think an individual ought to retain? The people whose votes he will seek are entitled to say to him, "You want our votes. What are you going to do when you get them? "As an honest hon. Member, he ought to be able to tell the nation what he intends to do.

Mr. Jay

In case the hon. Member is wrong and the Tories win the General Election, will he tell us what would be their first Budget after it?

Sir C. Osborne

Our Budget is the one which we have in front of us. We do not need to produce another. Hon. Gentlemen opposite object to this Budget, and we are entitled to ask them what their alternative is. They are frightened to give it; that is what is wrong with them.

When the last Socialist Government were in power, Surtax started at £2,000. Three years ago my right hon. and learned Friend the Leader of the House raised the starting limit on earned income to £5,000. Hon. Gentlemen opposite object. To what level would they lower it? The country is entitled to know.

Mr. William Hamilton (Fife, West)

Does the hon. Gentleman agree with the Leader of the House, who said at that time that he really did not know how a man with £5,000 a year could educate his children?

Sir C. Osborne

I am not dealing with my right hon. and learned Friend; I am dealing with hon. Gentlemen opposite who are very coy about telling the nation what they intend to do. Where would they put the limit?

Let me bring it home to them. A fortnight at it was reported that the brother of the hon. Member for Coventry, Fast (Mr. Crossman), who is an eminent scientist at Oxford, was emigrating to California, and he said quite plainly that he was going for more money. In Oxford Dr. Crossman was getting £2,400 a year and he would not get more than £100 extra unless he became a professor. He has gone to California at £6,000 a year to begin with and with the possibility of a great deal more. I put it to hon. Members opposite that if they imposed greater direct taxation, as they are advocating, and lowered the Surtax level, as has been advocated this afternoon, would it not drive more of our scientists abroad? Dr. Crossman said that they were going abroad seeking higher salaries. Would they still not do so?

Mr. Mitchison

In justice to someone who is not here and, therefore, cannot defend himself, might I point out that what Dr. Crossman said, and what a number of other scientists have said, was that thy wanted more money for their work? That has been the difficulty. It is not the question of personal remuneration. It is a question of getting proper facilities to do their work.

Sir C. Osborne

The hon. and learned Gentleman should stick to things that he understands. That was a foolish intervention. [HON. MEMBERS: "oh."] I withdraw that. As I am challenged, I will read what the Daily Telegraph on 17th March said: Dr. Crossman said.… Unless he became a professor he could not get more than £100 or so above his present salary of £2,400 a year. At Berkeley he would get about 17,000 dollars (over £6,000) with prospects of more. This is what he said. [Interruption.] This is official. Let hon. Members look at it.

By Section 31 of the Finance Act, 1961, Profits Tax was increased from 12½ per cent. to 15 percent. The hon. Member for Cardiff, South-East says that he would increase it. By how much would he increase it?

Mr. Callaghan

When?

Sir C. Osborne

If the hon. Gentleman will allow me to say so without offence, he and other hon. Members opposite often strut about the international scene as though they had already been foisted upon us by the Almighty as our masters. Some of them strut about like pigmies in giants' boots. As they assume that they will win the election, we are entitled to ask what they intend to do with their power. That is a perfectly fair question.

Mr. Walter Monslow (Barrow-in-Furness)

In this Budget we have had a tax on cigarettes, a tax on beer and a tax on gambling. As a fellow Methodist, the hon. Member gets clear of all three. But what would he do about the land racketeering which in Bishop's Stortford resulted in an overnight increase in the price of farm land from £250 an acre, a total of £42,500, to £7 million for 170 acres when the land was allowed for residential development?

Sir C. Osborne

First, that increase would be subject to heavy taxation. [HON. MEMBERS: "No"] Yes it would. Secondly, both in the House and outside I have said that I would bring in legislation to stop that.

Mr. Callaghan

How?

Sir C. Osborne

I am answering for myself. Let me come nearer to the bone of the case of hon. Members opposite. The very basis of the Labour Party's philosophy is embodied in Clause 4 of its constitution. [HON. MEMBERS: "No."] Hon. Members are going to have this, and I am going to ask some questions about it. Either they believe in it, or they should take it out of their constitution. They believe that all means of production, distribution and exchange should be nationalised. That is their alternative to the Conservative capitalist philosophy which I am trying to defend.

I am asking hon. Members opposite how full-blooded a Socialist Government would be. How much would they nationalise and what effect would that have on trade? I remind hon. Members that already six great industries have been nationalised and their total capital assets—[Interruption.] Hon. Members ought at least to be fair we listen to the hon. Member for Cardiff, South-East and at times he is not very much worth listening to.

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

Would the hon. Gentleman tell us what proportion of the nationalisation was done by the Tories and what by the Labour Party?

Sir C. Osborne

I cannot, because I do not know. That was a fair question. All I am saying is that six main industries are already nationalised and that their assets are worth £8,400 million. In normal private industry, a profit of 10 per cent. on assets is about average. That would produce a profit of £840 million a year, every year. Of that, 55 per cent. would go in taxation, so that if these industries were run normally by private enterprise, they would be producing about £450 million a year in taxation to maintain the Welfare State. But since they have been nationalised they have not produced one brass farthing to help to pay for the social services. Therefore, if further industries are to be nationalised, from where would the money come which we now get from them for the social services? I am sorry that the Shadow Chancellor has now gone, because these are the questions which I want him or his leader to answer.

Mr. Dan Jones (Burnley)

On a point of order. It is not quite playing the game to make these references to the Shadow Chancellor, who has been in the Chamber for 2½ hours.

The Temporary Chairman (Mr. H. Hynd)

That is not a point of order.

Sir C. Osborne

If it was thought objectionable, I withdraw it; but these are the questions which the electorate is entitled to have answered.

A week last Sunday, the Sunday Express had a City article, over three columns, headed: Mr. Wilson says 'I have no plans to grab I.C.I.'.

Mr. Cyril Bence (Dunbartonshire, East)

Hear, hear.

Sir C. Osborne

I am much obliged. I will read the account of what happened at a luncheon at which the gentleman who hopes to be Prime Minister was present: The brandy was mellow. The cigars were the finest Havanas. It had been an excellent meal. Harold Wilson relaxed and told the tycoons round the table: 'I have no predatory interest in I.C.I.' It happened last week in the charming Queen Anne house where I.C.I.'s top brass discreetly entertain V.I.P.s. Why the Leader of the Opposition should want to be entertained discreetly I do not know. Chairman Paul Chambers, soon off on a trip to Russia, smiled and passed the brandy round again. I should jolly well think he did. I hope that hon. Members will take note of this: Quietly he reflected that, exactly two years ago, Hugh Gaitskell sparked off a major row in the Socialist Party with his promise at a private meeting that he would not nationalise I.C.I. Are we to have the same spark and the same row again? Mr. Wilson, for all his belligerence, clearly holds the same view as Mr. Gaitskell—a reassuring thought for I.C.I.'s 500,000 shareholders. The Opposition leader"— and I beg hon. Members to note this— who has been having secret luncheon sessions with all sorts of tycoons, was in an expansive mood.

Mr. Monslow

I am getting a little weary of the denigrating of our leader. After all, the hon. Member for Louth (Sir C. Osborne) has been to the Kremlin a time or two. How did Mr. Khrushchev entertain him when he was there?

Sir C. Osborne

I hope to be in Moscow on 1st May. [Laughter.] The electorate outside will not think this funny and they will want a serious answer to these questions. Why does the Leader of the Opposition—and I gave him notice that I would raise these questions—want to go to secret meetings with the great tycoons?

Mr. Sydney Silverman (Nelson and Colne)

: On a point of order, Mr. Hynd. For the guidance of the Committee, will you tell us what subject is under debate?

The Temporary Chairman

As I understand it, we are discussing the Budget Resolution. I suggest that it would be for the convenience of the Committee if we did not debate it by way of question and answer.

Sir C. osborne

While I accept the Ruling of the Chair, Mr. Hynd, it is new to me that a the hon. Member is not allowed to ask questions.

The Temporary Chairman

I was suggesting that the debate would be a little calmer perhaps if the questions were asked in such a way as not to Provoke interruptions from the other side.

Sir C. Osborne

I will do my best to obey your Ruling, Mr. Hynd, but we are entitled to know why it is that the Leader of the Opposition wants to go to these meetings with tycoons and do a deal behind the backs of his own party and of the electorate, upon whose votes he is depending to get into high office.

Mr. J. Griffiths

On a point of order, Mr. Hynd. A very serious statement has been made by the hon. Member for Louth (Sir C. Osborne) in which he alleges that my right hon. Friend the Leader of the Opposition has gone to secret meetings with tycoons and has made secret bargains behind the backs of his party and the nation. Would the hon. Member care to say that outside?

The Temporary Chairman

That is not a point of order for me.

Sir C. Osborne

All this is in print.

Mr. Jay

Further to that point of order, Mr. Hynd. The hon. Member for Louth knows perfectly well that there is no reason why my right hon. Friend the Leader of the Opposition should not meet the leaders of I.C.I. just as there is no reason why he himself should not meet Mr. Krushchev in the Kremlin. Nevertheless, if the hon. Member accuses a right hon. Member of this House of doing deals in secret behind people's backs, are you, Mr. Hynd, quite sure that he is in order?

The Temporary Chairman

I do not think that the hon. Member for Louth has made a statement that I could object to from the Chair.

Mr. J. Griffiths

Further to that point of order. The hon. Member for Louth has made a charge against a right hon. Member of conduct which is not only unparliamentary but even worse. He has made a direct charge. He is speaking under privilege but it is in the best tradition of the House of Commons that no hon. Member makes a charge of that kind against another hon. Member unless he is prepared to have the guts to repeat it outside and be brought to book.

Sir C. Osborne

Don't be so sanctimonious.

Mr. Griffiths

You are offensive.

Sir C. Osborne

You asked for that one.

We are entitled to know what other tycoons the right hon. Gentleman the Leader of the Opposition has met.

Mr. S. Silverman

Further to that point of order, Mr. Hynd. Earlier, I ventured to ask you what was the subject of the debate. You informed me of what some at least among us seem to have forgotten—that we are supposed to be discussing the Budget Resolutions introduced the day before yesterday. The hon. Member for Louth is talking about some lunches which, he says, my right hon. Friend the Leader of the Opposition may have had months ago in secret behind the backs of the electorate and about bargains that he may or may not then have made. What conceivable relevance can all these lunches, with their discreet conspiracies behind the backs of the electors, made months ago if at all, have to the discussion of the Budget resolutions introduced the day before yesterday?

The Temporary Chairman

It is customary, when the Committee is discussing the Budget Resolutions, for the debate to range rather widely and I think that the hon. Member for Louth was trying to relate this question to some financial background.

Sir C. Osborne

I am obliged, Mr. Hynd. The answer is quite simple. Hon. Members opposite say that the Budget is unsatisfactory. They are so sure that it is unsatisfactory that they think they will be elected the next Government. I, on behalf of the electorate, am asking them what their alternative is. I am posing the alternative to the Budget and am asking questions.

Mr. S. Silverman rose—

Sir C. Osborne

Oh, no.

Mr. Silverman

Further to that point of order, Mr. Hynd. You were kind enough to try to explain why the hon. Member for Louth's remarks were in order. He has just proved positively that none of them was in order. None of these proposals that the hon. Member thinks he has discovered can have anything whatever to do with an alternative Budget. His remarks are not about the Budget at all. Nationalisation is no part of a Budget and never has been.

The Temporary Chairman

As I have already said, it is customary for the debate to range rather widely. I have heard nothing yet whereby I could rule the hon. Member for Louth out of order.

Sir C. Osborne

I am obliged, Mr. Hynd. What is extraordinary is how little hon. Members opposite are prepared to face straightforward questions.

Mr. Silverman

It is a cowardly libel and nothing else.

Sir C. Osborne

I am prepared to ask again. Were these other tycoons sought out by the Leader of the Opposition or did they seek him out to go and talk to them? We are entitled to know. Did they make promises to him as to what would happen with their businesses under a Socialist Government? Did they exchange promises? If so, could we know what they were?

Mr. Silverman

Further to that point of order, Mr. Hynd. For the last fifteen minutes the hon. Member has been making a violent and bitter attack on the Leader of the Opposition. May I ask whether he followed the usual courtesy of the House of Commons and gave my right hon. Friend notice that he would do so?

The Temporary Chairman

The hon. Member for Louth indicated that he had informed the Leader of the Opposition, but I do hope that the hon. Member will now come more directly to the subject of the debate.

Sir C. Osborne

I would have got through this long ago if I had been given a courteous hearing. I am not prepared to be shouted down from the other side. The article in the Sunday Express went on to say—and this has not been repudiated—[HON. MEMBERS: "Why should it be?"] If it is wrong, why has not the Leader of the Opposition done something about it? The article went on to say: He surprised the table, which had expected him to be very much anti-big business, by a vigorous attack on Britain's numerous small firms. In particular, he singled out the engineering industry. It needed, he said, a complete overhaul. It was far too fragmentary. What was badly wanted was a whole round of mergers and amalgamations. A Socialist Government"— and this is relevant— would encourage take-over bids in this field. It would openly show preference for the bigger organisations. We are entitled to know what sort of bargaining is going on behind the scenes.

If hon. Gentlemen opposite win the Election, what do they propose to do about the Big Five banks? They do not disclose their profits; we have to estimate them. Last year, net dividends amounted to £16,466,000. As a general rule 55 per cent. of the profits were taken in Profits Tax and Income Tax. If the Big Five banks followed a cautious policy and paid out only half what they earned, I calculate that last year they paid the Chancellor of the Exchequer about £35 million.

One of the first Acts that was passed in this House when I came here in 1945 was the Act to nationalise the Bank of England. Since then the Bank of England has not paid a farthing in taxation towards the Welfare State. If the Big Five banks were also nationalised, how would a Socialist Chancellor make up the money that would be lost from them?

I understand that the right hon. Gentleman the Leader of the Opposition has also dined and wined with the tycoons of the insurance world. Does he propose to take over the insurance companies? If he did so, how would that affect the income available to a Socialist Chancellor? I looked up the details of the American business done by four of the leading insurance companies. Last year the Commercial Union Assurance Company Ltd. received net premiums of 134 million dollars and had assets of 330 million dollars. The General Accident Fire and Life Assurance Corporation Ltd. received net premiums of 132 million dollars and had assets of 321 million dollars. The Northern Assurance Company Ltd. received net premiums of 127 million dollars and had net assets of 250 million dollars. The biggest of the lot, the Royal Insurance Company Ltd., received net premiums of 298 million dollars and had net assets of 682 million dollars. Those premiums and assets bring considerable income to this country. They help our balance of payments and help the Chancellor of the Exchequer with his revenue. If a Socialist Chancellor were to nationalise the insurance companies, it is almost certain that all the big business from America would dry up. This is the opinion of people who know the industry. Are we prepared to throw away all that business?

Hon. Gentlemen opposite are pledged to nationalise the steel industry. In the last three years steel production has risen from 20½ million tons to 22½ million tons, and this year it is expected to reach 25½ million tons. It is a successful industry, and average earnings of the workers have risen from £14 6s. 0d. in 1959 to £17 18s. 0d. last year.

Mr. Mitchison rose—

Sir C. Osborne

Not again. The nation is benefiting from the increased output by that industry. Exports have increased, the workers are getting higher wages, and last year the nine largest steel companies paid £12,697,000 in tax. If this industry were nationalised that money would be lost to the Revenue.

Mr. Mitchison

May I try again?

Sir C. Osborne

No.

Mr. D. Jones

The hon. Gentleman should make sure of his facts.

Sir C. Osborne

I am asking questions.

Mr. Mitchison

The facts are that since the industry was re-transferred to private ownership steel production in this country has compared ill with that in other countries. The facts are that the main developments in this country—and I am speaking about a steel plant in my constituency—are oxygen processes, L.D. and the others, which were invented and first applied by a State-owned company in Austria and have been adapted here. It is untrue to say that the steel industry in this country has been successful by comparison with those in other countries.

Sir C. Osborne

That is an irrelevant interruption, because I did not say that it was successful compared with other countries. I did not mention other countries. That intervention was unfair and irrelevant. [Interruption.] It is a pity that the hon. Gentleman does not wash his ears a bit more often. No, I withdraw that.

When Mr. Gaitskell was alive he was the champion of the Right-wing of his party and the present Leader of the Opposition was the champion of the Left-wing of it. If hon. Gentlemen opposite get a big majority at the next election, will they take a great lurch to the Left, which Mr. Gaitskell would not have allowed, and will that affect the proposals which a Socialist Chancellor will put forward as an alternative to the proposals in this Budget?

When I returned from the Inter-Parliamentary Union Conference in Switzerland, I read what had been said by the Young Socialists at their Easter conference on this question of finance. They passed a resolution calling for the nationalisation of land, the building industry, building supplies, building societies, insurance companies, and for a target of 750,000 houses a year, a tax on luxury dwellings, and rents fixed at 10 percent. of a worker's income.

Mr. Mellish

That is daft.

Sir C. Osborne

If the hon. Gentleman is saying that the Young Socialists are daft, I should like him to repeat it to them.

Mr. S. Silverman

My hon. Friend is saying that the hon. Gentleman is daft.

Sir C. Osborne

They demanded the nationalisation of all the basic industries. The Guardian reported that, and The Times in summing up the conference said that the Young Socialists, the Trotskyites had been making speeches and forcing through resolutions which would make Mr. Khrushchev look like a member of the primrose League.

Hon. Gentleman opposite are convinced that they will win the next election They are therefore honour-bound to try to answer some of the questions that I have posed If they do not they will be getting votes under false pretences.

5.29 p.m.

Mr. Dan Jones (Burnley)

I do not propose to follow the hon. Member for Louth (Sir C. Osborne) in what I consider to be an unfair attack on hon. Members on this side of the Committee. I take a leaf out of the book of my right hon. Friend the Member for Llanelly (Mr. J. Griffiths) and invite the hon. Gentleman, if he feels deeply enough about these matters, to repeat what he has said outside the House so that he can be impugned for his remarks. I have listened to the whole of this debate. Hon. Gentlemen opposite usually resort to invective when they reply to the honest criticisms which Her Majesty's Opposition are obliged to make.

On Tuesday evening—and I am only going to make a brief reference to it because the main burden of my contribution, which will be made from the trade union point of view will be short and to the point—the following remarks were made by the hon. Member for Ilford, South (Mr. Cooper): I see one or two hon. Members opposite who represent constituencies in Scotland, the North-East and the West of England, where there are certain unemployment problems at this time. For some months they have been saying that these problems arise from Government policy, but in fact that is not true. What has happened—and this is where hon. Members opposite carry a very heavy responsibility—is that the Labour Party has no longer any sort of control over its paymasters, the trade unions, and the T.U.C. has no control over individual unions."—[OFFICIAL REPORT, 14th April, 1964; vol. 693, c. 311.] In view of what we have experienced this week with the Post Office workers and the T.U.C., that is an outrageous utterance to make. I would warn hon. Members opposite that if they took trade unions from the industrial and economic life of the country they would leave a vacuum that could well be filled by anarchy.

At some time or other it would be very refreshing if a senior Minister were to say from the Dispatch Box opposite that he dissociated himself and the Government from such most irresponsible utterances.

Mr. R. Gresham Cooke (Twickenham)

To be fair to my hon. Friend the Member for Ilford (Mr. Cooper), I think that the next sentence in his speech should be quoted, where he said: We have lost millions upon millions of pounds worth of orders in the North-East and North-West of Scotland for shipbuilders."—[OFFICIAL REPORT, 14th April, 1964; vol. 693, c. 311.] Then he went on to speak about the boilermakers. He was obviously referring to demarcation disputes which had held up British ships and given the British shipbuilding industry a bad name, for which the unions must surely have some responsibility.

Mr. Jones

I will make reference to that. I said that I was going to make a very brief reference to the matter, because my hon. Friend the Member for Nelson and Colne (Mr. S. Silverman) was correct in what he said—it is not germane to the discussion which should now proceed.

I want to refer to the Economic Report for 1963 which I think is germane to the argument under discussion, and here I would quote from page 2: The Chancellor stated the aim of his Budget as 'expansion without inflation.' His Budget proposals were aimed at stimulating demand in ways designed to ensure so far as possible not merely expansion but expansion that could be sustained. I really believe, therefore, that the first comment to be made about the Chancellor's Budget is that he has failed, because we have the evidence that the Chancellor has clawed back from that section of the community least able to afford it £103 million. I believe it is fair to ask whether, were we not in the penultimate stages before a General Election, that £103 million would not have been very considerably more.

Mr. Green

I am grateful to the hon. Gentleman for giving way. I want to be quite sure what he is saying. He said that the Chancellor proposed to increase taxation by £103 million and to get it from the people who could least afford it. Does he mean from them exclusively?

Mr. Jones

No.

Mr. Green

I am grateful to the hon. Gentleman, but that was the impression which his words conveyed.

Mr. Jones

I did not say that, nor did I mean it. I said principally from that section of the community.

Mr. Green

I am sure the hon. Gentleman would agree that the habit of smoking and drinking spirits and beer is very widely spread over all sections of the community.

Mr. Jones

Yes, except that a cigar smoked in the Carlton would cost as much as the cost of a month's supply of tobacco for a pensioner.

I will, if I may, go to page 6 of the same Report, which says quite clearly: The chart below shows that the United Kingdom share of world exports of manufactures fell from about 18 percent. in 1958 to about 15 percent. in 1962, but there was little further decline in 1963. It is important to note that there was a decline. I believe that that is really the nub of the whole argument. I do not think that any hon. Member on this side of the Committee disputes the fact that exports are increasing. What we say is that they are not increasing enough. We say, further, that the Labour Government, who were frequently maligned by hon. Members opposite at a time when the difficulties of Government were far greater than they are today, were, in fact, top of the league in Europe for exports, whereas now we are nearly at the bottom.

These figures, which, incidentally, I would remind the Committee are contained in a Treasury Bulletin, give us the right very properly to criticise the Government inasmuch as the anticipated ability of a manufacturing nation such as ours to develop exports has not accelerated at anything like a satisfactory rate. As I say, that statement is contained in the Economic Report for 1963, and for that reason I believe that it is completely reliable.

There is another factor which is the nub of my contribution to this debate. I have already said that I am making this contribution mainly as a trade union leader. There are 10 million trade unionists in this country. These people are the main producers. We in this Committee can talk as much as we like about the economy of the nation, but unless and until we secure the co-operation of these people who are the actual producers we may, I suggest, argue in vain. As a consequence, I ask the Committee to believe that it is right and proper that their voice should be heard.

I make the point that it is not only a question of our ability to export but also a question that we should import into this country only those things which we cannot ourselves properly manufacture. I am going to talk about the Teesside and the whole of the Merseyside because I want for a moment or two to deal with the importation of machine tools into this country and to relate that matter, if I may, to the engineering industry, about which I know a good deal. In turn, I am going to relate these two problems to the need to train our young people as engineers—something which the Government are failing to do—and to show that it is distinctly possible to break away from the position in which we have been for 12 or 13 years where the balance of payments has always been a matter of very serious misgiving.

I will quote the importations of machine tools. In 1959 the value of machine tools imported into this country was £13.1 million; in 1960 it was £19.1 million; in 1961 it was £27.6 million; in 1962 it was £27.6 million, and in 1963 it was £26.3 million.

It will be clearly seen from those figures that imports of machine tools have increased remarkably. I can well remember, in 1958, going to the present Chancellor of the Exchequer, who was then President of the Board of Trade, in connection with a firm of tool makers in the South Wales Valley, which was employing ex-miners. Those miners had done a great job in making tools, and they had a very good team of apprentices. I remember asking the then President of the Board of Trade to preserve this factory, which looked like going out of industrial existence. My appeal was in vain. That factory, which had been making a handsome contribution to the technical well-being of the nation, has gone out of existence. I know for a fact that for at least a year or two after that none of the apprentices was able to secure a position in the engineering industry. That is a massive indictment of Her Majesty's Government.

I want to draw attention to a report which appeared in yesterday's Financial Times, which said that One of the largest machine tools of its type in the world, and the largest in the United Kingdom, has been installed in the main engine shop of Cammell Laird and Co. (Shipbuilders and Engineers), at Birkenhead. I ask hon. Members to note the following passage in the report: It is a heavy universal milling, boring, drilling and turning machine built by the Italian firm of innocenti, and has been purchased by the Merseyside shipyard at a cost of over £300,000. Initially it will replace at least five existing machines, and possibly more, when it becomes fully operational. The final paragraph says: The machine is to be fitted with electronic control pre-positioning and tape control equipment, manufactured by Coleman Systems Incorporated, California, which will reduce positioning times and minimise the possibility of errors. I have discussed this machine with the Amalgamated Engineering Union. I have worked in engineering for many years, both in machine shops and tool rooms, and I asked the union's research department and technicians to tell me whether they thought it possible for us to produce machines of this kind. These men keep abreast of developments. They are of the opinion—and I spoke to them only this morning—that we could produce such a machine.

I want to show the Committee what a sad drop there has been in the number of engineering apprentices. In 1957 there were 21,645. Despite the fact that for the last 10 years we have been talking about the problem of training our young people to do the type of work to which I am referring, the intake in 1962—five years later—was 19,778. That was a decrease of nearly 2,000 in five years.

Our criticism is fair and just in the light of the fact that a great number of young boys and girls who seek to make a contribution to industry in this way every year are denied an opportunity to do so. I suggest, with a sense of dismay, that we must face this situation. The Chancellor expanded himself volubly about gambling in his Budget speech. He talked a lot about the betting tax, football pools and so on, about which I know very little, and want to know less. Yet the question of training our young people to do these jobs was dismissed by him in one line of his speech.

Mr. Gresham Cooke

The instance that the hon. Member has given destroys his own argument. He has given us a description of a highly sophisticated and elaborate machine which has been bought from Italy and which was not in production in this country. If he looks at our machine tool exports he will see that we are exporting certain types of machine tools to countries all over the world, in exchange for elaborate machines of the kind to which he has referred.

Mr. Jones

There is a certain logic in what the hon. Member says, but I ask him seriously to consider the inference behind his words. Many of our engineers will read into those words the inference that machines of the type to which I have referred, which are of advanced design, are beyond the capacity of British engineers to produce. That suggestion I flatly reject. If any words uttered by my right hon. Friend the Leader of the Opposition have fired my imagination they are his reference to the fact that we were once the shopkeepers of the world; that we can scarcely be that any longer, but that there is no reason why we cannot become the tool room of the world. That is a challenge that we should accept.

We should have a go. We might fail, but the nation would applaud us if we tried adventurously and in a bold spirit and failed, rather than if we accepted the situation as it is now, when we have hundreds of thousands of young people who want to get away from dead-end jobs but cannot do so. It may be that we do not have a sufficient number of technical schools, but we have enough to produce the kind of technician that we require. I speak with all sincerity, and with no personal invective in respect of any hon. Member opposite, but I believe that unless this job is tackled as it could be, and unless we give our young people a chance, there is no doubt that the present unsatisfactory situation will be perpetuated.

It is for that reason that I consider the Budget to be an irrelevant document, from a man whom I normally consider to be highly relevant. I regard him as a most able man. I tell that to my constituents, even if they think that I am guilty of some kind of back-scratching. The Chancellor is a most able man, and I am surprised that such an irrelevant document could come from him, when he can think so cogently about vitally important problems.

The point upon which the Chancellor laid the greatest emphasis, and in respect of which he became more forthright than at any other time, was the question of holding down costs to 3½ percent. if the 4 percent. increase in our economy was to be maintained. As far as the right hon. Gentleman went, there was a certain amount of logic in his argument. I am sufficiently aware of the facts of our industrial economy to know that we can price ourselves out of Continental and world markets. I do not want us to do that.

What the Chancellor said was not wrong, as far as it went, but it did not go far enough. If he is prepared to say that his proposals will cover all incomes, and all rents, and that it will follow the laying down of a just social system, the trade unions will listen with a greater degree of, sympathy to what he has to say. But we must not forget that at the moment it is very easy for the trade unions to remember 1961, 1962, and the early part of 1963. They can remember the Chancellor taking away orange juice and cod liver oil from our children and, at the same time, giving over £80 million in tax relief to Surtax payers. Can we imagine a more iniquitous act? That is one of the reasons why trade unionists are properly suspicious of any Tory Chancellor who requires this contribution from them while other sections of the community do not make nearly as large a contribution to the economic welfare of the country.

How much does a land speculator contribute to the economic life of this country? How much is contributed by a rent racketeer? These things are germane to this Budget. We may argue academically, but in the end we are brought back to the question what is said by the people who produce? It is my proud task to represent such people and I believe that there would have been a vacuum in this debate unless someone had spoken on their behalf. They are saying, "Why should we make this contribution, which we know is necessary, unless we are certain that we do so in a fair industrial and social climate?" I know that on both sides of the Committee there are hon. Members who know more of the economic problems of the country than I. But I feel that there is a crying need for new economic policies from the Government, and I believe that unless the Government are prepared to endorse and carry out such policies boldly, they should make way for another Government, because these Problems have to be solved and they will not be solved on the basis of this Budget.

5.52 p.m.

Mr. R. Gresham Cooke (Twickenham)

We have listened to a speech from the hon. Member for Burnley (Mr. D. Jones) which was sincere, and which contained much food for thought. But I could not help feeling that most of his remarks were not relevant to the 1960s. So far as I could follow him, the hon. Gentleman said that we ought not to import anything which we could make at home. If we proceeded on those lines, we should ruin world trade. We sell motor cars to the United States of America, to France, Sweden and Italy and a large number of places where cars are made.

The hon. Gentleman instanced machine tools. But until we have in this country a machine tool industry which is perfect and able to produce a whole range of tools, from the simplest drill and saw to the most sophisticated computer and electronically-controlled machine, such as he mentioned, we have to import tools. We do export specialist machines to Germany and the United States of America, and we have to import a number of specialised machines.

Mr. D. Jones

I do not think that the hon. Gentleman should read more into my words than I meant. We should not, in my opinion, import those things which we can manufacture. I ask the hon. Members to recall that the Lancashire textile trade has been ruined because of imports. No country in the world now imports textiles from Lancashire if it is possible for that country to manufacture its own. We must remember that charity begins at home.

Mr. Gresham Cooke

I cannot help feeling that—as in the speech of the right hon. Member for Battersea, North (Mr. Jay)—there was in the speech of the hon. Member for Burnley much that was redolent of the 1930s. It contained a great deal of protectionism and national Socialist autarchy—"we can only buy and sell among ourselves." This is 1964 and we are living in a free trade world. With the Kennedy Round coming off, we hope that the world will be even freer in respect of trade.

The rest of the argument about the Budget seemed to centre round the important point whether we should have more direct or indirect taxation. This was discussed by the hon. Member for Cardiff, South-East (Mr. Callaghan) yesterday. What was not mentioned was that the total Budget revenue from the gross national product has gone down substantially since 1951 so that the burden is considerably less on taxpayers generally.

How we spread that burden is a matter for argument. I believe that the public would rather pay taxes through indirect taxation than through direct taxation; that is, broadly speaking. People would rather pay £100 million on their drink and cigarettes than have direct taxation such as an increase of 6d. on Income Tax, because that would seem to be the choice. If a man objects to paying an increased indirect tax in that form, he does not have to smoke or to drink.

Mr. Brian O'Malley (Rotherham)

Would not the hon. Gentleman agree that people paying a considerable amount of Income Tax might not object particularly to rises in the price of cigarettes and beer, amounting to 4d. and to 1d., because of their financial situation, and that people in lower income groups, particularly old-age pensioners, would object strenuously to the imposition of a tax which would fall hardly on them, since they are the people least able to afford to pay such taxation?

Mr. Gresham Cooke

That is the whole argument, whether taxation should be indirect or direct. I say that the majority of people prefer an indirect method of taxation. We all look at this matter subjectively.

I listened with interest to a radio recording made recently of a conversation in a public house. The commentator asked of a man who was drinking a pint of beer, "What do you think of the Budget?" The man said, "I think that it is a terrible hit at the working class because it puts a 1d on a pint of beer". The commentator said, "What about the 3s. on a bottle of whisky?" The man said, "This does not matter, I do not drink whisky." As I say, we look at the whole thing subjectively.

One part of the speech of my right hon. Friend the Chancellor which attracted me has not been mentioned in the debate. He referred to some form of contractual savings scheme which would be introduced through the National Savings Movement and would give an incentive to sustained saving over a period of years. I take it that my right hon. Friend was referring to regular savings which could not be withdrawn before the end of a period and which would be available only by the purchase of Government stock such as National Savings certificates, and so on.

I wish to draw attention to the need for another type of saving which is required in the national interest. We want savings of capital for industrial purposes and for investment in British industry. I hope that the hon. Member for Burnley will agree with me.

Mr. D. Jones

Yes.

Mr. Gresham Cooke

In my view, the need for that is as important as the need for national savings. Everyone in industry wishes to expand. That cannot be achieved only by means of profits. There must be a call on the public for additional finance from time to time. When a new company is developing a new product it does not make great profits and has to call on outside investors for assistance and for initial finance.

I commend to the Chancellor the need to extend his thoughts beyond National Savings and to try to think of a contractual savings scheme the proceeds of which might be available to British industry and which perhaps would enable a small saver to have a stake in that industry.

Here, I declare an interest. I have recently been appointed to take the place of my hon. Friend the Member for Halifax (Mr. Maurice Macmillan), who is now the Economic Secretary to the Treasury, as Chairman of the Executive Committee of the Wider Share Ownership Council. Anyone who knows me will know that this is not a recent interest of nine. I introduced a Motion on this subject in the House about five years ago.

The savings habit is amazingly wide spread. It always amazes me to find the number of people who are able to make savings. There are 31 million with savings bank accounts of one type or another and 17 million hold National Savings Certificates. Personal savings have gone up from £100 million in 1951 to the amazing total of £1,800 million last year. The great bulk of this saving goes into Government stock, or is done through insurance companies or building societies. That is all very desirable, but, although the number of shareholders in industry has doubled since before the war and is today about 3½million, and the number of unit trust holders in the last six years has gone up from a quarter of a million to 1 million, that is still a small number compared with the 31 million savings bank holders.

It sounds substantial, but how does it compare with the position in America? I was looking at the figures for America today and I found that there there are 18 million share holders. While America has a population three-and-a-half times greater than ours, the number of its shareholder; is about five times the number of ours. The most extraordinary international comparison that my researches have revealed is that Japan, which many people regard as a low-wage country—almost a feudal country in many ways—has 4½ million shareholders. Form a report by the chairman of a Japanese company I have found that the number of stockholders has grown three-and-a-half times during the last 10 years and that the investment trust movement has had the astounding growth in 10 years of thirty-three times what it was. Anyone who follows the savings movement in America, and I expect, also in Japan, will realise that the growth there must be due to monthly and weekly payments into savings schemes introduced to enable people to buy stock through mutual trust companies and other companies of that nature.

There are two ideas I want to put to my hon. Friend the Economic Secretary to pass on to my right hon. Friend for his consideration and to be taken into account with the National Savings schemes he has in mind. First, if one takes out a life policy or an insurance policy to provide a pension one gets a tax allowance of, I believe, two-fifths of the premium.

I suggest that in future it would be desirable for any contractual scheme of savings over a long period such as 12 years to have the premiums also allowed for tax and not only for life insurance or pension schemes. That would be complementary to the national savings scheme.

Mr. Bruce Millan (Glasgow, Craigton)

On his first suggestion, does not the hon. Member appreciate that the effect would not be so much to stimulate the total amount of savings as simply to transfer savings into these tax-free channels? That is the whole fallacy behind the kind of argument that the hon. Member is using.

Mr. Gresham Cooke

I do not think that that is so. People take out life insurance policies because they know that one day they will die and they generally take out a pensions scheme with a company or come into the State pension scheme. They do not do more for pensions, and after a certain stage they do not do more for life insurance. They might be attracted to put savings aside if they knew that when their children became 21, or married, they could have this kind of nest egg by which they could set up house.

The second idea I put forward is one by which one in five American companies has some form of company thrift scheme. The principle is that a man can have a payroll deduction not exceeding 6 per cent. of his salary or wages and for every dollar so saved the company puts aside at the end of the year 50 cents. Companies generally do so by way of adding company stock to the man's savings. Many companies in America go to the market to buy that stock to add to savings. An employee can have it put into Government stock if he so wishes.

In this country we might make it obligatory for employees to go into something very safe, such as Government or trustee stock, whereas the company contribution could be made in the form of shares in the company stock. The attraction of such a scheme is that the Government, employers and employees would be partners in a savings scheme. Everyone becomes a little part owner of the business in which he works. We all agree that that must be desirable. It is desirable for the reason that even if hon. Members opposite get into power no one can visualise more than 25 per cent. of British industry being nationalized; 75 per cent. will still be run under free enterprise. Surely it is desirable for those in that 75 per cent. of industry to have a chance of owning a stake in the firm in which they work.

Sir D. Glover

My hon. Friend is wrong. Nearly 30 percent. of the national product, if we take into account the services of coal mining, electricity, and so on, is nationalised.

Mr. D. Jones

Would the hon. Member for Ormskirk (Sir D. Glover) speak up? We cannot hear what he is saying.

Mr. Gresham Cooke

My hon. Friend said that already 30 per cent. of the national product—I suppose, including the Bank of England—is nationalised. I am not quite sure that I can accept his figures, but we have now had the admission that I.C.I. is to be left outside the nationalisation net. I should say that not more than 25 per cent. of productive industry is ever likely to be nationalised.

Our Budgets can be used for social purposes such as these. Budgets are not merely accountancy machines. We take great trouble in making financial arrangements to bring about equity between one taxpayer and another and to relate direct to indirect taxation. We have social purposes in mind. I think that the two ideas I have put forward, although they may be long-distance ideas, would provide social benefit in the long run. We can relate our tax ideas to social beneficial purposes such as these. They are ideas on which neither side of the Committee would disagree, because everyone agrees on the need for savings. We can tie up savings with long-term investment to benefit industry and employees.

6.10 p.m.

Mr. H. Rhodes (Ashton-under-Lyne)

I am glad that the hon. Member for Louth (Sir C. Osborne) noticed that I was going to reply to some of the things that he had to say, and I will reserve my reply until he returns to the Chamber. Meanwhile, I should like to refer to what was said by the hon. Member for Twickenham (Mr. Gresham Cooke). Some of his points were very good, but some were not so good owing to his lack of knowledge of the subject. He quoted what is happening in Japan. On the face of it, it would appear as if there were a real revolution and a departure from what has gone before. It is nothing of the sort.

Fifteen firms are responsible for the whole of Japanese industrial exports and imports and five of those control 70 per cent. of the total. The system of wage payment is, first, a subsistence payment followed by a payment every six months according to how the firm has prospered. There is also a good deal of discipline to persuade workers who are thrifty to put the money back. The method of raising finance in Japan is different from that of any other capitalist State in that when money is required for a new object it is usually created and lent through the banks to the concern that applies for it. The hon. Member's ideas, therefore, do not apply to that country.

I have no comments to offer about the relevance or, as Perry Mason puts it, the irrelevance or misleading statements or ambiguity about what happened on Tuesday when the Chancellor of the Exchequer gave the news about the £100 million because I have lost faith in my oracle. When the present Leader of the House was Chancellor of the Exchequer I had an oracle. He was a gamekeeper who used to say to me, "I can tell when there is a credit squeeze coming much quicker than Selwyn Lloyd can". When I asked the reason he said that he observed from his hilltop that a private bus full of workers would climb over the hill and go over the other side and a similar bus would be coming from the other side full of workers to take their place. He said "This is the time when we shall have a credit squeeze".

In 1955–56 he was plumb on, and in 1959–61 he was dead right. Therefore, knowing that the Budget debate was due this week I went up the hill to consult the oracle and I asked him the same question. He said, "Well they have pumped up the tyres of the buses and they are running and there should be a credit squeeze coming on, but I do not understand this chap Maudling as I understood Selwyn Lloyd. He is more mysterious". So I am puzzled too.

Now that the hon. Member for Louth has returned to the Chamber I want to say to him that we enjoy his interventions. I say that without patronising him. He needs no patronage. Sometimes the hon. Member reduces the House or the Committee to a bear garden. He nearly empties it and leaves us for the rest of the day very often at a loss. He criticised the Leader of the Opposition in extravagant terms which, on reflection, I think he will regret In what he said there was a touch of arrogance which he might have borrowed from others of his colleagues in suggesting that hon. Members on this side of the Committee must be precluded, by the very fact of their upbringing or their class or their associations in the past, and must be so pinned down that they cannot consort with the best brains in the land. That is how hon. Members would have it.

Mr. Bence

That is how it comes over.

Mr. Rhodes

Yes, that is how it sounds. I pay tribute to the hon. Member for Louth for the work he has done in other fields I give him a pat on the back. I do not think that it is appreciated in this Committee how much the hon. Member has done for Anglo-Soviet relations. I say that sincerely, just as I am condemnatory of certain things which he has said today.

The hon. Member asked two questions. I will answer the first, and the reference to Attlee, Cripps, Bevin and the rest. The hon. Member said that in their time the wage freeze was not successful and he asked how we could be expected to introduce one.

The wage freeze which was introduced by Sir Stafford Cripps saved this country. It enabled us to export at a time of great difficulty when the resources, limited as they were, had to be marshalled and mobilised to do that job. We also had the great difficulty of the Korean War and the chasing of our ships up and down the American seaboards with empty bottoms in the hope that we might have a little pittance from the Americans who were starving us of raw materials. I have the figures in my head for most of the commodities, but I will not waste time in giving them now.

Then the Tories came to power and this was the making of the Tory Party. As a result of what Cripps and Attlee had done the company reserves were large and this enabled a new vista to appear over the commercial scene when it was possible to have new flotations and for the Stock Exchange to get cracking. This was the guts of the loyalty of back-benchers opposite, because in sitting for so long on this side of the Committee I have always noticed that morale is at a low ebb on the Tory side when Stock Exchange prices are going down.

Mr. Gresham Cooke

They are going up now.

Mr. Rhodes

That is why the hon. Member's spirits are going up for a bit.

Mr. William Shepherd (Cheadle) rose—

Mr. Rhodes

I cannot give way now. I have a lot to say. Indeed, I have not started yet.

We shall not make the same mistake twice. This will not happen again. After all the suspicions and dragging of feet that has gone on since that time, we always come back to this question: if we have a wage freeze, will the people who are interested in the Stock Exchange again cream off the benefits? That is a serious point.

With regard to the next question of the capital gains tax, one of the grave omissions from this Budget is any reference to the working of the present capital gains tax, its amendment and the introduction of a new type of capital gains tax to meet the needs of the times.

The Economic Secretary to the Treasury (Mr. Maurice Macmillan)

I am sorry to interrupt the hon. Gentleman, but, on a point of fact, my right hon. Friend the Chancellor of the Exchequer did refer to the fact that the figures for the short-term capital gains tax were not complete and, therefore, there is not enough information on which to form a conclusion yet.

Mr. Rhodes

When the last capital gains tax was introduced by the former Chancellor of the Exchequer he gave an undertaking that its incidence would be reviewed in 12 months' time. We have not had that review.

Mr. Macmillan

That is exactly the point. We have not got the 12 months' figures yet.

Mr. Rhodes

We understood that they would be available this year. However, I will not dispute this point. I will accept what the Minister has said as an explanation.

Let us consider its impact on the present situation in terms of an incomes policy which we all desire, in all quarters of the Committee, with all our hearts. Every Chancellor does. In all sections of our society we have embraced the Western idea of economic structure, mainly on American initiative and example, with all the things which follow after whether monopolies or r.p.m. or on the use of the motor car as one of the real economic regulators of the time. Now all the Chancellor needs to do is to introduce his brake in terms of hire-purchase deposits and the whole of the economy starts to run down. It has now reached the point at which he was aiming when he was at the Board of Trade, when he pressed for the enormous expansion of the motor car industry on Merseyside, in Scotland and elsewhere, until the motor car is now one of the pawns in the game.

All over the Western world there is the same thinking in the unions, too. But the priorities are different. In America, the unions bracket the priorities of production and wages, with welfare and well-being a long way down the list, judging from some of the factories that I have visited. In Russia, when the hon. Member for Louth and I were there last May, we found that the first priority of the Russian union was productivity secondly well-being, and, thirdly, wages. In this country wages come first, followed by well-being and then productivity.

It is the desire of everybody, including the union leaders and the T.U.C., to get this order of priorities reversed. They are all working for it. How are we able to give some help to the people who matter, who are really trying to persuade and educate people to see this problem along Western, forward-thinking lines?

Sir C. Osborne

While the hon. Member is on this point, will he tell the Committee what happened to us in the steel works in Leningrad on this very issue?

Mr. Rhodes

I do not mind. There is all the evening in which to speak. In fact, if I speak as long as I have been waiting, I shall speak for a very long time.

We met the principal Communist of Leningrad. He was also the managing director of the 22nd Congress Engineering Works. The day after we arrived there he invited us to visit his engineering works in which 15,000 workers were employed. We went into the factory with him, and as soon as the boss walked in, off came the caps. Of course, they even put them on again. They were working well. After a time I said to the managing director, who spoke perfect English, "How is it that these chaps are working so well?" "Oh", he said, "profit". I said, "I beg your pardon?" He said, "We are on profits here now. This factory is scheduled on the basis of 22 per cent. profit. Six per cent. comes back to the workers in the form of welfare, clinics and the rest."

I thought to myself, "This cannot be the answer", so I said, "Excuse me, but I do not think this is the answer. They would not work as well as they are for that." "No", he said, "I did not tell you all. If we make an extra profit, 80 per cent. of the extra profit comes back to the management and the workers."

I saw a man working at a bench and I asked him to come forward. He said that he was getting 50 per cent. on his wages in the form of a bonus. Was he happy about profits? My word, he was happy about profits! I asked whether he thought his boss was a good fellow because he managed to get a low profit schedule agreed to by Gosplan. He thought his boss was wonderful.

We went to lunch, at which the hon. Member for Louth was hobnobbing with the Communist leaders. He was not having a sherry either. The hon. Gentleman likes vodka too.[HON. MEMBERS: "Oh."] Of course, he does. We all do. We all sat down to lunch, and after lunch one of the Russians asked if I would propose a toast. I said that I would. I am sorry that this story is going on for so long, but I can assure the Committee that it is very interesting.

I got up and said that I was fascinated. I told them that I had found the Daily Worker on the dressing table when I had got up that morning and that, wanting to know a little about the Christine Keeler case, I had read it through from cover to cover. Among the items which I had read had been a leading article on profits in England, a diatribe on profits. I said, "I am mystified. I am only a simple man—I live on the hills—and I am absolutely bewildered. In England, the Daily Worker says, profits are wrong. Here they are all right."

I told them that I could not do better than ask them to drink a toast to high profits—which they did—and they nearly fell off their chairs laughing. The hon. Member for Louth said that he would tell the Labour Party when we got back that I had proposed a toast to high profits. But they asked me to propose another toast because the first one had been so good. So then I proposed a toast to where the profits go—but I could not get a smile out of the hon. Gentleman with that. Perhaps I can go on with my speech now.

I had got to the point of saying that the aims and objects of the unions were concerned with different priorities. Things are today in such a delicate state in terms of relationships between men, management and Government on this question of an incomes policy that something needs to be said in definite and plain language by the Government about justice being done and justice being seen to be done.

I ask the Committee to consider whether this point I am about to make is conducive to a proper consideration of an incomes policy. This is what was reported in the Observer of 5th January last, under the heading, "Cleaning up a textile fortune"— Few men had a more satisfying Old Year in the stock market than Mr. William Stricker, an unobtrusive but very bright businessman of 39. Last week, Stricker made known some unsurprising news. He had taken up his option on one million H. W. Phillips shares worth some £900,000—every penny of which was pure capital gain. The report goes on to say how it was done, and towards the end we read: Making the big money involved in his 1963 killing leaves Stricker unmoved. In another part of the report is the comment that Stricker is strangely unenthusiastic about textiles, and Stricker is reported as saying: It is a volatile trade. I do not like volatile trades. Is that sort of thing right or is it wrong? Is it not reasonable to expect that the Government of the day should take action so that it cannot go on? If he can avoid it, this man does not intend stopping in the trade at all. But think about the scores of thousands who have been born and bred in it, who have been brought up in it, whose very living it is, and a living put in serious jeopardy by competition from abroad. They see this man come out into the open with action of this sort, scooping off £900,000 without doing anything for it or working for it. No wonder the people of Lancashire, when they see this sort of thing, sardonically say, "It is a damned sight better than working". This is why I answer the hon. Member for Louth and say that, of course, we should put a capital gains tax in the places where it is needed. And this is one.

Now, a few words on a more technical matter. The ones who think that I shall be boring about it can now leave the Chamber. In his Budget speech the Chancellor said: I know of no country in the world which gives so great a tax incentive to the installation of modern equipment, and I believe that if it should be true that businessmen are, in any cases, still reluctant to buy the most modern machinery we look beyond the tax system for the reasons. At another point, the right hon. Gentleman said: There is only one effective answer to growing imports of manufactures: to produce more and more efficiently ourselves in competition with imports and to expand our exports."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 257 and 260.] The very industry which I have been talking about is one of the industries which has been climbing through its difficulties over the years, and is at the moment having a desperate struggle to survive.

I wish now to comment briefly on those two observations of the Chancellor. I shall refer to manufacturing investment. Of all the subjects mentioned in the Budget, in the discussions leading up to it or in our economic debates, there is not one more important than this. There are two sorts of manufacturing investment possible, one for expansion and one for real productivity by doing more on the same floor space by better machinery. We had two peaks in capital equipment investment, in the "stops" and "goes" of 1956 and 1961. The boom brought out the demand for plant and machinery, quite naturally, just as it brought out the demand for more wages, encouraging the wage drift which has gone on. These two parallel processes can be seen if one looks down the graphs which appear in the Economic Report published just before the Budget.

We made the investment, and, just at the time when a lot of the machinery ordered in the last boom was being delivered, what happened?—a 7 per cent. Bank Rate, the credit squeeze, the 10 percent. regulator, the paraphernalia of devices to hold down consumption, the calling for special deposits, and the like.

The effects of this discouraged the manufacturers. They discouraged the people who make the machinery for the manufacturers. No development is consistently possible unless there is a steady current of trade coming through to these firms. If a firm is prepared to develop on the basis of steady trade, it cannot do so if it is pushed as hard as possible to deliver orders when it has them and then has nothing to do and faces disaster and possibly bankruptcy when there is a credit squeeze.

I have always felt that the investment in capital machinery in 1959–61 contributed very little towards the growth of the economy during 1962–63. I am not alone in this premise. Those in the office who produced the Economic Report for 1963 were also mystified by it, because they said: What has been happening in 1963 is not fully clear; in particular, the change in the labour Force and the underlying growth of productivity are matters of some doubt, partly because some of the key figures may be revised later. They are not sure, and the problem is discussed more fully in paragraph 3 for those who want to read. My conviction is that the investment which took place in 1961 was because of the sudden upsurge given to the economy by all the devices put into operation by Lord Amory when he was Chancellor of the Exchequer, when the Government were going, forward to the 1959 election. The result is that there has been a backlash of thinking in terms of it not happening again to the same extent.

During the whole of 1963 we have been in a muddle about whether the increase in the use of productive capacity has contributed fully to growth, because it is impossible to tell what is production and what is productivity. I define production as bulk manufacture and productivity as doing more on the same floor space with less labour. Now manufacturers are a little more chary after their 1962 experience and they are being a bit more choosey about what they are buying.

That in part accounts for the Chancellor of the Exchequer's statement on Tuesday that a large element in the import bill was in respect of imports of new machinery. I do not grumble with that. As I have said many times in this Chamber, the British manufacturer must have access to the best machinery in the world. But it is sad to think that this machinery is not being made here. Until we have a steady investment policy which people can trust, we shall not have the technological processes of which we are capable and which we deserve.

May I ask the Chancellor of the Exchequer the 64,000 dollar question? Why is it that this country is spending more on research and development than any country in the world, with the exception of the United States, in proportion to the gross national product and yet we are at the bottom of the table of growth? The answer is obvious if one takes a worm's eye view from the factory floor. I believe that we are devoting research and development to the wrong things. If any hon. Member wishes justification for what I have just said, let him go to the Vote Office and get the report which deals with the spending of public funds on the Ferranti case. If half that money had been available to one of the industries which has been fighting over the last few years to make technological progress, namely, the cotton industry, the situation would have been different.

Our priorities are wrong. Let me give an instance of a wrong priority. Some years ago the D.S.I.R. gave a grant of £100,000 to the Shirley Institute for the development of a system of spinning which would make the operation automatic. After accepting the grant, it farmed out part of the development to a machinery firm. The development went slowly. The Government made no check on the speed of the development. They left it to the developers to go at the speed they liked. They reached the point where it was almost feasible to put a pilot plant on the factory floor. They had been preceded by the Japanese, and there was level pegging by the Russians on a similar project.

During the final stages of the development, the Government brought forward a Bill to reorganise the cotton industry by which they asked that public money should be poured out for assistance to the cotton industry—in an election year. No question was asked about how far the developers had got with the project. No question was asked of the Shirley Institute about whether it needed another £100,000 to force the development through so that it would be ready for this phase of re-equipping. So millions of pounds of public money were poured out on conventional machinery.

This is stupidity. It shows that the Government had no understanding of the situation. If we had had an intelligent Government administering the job, it would have been perfectly possible to have brought out a new system of spinning which would have been a break through and a godsend to Lancashire. We were nearly ready to have a pilot plant here when in a mill at Hamamatsu the Japanese had one of these new plants operating alongside a conventional plant in one of their mills.

The trouble has always been that in a time of boom one automatically buys the machines available at the price the manufacturer wants to charge and when he is ready to deliver them. We know all this by heart so I will not delay the Committee by repeating it. With a properly organised system to study investment in manufacturing industry—along with the proper technological development—there is no doubt that we could again make history in the manufacture of goods.

The N.E.D.C. has done a wonderful job and has brought important ideas to the forefront. I hope that some of them will crystallise. But we should not appoint little N.E.D.C.s. first to go in for discussions on a lesser plane. They should be a task force with the agreement of the unions and employers and with the powers to sort out the difficulties so that plans are intelligently put in hand.

I wanted to say a word about exports but I think I have spoken for long enough. However, I make no apology for doing so.

Sir D. Glover

One is not needed. The hon. Member is making an excellent speech.

Mr. Rhodes

Thanks. We are all fond of quoting figures, many of them meaningless. First, we must have a high ratio of exports to the national income. Hon. Members can sort that out for themselves. In the nineteenth century we achieved that high ratio. At that time we had sufficient technological advance to keep us ahead. By accident the textile industry did the job for Britain and we succeeded in building up a very high ratio of exports to the national income. Today technological achievements in various parts of the world are nearly universally developed and the prospects of our being able to export with a big enough ratio to the national income have therefore been lessened.

The N.E.D.C., the Treasury and the Board of Trade should set up an organisation to assess world trade in every manufactured and semi-manufactured commodity in which Britain has an interest. That having been done, our share of the world's trade in each commodity should be assessed and rated. If trade in a commodity is rising, our share must rise. If our share in a manufacture is high and world trade is declining in it, the full weight of our technological resources should be turned on that commodity so that we may hold our own.

Sir C. Osborne

During the second part of the last Socialist Government the hon. Gentleman was an Under-Secretary at the Board of Trade. He knows that immediately after the war a manufacturer's allocation of raw materials was governed by the Board of Trade according to the amount of exports achieved. That worked well in an age of scarcity, but does he consider that it could work again in present circumstances? Is that what he is advocating?

Mr. Rhodes

I would not like to answer that one way or the other off the cuff. I can only say that there are parts of British industry which do not need a fillip in terms of research and development. The new industries already have sufficient. Industries making goods with nylon, terylene, silicones and other new processes like floating glass and so on can look after themselves. The older industries are finding the greatest difficulty in holding their own.

I can speak with personal experience of the wool trade. Our trade is up from £160 million to £166 million this year compared with last and we are doing a good job. Nevertheless, we need technological assistance to help us with new processes so that we may take advantage of what world trade there is in wool.

If our share of world trade in a certain commodity is declining we should decide its importance to the home market, or otherwise get out. The Japanese are doing this and are getting out of their declining trades. They base their activities on this system and are showing the world how to go about getting more world trade in exports. I believe that there is nothing to prevent us from doing the same because, as has been said on so many previous occasions, we have the skills and the brains to do it.

6.59 p.m.

Mr. William Shepherd (Cheadle)

I listened with considerable interest to the speech of the hon. Member for Ashton-under-lyne (Mr. Rhodes) and although he had some harsh, almost cruel, things to say about my hon. Friend the Member for Louth (Sir C. Osborne) earlier in his speech, they ended up on terms of almost nauseating affection. I am not quite clear which I prefer. I listened carefully to what the hon. Member said, particularly in relation to capital gains. I confess that I have some sympathy with his views, for I think that the time has come when some effort should be made by the Government to claw in some of the large profits made on the sale of land.

From the practical point of view, this has not been possible until now because had it been done previously this sort of thing would have happened. A land seller getting, say,£30,000 for his land would, if he thought that his money would be subject to a greater amount of tax, charge, say, £40,000. In the development period from 1957 onwards it has been possible to get increasing prices for land and I fear that had this step been taken earlier that trend would have been accelerated, with the resulting higher prices for land. However, the situation has now been reached where every development proposition which one gets—and I am concerned with this business—is doubtful, owing, first, to the very high price of land, and, secondly, to the high cost of living, and, therefore, one cannot obtain higher prices with the existing degree of market resistance for the final product. Therefore, there is no danger in existing circumstances of prices being forced up unduly high by virtue of a betterment tax.

Sir D Glover

I do not disagree with what my hon. Friend is saying; in fact, I go a long way towards agreeing with him, but surely there must be something wrong here. Is he really saying that people have been selling land for £30,000 when they could have got £40,000? Frankly, I do not believe that. Surely, if they could have got £40,000, they would have got it.

Mr. Shepherd

My hon. Friend is obviously not following me with his usual care and attention. The price which anyone would pay for land is governed ultimately by the price obtainable for the final product, bearing in mind also building costs. Up to now it has been possible to get an expanding price, an extending price, for the ultimate product. Now we have reached the situation where this no longer obtains. People are paying prices right up to the reserves of their income in buying houses. They are paying £3 a sq. ft. for offices in London. They will not go on paying these higher prices even in the centre of London. Now, as I say, there is a change in the situation, and a betterment tax could be put on without, in my view, attracting any serious increase in the price of land.

I hope that my right hon. Friend the Chancellor will pay some attention to this, because clearly it is socially and morally wrong for a man to have to pay very large sums of tax on his earned income while another man can make very large sums of money indeed through the sale of property without paying tax, since the increase in the value of land is determined entirely by the value of the end product which can be put on it.

When listening to the right hon. Member for Battersea, North (Mr. Jay) I was somewhat surprised. No one listening to that speech could suppose that there was a party poised on the brink of triumph. In fact, hon. and right hon. Members opposite really have nothing to say in serious criticism of the Government's handling of the economy. Theirs is a really pathetic attitude towards the problems of the present day. I do not want to make party political points because in the short time I have I want to try to deal with some of the fundamental problems.

I think that my right hon. Friend the Chancellor has in the past 12 months struck the pretty right balance and that we have made some progress along the lines of controlling our economy. Of course, we have not got the whole way; we have not achieved all of our purpose, but one can say, without any hesitation or doubt, that on almost every front things are better today than they have been for a very long time in terms of exports, in terms of industrial relations, in terms of capital investment. That quite clearly indicates a measurable and substantial improvement over the conditions of past decades.

Therefore, it is wrong to criticise, in the terms which I have heard today, the achievements of the Government. What is even more wrong is this attitude of hon. Members opposite, particularly the hon. Member for Cardiff, South-East (Mr. Callaghan), to try to talk us into a panic and the country into disaster. I know and every one of us in this Committee knows that we have fought an economic typhoon. That is an historical inheritance which we cannot avoid, but we are doing it with a good deal of nerve, the best nerve we have had since the war. To say, as the hon. Member for Cardiff, South-East does, that there is a great danger and that we ought to do something about it is merely to discourage people who ought to have faith in us. After all, right hon. and hon. Members opposite may have to face the situation, and their duty is not to undermine the confidence which other people have in this country and which I think we ought to have in ourselves.

What are the fundamental problems? I want to deal with some of the greater and mature problems. The first is the control and management of the economy. There is a little battle going on, I am told, on this side of the Committee, between those who express the view that everything should be left to the market and those who take the view that we should manage our affairs in a meticulous fashion. Of course, the answer is that both these viewpoints are wrong. We live in an age and in a society which is necessarily sophisticated, and it is quite true to say that any attempt to control this economy in a detailed sense is bound to be disastrous to the country and, politically, will lead to disaster for all those who attempt it. It is also equally true to say that in the broadest sense one cannot have an economy of our kind without its having direction and purpose. It is quite impossible for us to have a purposeless economy.

I would say to those who take the view that everything should be left to the market and also to those who take the view that everything should be controlled meticulously, that it is wrong to try to decide every meticulous detail of the economy by the Government or by some central organisation. Indeed, the more we try meticulously to organise the economy in detail, or to control a particular firm or industry, the less shall we be able to carry out the broad purposes of central direction in the widest sense.

Hon. Gentlemen opposite, of course, reduce this whole proposition to absurdity.

Mr. Rhodes

No.

Mr. Shepherd

Indeed they do. They say we must do it the hard way.

Mr. Rhodes

No. We do not.

Mr. Shepherd

We know quite well that one can achieve the broad social purpose of an advanced society by means of broad sweeps of the brush, but hon. Gentlemen opposite say, "No. Let us own and control and run these industries" Of course, they really saddle themselves with a tremendous headache. They would achieve the broad social purpose which they have in mind without all the detailed organisation which the ownership of industry involves them in. Let us look at some of the difficulties which arise. Look at the trouble we have been having lately with B.O.A.C. and the problems there of trying to deal in detail with such an organisation.

Therefore, I say to those who contest these two views, the one that there should be detailed control of the economy and the other that we should leave everything to the market, that we should leave as much to the market as possible. Governments, and even this Government, have in recent years tried, perhaps, to leave less to the market than would have been sensible. Let the market decide as many problems as possible, but, on the other hand, do not let us forsake sound central direction, and do not let us underrate the great value of a strong national purpose, because in a modern society, if there is not a strong national purpose, the mere mechanism of the market is not sufficient. As my right hon. Friend the Chancellor said, if everybody decides to grab everything for himself we face disaster.

The truth is that in a democratic society no Government can really bring in legislation which is designed to do all the things which may be necessary to keep the economy solvent; unless they have the backing of their people in any definite purpose they cannot possibly succeed.

I turn to what I consider the second fundamental, and that is the serious difficulty in which we find ourselves, despite our recent progress, because of the lack of dynamism in British society. Of course we are an old race, but we need not be decrepit. Of course we are doing less well than we should be doing, but that is no reason why we should continue to do less well. Yet there are inbuilt factors which contribute to our inertia which we must tackle with a radical enthusiasm. I emphasise the term "radical" in this sense.

It is disappointing to me in the course of activities to come across repeated occasions in which the British are not leading where they should be. As the hon. Member for Ashton-under-Lyne said, we spend enormous sums of money on research. It is depressing from time to time to find that we are not the leaders in the field where we are spending more in research than others who are spending much less. We must face up to this fact and try to inject into our society much more dynamism than we have at present.

Let me say why I think that we have an inadequately dynamic society. The first reason is that we have a class society. The class structure in our society is damaging and inhibiting to our progress. The most urgent steps ought to be taken to eliminate the class fossilisation of our society. I do not propose, because it is slightly outside the ambit of the debate, to say what those steps should be. Reducing the dragging influence of the class structure of British society is of prime importance in achieving more dynamism.

My second point is that we have too property-ridden a society. It is true to say that we have not such a property-ridden society as we had in the eighteenth century, but we still have a society in which the influence and power of property plays far too dominant a part. It is, of course, the fountain of such undesirable practices as nepotism and many other things of that kind. I should like to see a society in which the power and influence of property were materially reduced, and I shall say how I think this might well be dealt with.

The third baneful influence upon our dynamism is that we have an industry which, by and large, is bereft, particularly at the higher levels, of really effective price competition. This has again a very depressing effect upon dynamism. When one can acquire for oneself by a gentle manly and careful arrangement a comfortable existence then it is the end of real striving to swim against the stream.

One of the urgent tasks for any Government is to bring in legislation to deal with monopolies and restrictions of all kinds legislation that has teeth in is. I would not hesitate to send people to gaol on this issue, because unless there are teeth in it I know that there will be evasion. Therefore, we must have very rigorous legislation against monopolies and restrictive practices.

The fourth point which I think affects our dynamism is the old-fashioned people we have in the trade union movement. I do not refer to the professional feet-draggers of the Ted Hill type because they are a passing phase and they will go out of existence, and it will be all to the better of the country and the trade union movement that they do. Leaving aside the men of the Ted Hill mentality or lower, there still remains, in my opinion, an attitude of mind in the trade union movement, as indicated by the hon. Member for Ashton-under-Lyne, which has its priorities all wrong. Until we get a change in the outlook of the trade union movement we have a further factor which drags upon the dynamism of our society.

I want to see in the next decade or so so much greater opportunities in our community of getting rid of factors which destroy dynamism or which put a drag on it, because it is no good our giving greater educational opportunities to the community unless we give opportunities in business life which fit the education that people have. There is need for much greater opportunity here.

What are some of the ways in which we can break down some of these factors? The trade union movement is looking at its own affairs, and one hopes that it will deal with this problem. Employers are looking at their standards, and I think that it is true to say that the standards of management in this country are still lower than they should be and that leadership at industrial level is lower than it was 40 years ago.

Forty years ago, a man who ran a factory not only gave leadership within it but also gave service to the community outside. Now he plays golf instead. The world has not benefited from these changes. How can we get rid of some of the dragging forces? One of the ways is, I think, through the Budget, by dealing with the issue of death duties. It seems to me that the position in which death duties have been allowed to remain is almost immoral, that we have a system of taxation on which one either pays or does not pay according to fortuitous circumstances. There is no attempt at equity in terms of death duties. There is no pretence at equity under our existing system. One may have to pay or not pay according to the lapse of one or two days.

If one happens to get caught, and has a fair amount of money, one gets stung for a very large sum. Personally, I think that the first reform must be one which says that all evasion of death duty shall be brought to an end, whether it is legal or otherwise. Secondly, a tax should be instituted in its place which would cause every individual inheriting a sum over a certain amount to pay an appropriate rate of tax. I do not know what is the total wealth passing from one hand to another in any given year, but I know that the amount of death duties paid is derisory, and therefore a very large percentage must escape taxation. I should like to see a change made so that there is no evasion and so that the percentage taken from each individual is more reasonable than it is today.

Then I should like to see a change in what is to my mind a serious development which has come on apace in recent years. That is the development of the settled family trust. This is a most anti-social development and I am very surprised that the House has not devoted some attention to it in recent years. One could say, quite rightly, that this is an inevitable product of high death duties, and, indeed, it is. That is why I propose that we should change the method of death duties and the seriousness of their incidence. What is happening now in the form of settled family trusts is, to my mind, wholly disadvantageous to the community and bad in every conceivable sense of the word.

We are now in the process, on a large scale, of separating responsibility from wealth. If there is any justification for wealth it is that attached to it there is responsibility. If one takes away responsibility, we are merely creating a vast army of remittance men who, instead of going overseas, are staying in this country. This is a deplorable situation. It is deplorable not only in the sense that it is damaging to the character and quality of those who have to receive remittances. We know from personal experience how damaging it can be to people who receive money in this way. But it also works the other way. The other day a constituent came to me who had a very large fortune left him, and he told me that the trustees are running it in a very bad way and that he is losing money.

So I should like to see some attention directed—I do not propose to say what might be done—to the dangerous present incidence of the separation of responsibility from wealth. I do not mind wealth—I am all in favour of it—but I am not in favour of wealth from which responsibility has been divorced and the creation of a vast army of remittance men.

It may be difficult to legislate against this sort of activity, and if we cannot legislate against it I should like to see us impose a differential tax on money received from settled family trusts. If there is an option to take wealth without responsibility there should be some penalty for so doing. I would happily support any Chancellor who brought in a proviso which instituted this very desirable reform.

I have put forward one or two ideas for increasing the dynamism in our community. Clearly, we are here doing very much less than we ought to be doing and very much less than we could be doing. The British are one of the most able, ingenious and industrious races in the world. We have not had the effect on the world that we have had because we are bereft of ability, but we have a society which has become far too fossilised. We must get much more flux into our society if we are to get the changes we want. Our greatest time of success in the commercial and industrial sense was when the leaders of new industries in the Industrial Revolution jostled with the landowners for some dominance in our society. We must create again the conditions under which this sort of thing becomes a possibility. Every part of the community, each political party and all those who take part in public affairs have, in my view, a responsibility to do something towards this end.

We must face the very real fact that if we go on with the rate of progress we have had in the last 10 years we shall not be able to sustain our specially privileged place in the world. We must do better than the average country in Europe if we are to carry the burdens which we hold. The British people can do it if we can make our society sufficiently dynamic.

7.23 p m.

Mr Bruce Milan (Glasgow, Craigton)

I absolutely agree with a good deal of what the hon. Member for Cheadle (Mr. Shepherd) said. His proposals for taxation reform are quite radical and the kind of thing which has been advocated from this side of the Committee on many occasions. A capital gains tax, a more effective death duty, dealing with trust settlements and the rest—all these things meet a response on this side of the Committee. There is no need for the hon. Gentleman to try to persuade the Opposition of the necessity for these reforms.

I very much agreed with the hon. Gentleman on one thing which he said about these reforms. He related them to a programme for making the economy more dynamic. This is absolutely right. Government spokesmen have very often—the Secretary of State for Industry and Trade did it yesterday—drawn a comparison between tax reform of the kind the hon. Gentleman mentioned, on the one hand, and a dynamic economy, on the other, saying that if we did all these things-if we penalised wealth in the way the hon. Member suggested—we could do it only at the expense of keeping down economic growth, removing economic incentives and the rest.

Mr. Shepherd

The hon. Gentleman is misrepresenting me. I want to penalise wealth without responsibility. I do not want to penalise wealth in itself.

Mr. Millan

But the argument is exactly the same.

Mr. Shepherd

No.

Mr. Millan

The hon. Gentleman has drawn attention to certain practices and features of our society which are undesirable from the point of view of economic growth, and suggested certain ways of tackling these unsatisfactory features—such as by means of a capital tax. The Opposition agree with that approach In particular, I agree with the relevance of that question to economic growth. In a recent report N.E.D.C. said that a wealth tax ought to be looked at from that point of view.

The hon. Member for Cheadle having said all those very pleasant things, from our point of view, in the second part of his speech, it makes it all the more surprising that in the first part he said that the Chancellor's Budget was all right. If he thinks that the Government ought to have introduced these tax reforms, I am surprised that he should have found anything to be satisfied with in the Budget. In fact, the kind of reforms which he has mentioned are precisely the kind of reforms which could have been incorporated in this year's Budget.

What happened was that the Chancellor drew up a Budget with virtually nothing in it, thinking that there would be a June General Election. But we are not to have a June General Election. We are to wait until October. So that excuse for omitting these taxation reforms no longer stands. In view of these circumstances, it is pathetic that we should have had such a thin Budget from the Chancellor this year.

The only positive thing—it was not new—that the Chancellor said with which I agreed was that he would introduce power to apply regulators in a more flexible way if necessary later in the year. Unfortunately, people have become suspicious of the regulators because they have been introduced from the point of view of putting tax up. It would be pleasant to see them introduced in circumstances in which the Government felt that later on in the year they might be able to reduce taxes.

To put indirect taxes up and then consolidate them is a rather indirect but none the less potent way of increasing indirect taxation at the expense of direct taxation. We disagree with it from that point of view. But the principle of having the regulator at hand and the principle of not just confining taxation changes to the once-a-year Budget is a very satisfactory one, and it might do something to reduce the mystique surrounding the Budget which gives us the kind of rather absurd situation that we have had this year with an 85-minute speech and two comparatively minor taxation reforms at the end of it. The preface built up to nothing but an anticlimax. If we put more emphasis on taxation changes of the kind which could be introduced at any time during the year when circumstances warranted it, we might be able to manage the economy a good deal better than we have done so far.

There is another general point about taxation changes which might well be made. This has some relevance to the thinness of the Budget. Many of the criticisms of our taxation system which have been made recently, particularly by supporters of hon. Gentlemen opposite, have been proved in the last couple of months to be completely unsubstantiated. We had the setting up of the Richardson Committee on turnover taxation. Its Report—I am sorry that it has not been mentioned more often in our debates—not only discloses that there is not a valid case for a value-added tax compared with the present Purchase Tax—this disposses of many arguments that I remember hearing last year from the other side of the Committee—but also disposes of the idea that British industry is particularly heavily taxed compared with our industrial competitors.

The major service of the Richardson Report is that it blows sky high the fallacy that we are particularly highly taxed in this country from an industrial point of view. That must have been extremely discouraging to the Chancellor and to hon. Members opposite, because one of their themes for many years was that if we only reduced taxation on industry our economy would go forward by leaps and bounds.

Mr. Green

I do not want a wrong impression to be given. The hon. Gentleman will recall that the Chancellor said, quite rightly, that, although he appointed the Richardson Committee in everybody's interests, he had previously expressed some scepticism as to whether a value-added tax would be a good idea for British industry. If the hon. Gentleman looks up my right hon. Friend's views on this he will realise that the tenor of his own remarks may be a little unjust to my right hon. Friend.

Mr. Millan

I know that the Chancellor was sceptical about a value-added tax, as were many of us. But it was argued by hon. Members opposite that the Purchase Tax was out-dated, that we should eliminate all kinds of discrimination in taxes on goods and services, that we needed a flat-rate tax, that it could be done simply, and that it would give an element of dynamism in the economy.

That claim has now been exploded by the Richardson Report, which has demonstrated that, if we put on that kind of overall sales tax, it would mean—if it meant anything different from the present system—taxing food and essential fuels. Now the issues have been clarified and a great deal of claptrap from hon. Members opposite no longer bears any kind of serious examination.

Another fallacy has been that if only we improved the financial and taxation incentives to industry we could have an effective policy of regional development almost by that alone. I never believed this to be the case and I believe that events over the last year have shown that it is not. The Government are giving very generous capital investment allowances, depreciation allowances and general taxation arrangements for firms in the development districts. I agree with the Chancellor about that. I would not wish to oppose these things if they are all that the Government have to offer, but I believe that the difference they make to regional development is very marginal.

Unless there is a tough I.D.C. policy and the whole economy is geared to the development of the under-developed districts, unless we avoid the kind of approach—the defeatism—we have seen in the South-East Study, and unless we have a whole complex of measures going forward in the under-developed districts not only for industry but for roads, hospitals, houses, schools and the rest, tax incentives will make only a marginal difference to the programme of regional development.

That is why I feel that we should resist any further tax incentives for regional development. Perhaps that is not a popular thing for a Scottish Member to say, but I am sure that we now have as much as we need—many would say far too much—of tax incentives and that more direct methods are needed if we are to get a really vigorous economy all over the United Kingdom.

I am not dismissing the tax arrangements out of hand. Nor am I saying that there is nothing we should be doing with the tax system to get this element of dynamism which is lacking in the economy. The kind of programme I would prescribe is very much the kind of programme the hon. Member for Cheadle has been talking about. I would simply add one particular aspect to what he said. That is that the programme is important not only from the point of view of getting an element of dynamism into the economy, but also of getting an acceptable incomes policy. I wish that the Government would appreciate this aspect.

We are told, for example, that dividends and profits are not particularly important and that the proportion of the national income they make up is not nearly as high as the proportion of wages and salaries, so that we need not bother too much about what happens to profits and dividends. Already, the F.B.I. says that there should be no control on profits and dividends.

Of course, it can be proved that dividends are a comparatively small element in the total income as compared with wages and salaries. But, of course, they are going to a comparatively small number of people and it is psychologically and politically impossible to get the ordinary trade unionists—I am not talking about union leaders, backward or progressive by whatever kind of definition we might use—and the ordinary wage and salary earners to accept income restraint unless the Government do something about dividends and profits.

Even if the figures involved are comparatively small when put alongside wages and salaries it is, I repeat, psychologically and politically impossible to get an incomes policy unless the Government tackle profits and dividends at the same time. It is because the Government will not recognise that truth that they have had such a dismal failure in getting an incomes policy.

What people are concerned with is to feel that there is fairness in the economic and taxation systems. But the Government have completely failed to ensure this. Few people, except those who are benefiting from it, really feel that the tax system is fair. They see capital gains being made and property speculation and the rest, and, quite naturally, ask why, if these gains are going untaxed, they should pay their fair share of tax and be denied more than 2½ per cent. or a 3 per cent. salary increase. It is impossible to persuade people of the fairness of an incomes policy unless the Government deal with things like capital gains.

I now turn to the question of the balance of payments, because I believe that this has been the second main item of consideration during this debate. I do not think that I am doing the Chancellor an injustice if I say that what he said about the balance of payments was, roughly, that there is a risk that we might have a balance of payments crisis, but that he is prepared, at this stage, to try to ride things out and hope for the best.

I believe that to be a fair summary of his position and it is ludicrous for the Secretary of State for Industry and Trade to pretend that it is not. I know that the word "complacency" is overworked in this Chamber, but the fact remains that the Secretary of State's speech yesterday was complacent—far more complacent than the Chancellor's.

The Secretary of State pooh-poohed any kind of ideas from this side of the Committee or even from the Chancellor or the N.E.D.C. about improving our balance of payments position. What was particularly depressing, to me at least, in hearing the Secretary of State was the way in which he pretended that so many of these suggestions were completely trivial in comparison with the problem we have to face.

But, as my right hon. Friend the Member for Battersea, North (Mr. Jay) pointed out, the balance of payments problem is a marginal one. We are really talking in terms of £100 million or £150 million in relation to exports approaching £500 million. That is why it was so absurd and depressing for the Secretary of State to say that some of these suggestions were trival because they were concerned only with £200 million or £300 million.

Quite a number of important suggestions have been made and we are beginning to reach a far clearer appreciation of the balance of payments problem than we have ever had. It has always appalled me that, although this has been our most difficult and endemic economic problem, we have had so little information about it at any time since the end of the war, that we have known so little about the actual facts of the situation and have so little analysed it, apart from suggestions of policy to deal with it. We are now beginning to get some of the basic facts of the problem and to appreciate that it has to be tackled in many different ways. That is why I was depressed when the Secretary of State turned down most of the suggestions almost out of hand.

For example, as N.E.D.C. has pointed out, import savings are important, especially import savings on semi-manufactured and manufactured goods. The Secretary of State said yesterday simply that industrialised countries as a whole were tending to trade more and more among themselves, so that world trade in manufactured goods was expanding very rapidly. We know that that is so and that, to a large extent, it is inevitable; but was the Secretary of State saying that because of that it was absolutely unimportant whether we tried to produce things here for ourselves which we would otherwise have to import?

That was the tenor of the right hon. Gentleman's speech, but that is an absolutely false way of looking at the position. The N.E.D.C. report on the growth of the economy, only last month, estimated that between 1961 and 1966 imports of semi-manufactures and finished manufactures to this country would increase from £1,170 million to £1,790 million. Incidentally, that is the biggest increase in all kinds of imports forecast for that period of five years.

An increase of £620 million is important when one is discussing a balance of payments deficit on a margin of about £100 million, or £150 million. We must look at this problem not just on a general basis. The tendency in past years simply to exhort British industry to export more has not taken us very far. I am looking forward very much to the kind of studies, which the little N.E.D.C.s will undertake, of individual industries, because it is important that this kind of thing should be tackled industry by industry, and we are just not doing that at present. There are one or two conspicuous exceptions, but at present we do not know which industries are letting us down and which are doing a worthwhile job in exports on international comparisons.

The qualification "on international comparisons" is important. It is misleading to say that our exports of such and such a kind of goods have risen by so much over the last five or 10 years without relating that to the worldwide demand and to the world-wide increase in the trade in those goods. That is the kind of slick argument which we had from the Secretary of State yesterday, and I very much hope that we will get a much more precise and detailed analysis so that we can know which industries are doing a good job and especially which are letting the nation down.

Mr. Shepherd

Is the hon. Gentleman saying that he wants to stop some of these semi-manufactures coming to this country? Is not this a very dangerous thing to do? Is it not a fact that we have some inefficient producers of raw materials in this country simply because far too high tariff barriers are protecting them?

Mr. Millan

I am not saying that we want to stop them coming into the country in the sense of imposing physical or tariff controls against them. On the contrary, if an industry is inefficient, I would far rather that it did not have tariff protection unless there were good physical or financial reasons for the inefficiency, or at least for the inability to compete freely. I would far rather that tariff controls were removed and the full rigours of competition able to take place.

But I am not saying that. I am saying simply that we must not be complacent with these exports when, with a little organisation and perhaps even a little extra information to the industries concerned, they might be increased. In some cases it is simply that the industries do not know the opportunities which are available in this country, much less the opportunities available abroad. I am not in favour of doing this by physical or financial controls. I believe that the problem has to be tackled in a more positive way.

Then there is the subject of stock piling. The Chancellor of the Exchequer and the Secretary of State took it as one of the facts of life that as soon as industry in this country began to expand at a rate of 5 percent. or 6 percent, per annum, imports for stockpiling purposes had to go up by 10 percent., or 15 per cent. per annum. I have always found extreme difficulty in understanding why that should be so, unless we were operating in a period of world shortages. This might have been all right up to 1950, but it is not all right now.

This short-term problem of stockpiling would very much repay more study than is now being given to it. I should like N.E.D.C. to make a study of stock-piling, because I am sure that it is not only bad for the country, but inefficient for the industries concerned that they should be stock-piling so rapidly to meet what, after all, by world standards is a quite modest increase in the economy.

There then conies the subject of private capital exported abroad by individuals or by companies. At £150 million, this is another of the "trivial items" which the Secretary of State mentioned. It is all right if that capital is going to underdeveloped countries, but we know that even when it goes to the Commonwealth, in many cases it goes to developed countries and in many cases for purposes of no particular economic advantage to this country, the Commonwealth or anybody else.

If the balance of payments were not a problem, we could well allow that to go ahead unrestricted, but when the balance of payments problem is such a fine problem, such a delicate problem, and when so much of our economy depends oil solving it, it is madness not to look a great deal more carefully at the export of private money abroad.

We ought to examine the taxation provisions for overseas trading corporations. These are designed to discourage these corporations from remitting profits back to this country and, in effect, therefore, they are designed to have a detrimental effect on the balance of payments position.

Mr. Green

They are not designed to encourage the remittance of profits back to this country, but to encourage reinvestment in countries which need capital.

Mr. Jay

Same thing.

Mr. Green

With the greatest respect, the right hon. Member for Battersea, North (Mr. Jay) knows perfectly well that it is not the same thing because the intention is wholly different. One cannot have it both ways, which is what the Opposition are trying to do. They cannot encourage the ploughing back of profits in overseas territories in the form of aid, and, at the same time, claim that that is an entirely wrong thing to do in terms of this country's responsibilities overseas.

Mr. Millan

The fallacy in that argument is that the taxation provisions for overseas trading corporations are so indiscriminate that in some cases they may be desirable from the point of view of aiding under-developed countries, so that profits should not come back to this country, while in other cases there is no reason why we should encourage those profits to remain abroad when we have this delicate balance of payments situation.

Without quoting the actual figures that we now have, I think for the first time, a table in the 1963 Annual Report of the Commissioners of Inland Revenue, showing to what extent we have lost revenue, and I think that we have also lost out on the balance of payments, because of the overseas trading corporation provisions. I agree that this is a matter of judgment and that there are arguments on both sides. When the balance of payments position is so delicate, it is monstrous that any suggestion that we should look at it again is treated with the kind of contempt which the Secretary of State for Industry and Trade showed yesterday to so many of the proposals that came from this side of the Committee.

The same thing is true of invisible earnings. My hon. Friend the Member for Dewsbury (Mr. Ginsberg) has been carrying on almost a one-man campaign about invisible earnings. There ought to be a more detailed investigation of this question. It is rather salutary to remind ourselves that shipping services are now a net debit to this country. This is one of the great trade carriers of the world and yet there is a net debit balance in our balance of payments for shipping services. This is an appalling situation We all know that there are difficulties in the world shipping situation, but there does not seem to have been any genuine attempt on the part of the Government to consider the whole question of invisible earnings to see whether it is possible to make what again might be only a marginal improvement, but nevertheless a significant improvement, in our balance of payments situation.

On exports, I was impressed by what my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) said about Japan and about the organised way in which she conducts her export programme through a comparatively small number of export corporations. There are, of course, elements of subsidy involved, and these are difficult from the point of view of G.A.T.T. and I would not necessarily suggest that we should adopt subsidies for exports, but, on the question of the organisation of exports, I think that there is a good deal to be done in this country.

Call it co-operative export marketing, or anything else one likes, on an industry by industry basis there is a lot to be done. We could have a significant effect on exports if we looked at the organisation of exports, taking one industry with another. I hope that this is the kind of thing which the "little Neddies" will be able to do for the industries in which they are being set up.

I have not gone into any detail, because I come back to the point that I do not believe that we have enough information about any of these matters. These are positive ideas, and it was the lack of positive ideas in the Chancellor's speech, in the speech of the Secretary of State for Industry and Trade yesterday, and in the apology for a speech from the Financial Secretary today, which was the most conspicuous and depressing thing of all that we have heard from Government spokesmen.

As my right hon. Friend the Leader of the Opposition said yesterday, they give the impression of being a tired Government on their way out. But I should have thought that even a tired Government would have shown a spark of life, a spark of some kind of positive policy in what is, after all, the last Budget before the General Election. But we did not get that from the Government, and when they are so tired and so dispirited that they cannot produce even an election Budget, I believe that it is time for them to go.

7.53 p.m.

Sir Douglas Glover (Ormskirk)

The hon. Member for Glasgow, Craigton (Mr. Millan) ruined what I thought was about the best speech I have heard from the benches opposite by his final remarks. Before he sends his letter to the Press saying that he made a magnificent speech in the House of Commons, may I tell him that I have been appalled at the complete lack of dynamic thinking, or force, or even forcefulness, in the speeches of hon. Gentlemen opposite.

Starting with the Leader of the Opposition's speech on Tuesday, I was very disturbed because, apart from politics, I am rather fond of the right hon. Gentleman. He talked about a tired Government and a tired Budget. He appeared so tired and so exhausted that I labelled him a "walking zombie" I have never heard anybody who was so depressing or so ineffectual as the right hon. Gentleman the Leader of the Opposition on Tuesday when he spoke after the Chancellor sat down.

Yesterday the hon. Member for Cardiff, South-East (Mr. Callaghan) started with a great song and dance, but I am afraid that the hon. Member for Sowerby (Mr. Houghton) got him into awful trouble before he completed his speech. The hon. Member for Cardiff, South-East was going to tell us what the Socialists' policy was, what their financial policy was going to be, how they would control the affairs of the nation, and so on. Somebody referred to the hon. Gentleman as the Shadow Chancellor. A better name is the eye-shadow Chancellor, because he spent all the time dressing up those midnight hags of nationalisation and physical control in leather jackets and kinky boots in the hope that they would not be recognised. There was not a new thought in his speech, with the exception of the one point about exports, and I shall come to that. My hon. Friend the Financial Secretary will perhaps know that I am going to be a little critical of some of the details in his speech about the export problem.

After reading HANSARD, and after listening to the whole of the debate, with the exception of two hours last night, it is extraordinary to discover the extent to which hon. Gentlemen opposite have quoted from N.E.D.C. Anybody would think that this was the brain child of their own ingenuity. N.E.D.C. was the appointment of Her Majesty's Government. It has done, and will continue to do, a good job of work. Anyone who has been in this House for any length of time and has listened to the debates on the Budget and on economic affairs over the last ten years knows that in a changing society we have a11 along been searching for improved ways of doing this, that, and the other, and those hon. Members on both sides of the Committee who are honest enough to admit it know that we have been running a knife-edge economy and that it was not surprising that from time to time we ran into difficulties. When my right hon. Friend the Member for Bromley (Mr. Macmillan) was Chancellor of the Exchequer he coined the expression that it was not much use looking up a train in last year's Bradshaw and then going to the station and finding that they had altered the times. That is true about statistics.

The hon. Member for Craigton said that we were now getting information. I think that he could have been generous enough to say that he was getting the information from a Conservative Government who had brought in the machinery whereby that information was now forthcoming. On the modernisation programme, which has been put before Parliament and the people, on education, health, and so on, I think that I was the first person in the House, about seven years ago, to say that one reason why we ran into difficulties was that we did not have a forecast for five years ahead. In other words, that one could not plan the school building programme, the house building programme, the programme for road modernisation, and so on, on a one-year Budget. As any hon. Member who was in the House at that time will agree, the view taken was that Parliament was responsible for finance and, therefore, Parliament must never commit itself more than twelve months in advance. The result was that programmes could not be planned for more than one year ahead, because if longer-term plans were made the old Parliamentary tradition of us being responsible for the control of the finances of the nation would be broken.

As a result of new thinking, this Government, this so-called tired, lethargic Government, have altered that system and we are now in a position to deal with the problem in a more coherent way, because now we can see the picture of what is going to happen over a period of not one year but perhaps five to ten years. But that was a creation of the Tory Government. They created N.E.D.C.

Hon. Members opposite have criticised the fact that some N.E.D.C. recommendations have not been put into practice. But the hon. Member for Craigton gave me the whole case when he said that the problem of exports and imports was a marginal one, and that he was not saying any king more than that it should be looked at. That is how I approach these problems. The N.E.D.C. says, "Here is a problem". It is not possible to arrive at a solution of the problem immediately. The hon. Member said that these are very difficult matters, which have to be weighed up and considered. Many other people have to be consulted.

We are dealing with a new organisation, which is producing ideas. We are not quite certain whether all its ideas are bang on; we must not have a rush of blood to the head and put them all into operation. We must sift them out first to find whether the ideas themselves are good. The hon. Member for Ashton-under-Lyne (Mr. Rhodes) put forward some very good ideas, but in nearly every case he said, "This would be a good idea, but I am not going to tell you how to put it into operation" One of the problems that we are now up against is that N.E.D.C. is producing some good ideas—some better than others, but they have to be sifted.

Mr. Millan

My point is that though these ideas are worth looking at the Secretary of State yesterday, in order to make cheap debating points, looked disparagingly at them all.

Sir D. Glover

Is the hon. Member referring to his own speech?

Mr. Millan

No—to the Secretary of State's speech, yesterday.

Sir D. Glover

Owing to the speeches he heard from hon. Members opposite, the Secretary of State yesterday rightly spent most of his time in pointing out that for the last twelve or eighteen months this country has been putting up a very good performance. We must remember that speeches made in this House do a great deal to create a climate of economic opinion not only in this country but in the world at large, on which Britain's prosperity depends. Yesterday the Secretary of State was speaking with confidence, and his was a very powerful speech, in that context.

The third reason for congratulating the Government on having done a good job of work arises from the fact that, although ever since the war we have been running on a knife-edge economy, with the ever-present problem of full employment and the consequent problem caused by society sucking in imports, together with the necessity to increase exports, the Chancellor is now in a far stronger position. He deserves a great deal of credit for it. The reserves that we can mobilise overseas are far greater today than they were five years ago. Surely hon. Members opposite can at least be honest and generous enough to give credit where credit is due. It is under this Government and this Chancellor that the mobilising of our reserves—the I.M.F. and the other things mentioned by my right hon. Friend—has gone on.

The hon. Member for Sowerby will correct me if I am wrong, but I think that whereas formerly we had the right to call upon about 1,000 million dollars, the figure is now about 4,000 million dollars. This means that we can probably get through the difficult phase of restocking without creating a lack of confidence in our economy. Furthermore, the Chancellor, with the steady growth that he has maintained from 1962 into 1963 and then into 1964, has allowed the economy to expand on a much healthier basis than has happened on one or two occasions in the past—and I do not want to make any direct criticism of my right hon. Friend's predecessors.

One reason why he has been able to do that is that more information is now available. It is provided by a team. My right hon. Friend did not produce all the organisations that provide the information. The process started in 1955, and it has gradually grown. Today these organisations are much more efficient at producing this information.

Mr. D. Jones

Will the hon. Gentleman tell us precisely what features make this expansion so much more healthy and more likely to be sustained than the expansions which took place in 1955 and 1959?

Sir D. Glover

I am sorry; the hon. Member has not been listening to some of the things that I have been saying. First, we have a far stronger overseas position, and the right to mobilise far stronger reserves than we have previously had, ever since the war. Secondly, expansion has been much more gradual. It is, therefore, much more likely to continue.

An incomes policy is of vital importance, but three or four years ago, when this subject was debated in the House, no trade unionist opposite would admit that there was even a problem. If you turn to the speeches of four years ago you will find that there was a lack of appreciation of the problem or a willingness to admit that it existed on your part.

Mr Mitchison

On a point of order. I wonder how many trade unionists there are on your side of the House, Sir Ronald?

The Temporary Chairman (Sir Ronald Russell)

That is not a point of order.

Sir D. Glover

I apologise to you, Sir Ronald. I know that there are no trade unionists on your side who will intervene in this debate.

The first criticism to which the hon. Member for Cardiff, South-East devoted a great deal of his time was that there was a regressive element in our present taxation system. He said that far too much of the tax was levied by indirect as opposed to direct taxation. But the hon. Member for Sowerby gave me the whole case when, in his article in Encounter, he said: A tax system suited to the affluent mass-production economy of the second half of the twentieth century is almost bound to rely more and more upon indirect taxation.

Mr. Douglas Houghton (Sowerby)

I am glad that the hon. Member has given me the opportunity, first, of saying that the article did not appear in Encounter but in the Twentieth Century Quarterly, and secondly, that what I wrote there was in the context of a wide survey of our taxation system. If he quotes part of it he should quote the whole, because there is much in that article which deals with direct taxation and which the hon. Member would not applaud to the same extent. When I said that I thought it inevitable that the Government would come to rely more and more on indirect taxation, that was not to say that I was in favour of steepening the rate of indirect taxation. The regulator is indirect taxation. The additional taxation which the Chancellor is imposing now is indirect taxation, more for economic than for revenue purposes. On the whole front of economic regulation in relation to taxation, I point to the use of the instrument of indirect taxation because it is more effective and rapid in its operation than is the instrument of direct taxation. One must get away from conventional thinking on this matter and from conventional quotations from articles. Here was a new theme, a new concept; the sort of modernisation and the sort of new thinking that the hon. Gentleman is inviting from this side of the Committee.

Sir D. Glover

I am very glad that I gave way to the hon. Member for Sowerby, because what he has said has been very helpful to me in presenting my argument.

My criticism of the hon. Member for Cardiff, South-East—the Shadow Chancellor—was that he used nearly all his speech to say how wrong it was that indirect to taxation should have been increased. The hon. Member for Sowerby has said that one of the reasons for using indirect taxation is that it bites much quicker. The reason why the Chancellor used indirect rather than direct taxation to deal with this problem of an overflow in the economy is because it bites much quicker. It would not have been very satisfactory—however popular such a move might have been among hon. Members opposite—had my right hon. Friend increased direct taxation, because the yield from it in the first six months would have been virtually nothing. This indirect form of taxation begins to yield from the week in which it starts, and he is quite right, in his endeavour to siphon off some of the purchasing power, to increase taxes in the way in which he has.

Now I find myself in the same position as the hon. Member for Ashton-under-Lyne (Mr. Rhodes)—as a result of the interruption of the hon. Member for Sowerby I have lost my place.

I wish now to refer to imports. I go quite a long way with the hon. Member for Craigton. We are here dealing with marginal things. The balance of payments problem relates to perhaps £200 million in a good year, or perhaps £300 million—that sort of figure. We are importing a great many things which perhaps we could produce ourselves. But one frequently finds a situation in which, because there is a temporary shortage, something is being imported; but that in the following year, when an incentive has been provided to encourage someone to produce this article at home, there is a surplus. Goods bought from overseas are designed to fill a temporary need. There is a lot to be said—as has been suggested by N.E.D.C.—for looking at our imports and considering whether we would provide more incentives like we provide to encourage industrialists to develop in Scotland and the north-east of England. I wonder whether my right hon. Friends would consider providing incentives to encourage firms to produce those categories of goods which are at present being imported in excessive quantities; whether it would be possible to give firms an incentive to build new factories and to tool them in order to make some of the commodities which we obtain from overseas.

If we can provide the incentives—without breaking agreements under the G.A.T.T.—such as we provide to persuade firms to open factories in the North-East or in Scotland—which, if the firms enter the export market must take the form of a hidden subsidy on the exported goods because costs would be lower—why is it completely impossible for us to devise an incentive system for manufacturers such as I am suggesting? This is an old argument of mine which I have advanced on many occasions, and I have been told that such a thing is not practical, that it could not be done without breaking every international agreement ever signed by this country.

That may be so, but in travelling round the world I have come to the conclusion that a lot of other countries seem to get round their agreements much more easily than we do. What difference is there between an incentive of the kind which I am proposing and one to persuade someone, perhaps against his will, to open a factory in Darlington instead of Dorking? It seems to me that the country must be responsible for its own economy and if such an incentive can be applied internally in respect of one thing, it ought to be applicable in respect of another. Perhaps the better way would be to have a look at the items of manufactured goods to see whether some incentive could be given to firms to make these goods which would assist our balance of payment problem. We shall have this difficulty for a long time. It is a knife-edge problem. There is a need to increase exports; the standard of living is rising with a demand for increased imports, and this in a world where competition is growing and where no one owes us a living. The only way in which we shall earn our own living is by incentives, by drive and initiative.

I have tried to speak as did the hon. Member for Craigton in a non-controversial manner, but we all seem to want to finish in a "barnstorming" Fashion—

Mr. Houghton

I wish to hear the hon. Member's peroration.

Sir D. Glover

The hon. Member for Sowerby should not ask me to finish as quickly as all that. I have listened patiently to him for hours.

During the speeches to which I have listened from the other side on Tuesday, Wednesday and today, the speakers have said that this Budget is irrelevant and that the Chancellor has imposed taxes which are wrong and which will prove to be a burden on the wrong people. If that impression was created among hon. Members opposite why were there no Divisions on the Resolutions?

Mr. D. Jones

The hon. Member must wait, they will come.

Sir D. Glover

I do not mind that there were no objections, but why did we have none? Hon. Members opposite cannot say it is because they had not studied the Resolutions. Their great leader, who was so tired that, as I say, he looked like a walking zombie, said that there was nothing to study. I suppose it was that hon. Members opposite wanted to wait in order to see whether the proposals would be politically popular.

What has come out of this Budget debate is evidence of a great desire among hon. Members opposite for increased taxes. I consider that there are no good taxes but that some are better than others. After listening to speeches made by hon. Members opposite, I think that there are a number who would genuinely like to see taxes increased. The hon. Member for Craigton had great difficulty in preventing himself from advocating this as something which was a good thing and in the national interest. That is a philosophy which I do not share, and I think this should be made clear to the electorate.

We have had no talk in this debate of what anyone would do about the question of modernisation and the capital programme that the Government have instituted. The Leader of the Opposition talked repeatedly of the need for a Government with social purpose. I agree that we need such a Government and we have got one. I am delighted to be in this Committee and able to support them.

We brought in a Budget of £7,900 million or £8,000 million, the bulk of which is to be spent on social purposes in this country. The programmes we have put before the nation and Parliament in all the great fields of endeavour show that activity in them will rise and we have to have this expanding economy if the Bills are to be met over the next three or four years. This came from my speech seven years ago which called for a forecast Budget to produce a programme for some years ahead. We have presented that to Parliament. Is not this a party of social purpose? Is not this a social purpose; is there, not some drive about it? Of course there is.

It is shadow boxing when we have these sneers and cracks from the Leader of the Opposition about a "candy floss economy". If anyone has gained advantage from television programmes, it is the Leader of the Opposition. His "candy floss economy" has captured the minds of many people, but they would find great difficulty in understanding what he means.

This country is being governed with social purpose. The enormous rise in our standard of living and social welfare in the last 12 years is something in which we of the Conservative Party can take pride and from which the nation has benefited enormously. If the people want to continue in that way they will make a change when the election comes at their peril.

8.22 p.m.

Mr. Edward Milne (Blyth)

I wish to follow the hon. Member for Ormskirk (Sir D. Glover) in only one respect. He wound up his speech on the question of the social purposes shown by the Government. It is precisely because of the lack of social purpose over the last 12 years that the country is now seeking a change.

Two factors have emerged from speeches of hon. and right hon. Members opposite in regard to the Budget and the economic situation. They have confused very much the question of personal affluence with the social wealth of the nation. There are one or two points which have to be made in this respect. While it is true that there are many thing; which the people failed to enjoy in the 'twenties and 'thirties of this century, at this moment in the second half of the century the difference between what the ordinary folk of Britain have and should have is possibly greater today than at any other period in our history because we are failing to distribute properly the tremendous increases in wealth. As this personal affluence has increased, as wealth has gone into fewer and fewer hands, the state of the social wealth of the nation has been revealed, not in the speeches of hon. Members on this side of the Committee but from the numerous committees set up by the Government to examine our social problems.

Whether it be in the realm of school building, of roads, of development of our cities, extension of our universities, building of hospitals or provision of housing for the people, in all social purposes of her the past 12 years the Government have lamentably failed. If there is and description which can be applied to this Budget it can be that it was an unnecessary one because it was never intended. The Government had to continue their period of office because of the misdemeanours of one of their Ministers and the illness of the Prime Minister in October. We can sum it up by calling it a flamboyant but flimsy Budget. It is very much like the action of the Chancellor of the Exchequer at the Dispatch Box on Tuesday when he pulled a flask of coloured liquid from his pocket and fortified himself to get through the second half of his statement.

The hon. Member for Ormskirk has unfortunately now left the Chamber. I do not criticise him for that because he has been sitting in the Chamber for a very long tine. He spoke about the tiredness of the Leader of the Opposition, but I think he should have paid some attention to the tiredness of the Chancellor of the Exchequer. We are constantly asked from the Front Bench and the back bent her opposite what we would do if we were in office. That is an unnecessary sort of question. I recollect participating in the Budget debate two years ago when the present Leader of the House who had introduced his Budget was then being lauded to the skies by those on the back benches opposite for the sagacity he had shown. By July of that year he and a number of other members of the Government had disappeared to the back benches. They had been sacked.

We do not know what will happen to the present occupant of the office. The exercise of throwing across to us the question, what would we do if we were in power, is rather like our asking the Chancellor of the Exchequer what he would have done if he had been the Leader of the Conservative Party from October last year to the present time. He possibly would not have acted in the clueless, senseless manner in which the present holder of the office has acted since then. Since the Leader of the House introduced his Budget many of us have been pressing the Government to look at the question of the 15 percent. tax which was then put on wholesale prices of sweets, soft drinks and ice-cream. Instead of relinquishing or releasing pressure on those things, the Government have gone to the other extreme and have clawed in another £103 million from consumers.

As my hon. Friend the Member for Burnley (Mr. D. Jones) said earlier today, the burden bears most heavily on the lower-wage earners and pensioners. This is the classic difference between the effect of direct taxation and the effect of indirect taxation, because the ratio of taxes to be borne decreases in ratio to the amount of wages earned. A person earning £40 or £50 a week does not find such great difficulty in meeting the impositions of the Chancellor of the Exchequer, but the old-age pensioner and the person earning £9, £10 or £11 a week has to use a higher proportion of his income to meet those impositions. We are told that this is merely part of the process, that we have been doing too well and that some check must be put on the progress of the economy.

In 1956 the right hon. Member for Bromley (Mr. H. Macmillan) also had a point to make as Chancellor of the Exchequer, a point which again was applauded by hon. and right hon. Members opposite. He said: The rate of our progress during recent years has made it necessary to slacken the pace a little, but the great forward march goes on. This was flamboyant language, but completely irrelevant to the conditions of the times.

I want to talk about the problems of my constituency and of the North-East, because when the then Chancellor of the Exchequer was talking in 1956 about the great forward march, our unemployment figures were much the same as those for the rest of the country. At this moment of time, despite all the trumpetings about improvement—and there has been improvement compared with last year, for one can play as one likes with statistics—our rate of unemployment now is double the national level. This for the North-East is not a question of a great forward march.

Then we have the present Prime Minister, who is careful to go to the South to challenge the Leader of the Opposition and ask, "Has he not heard about full employment?" We have not heard about full employment in Scotland or the North-East since 1956–57

Mr. D. Jones

Nor in Northern Ireland.

Mr. Milne

Nor are there any Northern Ireland Members present to raise this matter. I have no intention of speaking on their behalf, because an area which sends so many Conservative Members to Westminster does not deserve great sympathy except for the people of Northern Ireland who have suffered from the misdemeanours of this Government.

The Prime Minister came to Newcastle, but he did not refer to full employment there. He spoke in an airy fashion about plans which were in the course of fruition. The only thing that we remember the Prime Minister for in the North-East was that the Tyneside sleeper train left Newcastle Central station eleven and half minutes late on the night when he visited the city.

I have possibly divided loyalties as a Scot representing a North-East constituency on the question of the siting of the Post Office Savings Bank, but I hope that some sort of statement will be forthcoming from the Government Front Bench that, in view of the fact that the Bank is to be established in Glasgow, the North-East will have the building of the Cunarder which we ought to have had two years ago if the Government had been vigorous in their policy. I said at the time that I was proud of the fact that this decision had been taken by the Government, but the length of time which they have taken to put it into operation has made a considerable difference to the situation. We look forward with the keenest expectation to hearing within a short space of time that we shall have the Cunarder built on the Tyne.

My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) mentioned in his speech yesterday the question of factories being used by the Government to manufacture some of the goods which are now being brought in from overseas. I would welcome this move, because of recent happenings in my constituency and throughout the North-East. We were told during the recent county council elections by a prominent figure in the Conservative Party in the area that industrialists would not come to the North-East because of the Labour-controlled councils in that area. In the Borough of Blythan industrial site operated by the council has already been able to attract three firms to it in a space of time in which the Government have failed to find a tenant for a Board of Trade factory in the area. The Government have an opportunity of redeeming themselves in this matter by using the advance factory in Blyth in the manner which my hon. Friend the Member for Cardiff, South-East indicated.

Another matter to which I wish to refer briefly is the Board of Trade Advisory Committee and its dealings with firms which wish to move to areas of high unemployment. I think that the criticism made of this committee and its methods are justified and that it is about time the Board of Trade took a firmer grip of the situation, instead of leaving the decisions to this more or less anonymous committee over which the Board of Trade and Parliament have no real control whatsoever.

It has often been argued that the existence of this committee is desirable because it can be impartial on this matter. I should like to hear in the winding-up speech a great deal more on the subject of the attraction of industry to areas of high unemployment and the positive location of industry by the Board of Trade in those areas.

One or two hon. Members have mentioned alternative forms of taxation. Last year there was a great deal of kite-flying on the question of a tax on gambling, and we have been given as the reason for its non-introduction that it would be a difficult tax to collect. I make no apology for mentioning a subject that I referred to in my speech in the Budget debate last year, namely, an article whit h appeared in the Observer on the Sunday prior to the Chancellor's Budget speech. That article dealt with this problem. The article was entitled, "Round the Clock with Crockford's". It said that the profits in that club were in the region of £10,000 per week. This is not a club that is invaded by miners, engineers, shop stewards and such people. That is a club that is obviously attended by the type of people whom the hon. Member for Cheadle (Mr. Shepherd) mentioned, people who are avoiding taxation. The article also said that if one gets a little bored with Crock-ford's one can go round the corner to Aspinall's, in which it has been reported that the record loss in one night was something in the region of £100,000.

How many miners', shipyard workers' and dockers' wages are written into the figure of £100,000? The non-producing element in our society is, of course, the element that is benefiting in every direction and in all sorts of ways. As the right hon. Member for Bromley said in 1956 when he was Chancellor of the Exchequer, we have the brake put on to our economy again, and another £103 million is clawed back from the people who are really producing the wealth of the nation.

The only difference between this and the previous Budget is that, unlike all the other Budgets in the past 12 years, we can now mark this as not merely a flamboyant, unnecessary and flimsy Budget but the last Budget that we shall have from a Conservative Government for a considerable time, before the Tories disappear into the limbo of the past and the country moves on to a new order of society.

8.38 p.m.

Dr. Jeremy Bray (Middlesbrough, West)

My hon. Friend the Member for Blyth (Mr. Milne) has referred to one great disappointment in the Budget which I share, coming from a neighbouring constituency in the North-East, and that is the failure of the Budget to do anything constructive about bringing into use the under-employed resources of this country, mainly in the areas of high unemployment.

I propose to talk about the other great disappointment, and that is the failure of the Chancellor to bring the country any nearer to the creation of a satisfactory incomes policy. The basis of an incomes policy must be a sense of reasonableness in the settlement of wages, prices and profits. We have not got this reasonableness today, thanks to the kind of action which the Government themselves took in the pay pause. The spectacle of an Attorney-General arguing in court that the word of the Treasury on a cost of living escalation clause is not binding because it is not a contract and could, therefore, be broken by a Tory Chancellor of the Exchequer, has, plainly, undermined the faith of wage-earners in any incomes policy devised by this Government.

But we shall need more than just an atmosphere of good will and reasonableness. We shall need the regulators of profits, prices and incomes to which the Chancellor could have referred if not in actual proposals in his Budget at least in suggestions of subjects for study which he was so profuse in rejecting in his speech. We need these regulators, first, because accidents will happen. There will be times when demand is likely to exceed supply and £100 million will have to be taken out of the economy, as the Chancellor has had to do this year, or, in other circumstances, will have to be put on. Also, if there is a visible check on the development of prices, profits and incomes, people are likely to be more reasonable in the voluntary settlements which they reach during the ordinary course of negotiation and business.

As the Federation of British Industries pointed out in its Press statement in reply to the Chancellor's proposals to the N.E.D.C., it is no use having regulators unless one has some idea what one is aiming at, some idea of the kind of income distribution or wealth distribution which one is seeking. In its statement, the F.B.I. rejected any idea of a profits regulator because, of course, it wants to see higher profits, and that is fair enough.

We on this side of the Committee would like to raise earnings as a whole, particularly the earnings of lower-paid workers and people who are living on small fixed income, often in retirement on a pension. But it is not entirely clear what the Government want to do. Do they want to raise the higher incomes more, or do they want to raise the lower incomes more? Do they want to skew the distribution of wealth so that there is an even greater concentration of wealth than there is today, or do they want a more even distribution of wealth? It is not a all clear. They have never said what their broad objectives are in the distribution of incomes.

Naturally, therefore, the F.B.I. does not quite know what to expect from the Government, and it is extremely cagey about any question of a profits regulator. However, with the aims which we have on this side of the Committee which, I think, are quite clear—a greater evenness in the distribution of both incomes and wealth—the way in which we would use them and the kind of regulators we need is a great deal clearer.

What regulators are appropriate? Obviously, we have to start with the most privileged sector of the community, the richest people, so we need a profits regulator, a variable Profits Tax, or the income equalisation tax to which my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) referred yesterday. The Financial Secretary is not here, but perhaps the Chancellor would like to explain why there is a difficulty about the effect of a variable Profits Tax on dividends going to people with small incomes. When people with small incomes get dividends from the few shares which they may own, they have to claim back from the Inland Revenue the Income Tax which has been paid by the companies from which they draw their dividends. Would it not be very easy and cause no administrative complications to arrange for them to draw back at the same time any increase in the Profits Tax levied in addition to the standard rate of Income Tax? Would the Chancellor of the Exchequer deal with this point now, or perhaps later? Since he does not do so, this seems to be no more than an excuse for the rejection, perhaps only for the time being, of a variable Profits Tax. But as the F.B.I. points out, profits are only one-eighth of national income and we cannot possibly construct an incomes policy solely on the regulation of profits. We must look at the rest.

Of the £25,000 million national income, the £3,000 million of rents, dividends and interests can be dealt with. There is another £2,000 million in National Insurance benefits and other payments from the State which must on no account be touched or involved in an incomes regulator applied by the Government. It would be utterly unjust to impose on the poorest sections of the community, who do not exercise any bargaining power at all, the brunt of an incomes policy.

Of the remaining £20,000 million, only £5,000 million goes to people earning less than £16 a week. Only a quarter of the earned income goes to people getting less than the average income and three-quarters goes to people getting more. This is a quite surprising fact, but hon. Members can check it for themselves. Thirteen million out of the 22 million people paying tax get less than £16 a week. It is, therefore, the remaining £15,000 million of earned income which must bear the brunt of that part of an incomes policy which must inevitably fall on earned income as distinct from profits. The three-fifths of national income which goes to the higher wage earners must grow, but it must not grow faster than the production out of which it is paid and on which it is spent.

How, then, is this to be done? How is the growth of the higher earned incomes to be kept in a reasonable balance? Indirect taxes act quickly. This is why the Chancellor of the Exchequer had to push up the tax on tobacco and alcohol. They are an unsatisfactory regulator because they raise the cost of living directly. It is interesting that when Mr. Heathcoat Amory wanted to give concessions which would have the biggest possible effect on the cost of living he knocked 2d. off a pint of beer. The Chancellor has put 1d. on a pint of beer, thus putting the greatest possible pressure on the cost of living, by the changes which he has made in indirect taxation.

In the end, increases of indirect taxation also increase costs, by forcing up the wages spiral. We should, therefore, look elsewhere. The enormous benefit which we would gain from a sound incomes policy should encourage us to think in a radical way about the reorganisation of the taxation system, a reorganisation which could well be as fundamental as that at the time of the introduction of P.A.Y.E. If total incomes rise too much, we must find a way of reducing them by the appropriate very small amount.

Variable employees' contributions to National Insurance have been suggested as one method, but this idea seems to be unacceptable because, inevitably, it will fall most heavily on the lowest-paid worker. Even if it is on the variable element of National Insurance, and this would be administratively complicated, it would still work only on the lower incomes up to the £25 or £40 a week limit, whichever is set under the super-annuation scheme. Variable employers' contributions would have no immediate effect on incomes. The only immediate effect they have is to raise costs and force up the inflationary spiral, which is the last thing one wants to do.

One seems to be driven back on a method of finding a quick adjustment in the higher rates of Income Tax, leaving incomes less than £16 a week or thereabouts entirely unaffected, by tackling the £15,000 million of higher earned income.

The Chancellor's £100 million nip on the economy would be met by an average increase of 4s. a week in the tax payments of those in the higher earning income bracket. It is not a great deal. At present, it is spread over the pensioners, the lower incomes as well as the higher ones in a most unjust way. The immediate reaction to this is that it is administratively complicated to have short-term variations in the P.A.Y.E. rate. To suggest this is to be entirely behind the times. One could produce a P.A.Y.E. table in 10 minutes on a computer. One could publish the month's P.A.Y.E. table in the news- papers and thereby get it out to all tax offices and employers overnight. There would not be any administrative difficulties in having a highly flexible, even month by month, variation if necessary in the P.A.Y.E. rates for higher incomes.

This would, of course, affect only the monthly and weekly assessments, but annual assessments would in any case pay the same total rate in the end as the weekly and monthly ones. Their effect on the economy is cushioned by the savings of the higher income groups. I agree that one would not achieve much by short-term arrangements at the highest rates of tax. It is the medium rates of P.A.Y.E. which are important in this connection.

This seems to me the only logical way of arriving at an incomes policy. But if incomes are forced up, the costs of industry generally are forced up and there must be found some way of reducing these in turn. In this connection, we are grateful for the work done by the Richardson Committee. It produced an interesting Report on the value-added tax. It is a pity that its terms of reference did not enable it to consider the usefulness of such a tax not only in relation to exports, or as a replacement for Profits Tax or Purchase Tax, but its usefulness as an instrument in incomes policy. The Richardson Committee, reporting the opinion of all its witnesses, stated that Liability to a value-added tax would be regarded as a charge or tax and businesses would aim to recover this cost in prices. That was a very good reason for not having a value-added tax from many points of view.

Taking the converse of that argument, presumably a reduction in a value-added tax, if it would not reduce prices, would at least offset increases in other costs and, if nothing else, would keep prices stable. If it did not, and if there was a reduction in a value-added tax and manufacturers took advantage of it to make increased profits, then an incomes policy would take off that increase in the variable Profits Tax.

This would, therefore, seem to be not only an effective but quick acting method of influencing prices right across the whole of industry. This shows that three types of regulators are needed; on profits by a variable Profits Tax, on higher incomes by a new approach to P.A.Y.E., and some kind of movement towards having a direct influence on prices. We need this kind of thinking in the Treasury. Obviously one cannot, from the figures available outside Government circles, say whether or not these are completely sensible proposals. For this reason, I would like the Chancellor to have said whether thought is being directed to proposals of this kind.

Whether the Chancellor was inhibited by tactical reasons in relation to an incomes policy, not having the right atmosphere in which to put such proposals, or whether he had run out of ideas, it is because the country has got the feeling that he has reached the end of the road that his Budget proposals have been met with no more enthusiasm in the country as a whole than they have been on this side of the Committee.

8.55 p.m.

Mr. G. R. Mitchison (Kettering)

This is the end of the third day of a debate, which has had, I understand, two subjects; one is the Budget and the other is the economic situation. Perhaps the best comment on the Budget is that so much of the debate has been, in different directions, about the economic situation and so comparatively little about the Budget.

However, I still have something to say about the Budget. It seems to me to be the child of two apprehensions. Undoubtedly, the Prime Minister was most apprehensive of an early election. The Chancellor, no doubt, was apprehensive of an autumn crisis. I can imagine the dialogue between them, in which these two apprehensions were worded and it was decided that, after all, the greater political uncertainty must be dealt with and any apprehensions about an autumn crisis would have to fall into line—coupled, I suppose, with a warning to the Chancellor that, whatever else he did, he must not disturb the companies too much because they had been such valuable supporters of the Conservative cause and were still expected to contribute a good deal to the chunk of propaganda in the months intervening before the General Election. And this, I suppose, was how this simple Budget came to birth.

We were invited today by the Financial Secretary to consider this as the question we have been discussing through the last few days—and I thought the form of the question was singularly revealing: whether or not a proper balance has been achieved having regard to the economic situation affecting this country. That is a very remarkable view, I should have thought, of a debate which was supposed to be about our economic situation. It is certainly not confined to the question of whether or not a proper balance has been achieved. There is a good deal more than that to be said.

Now, the Chancellor and sundry other Government speakers suggested it was up to us to tell him what the proper balance was, that we were to decide whether the £100 million or so he intended to raise by indirect taxation was the right amount. This, again, strikes me as a most remarkable view of the functions of the Opposition. I should have thought that, prima facie, it was the duty of the Chancellor of the Exchequer to make up his own mind and to come here and say what he thought was right; and if we differed from him we could say so. We did say so. We pointed out to him that he was taking chances, but he said, "Oh, that is all right. That is exactly what I said myself." And that is the criticism.

Mr. Maudling

Do the Opposition, therefore, wish me to raise more taxation?

Mr. Mitchison

That is not a question for us. That is a question for the Chancellor. We are not here to tell the Chancellor how much taxes he ought to raise. We are entitled to stand here, as we do, and say to him," You know perfectly well you are taking a risk." That is exactly what he is doing. There is really no dispute about this. I am surprised by this insistence on it.

It seems to me to show that the Chancellor and his supporters have got very little else to say. We have not heard a word in defence—so far as I know—of the amount which he has chosen. His only way of defending it is to get up and say, "Well, what do you suggest?"

He might tell us whether he thinks that he is right or wrong, and if so why. He has never said a word about this, as far as I am aware. It is a hit-and-miss judgment—he tells us that much. Whether it was derived by intuition or whether it happened to him as to one of his predecessors in office—it was Mr. Amory who he was the Chancellor—that a little pigeon came into the room and told him what to do, I do not know, It may have been a skylark, pigeon, homing pigeon, perhaps, that came in and told him what amount he ought to hedge off. It is reducing the responsibility of the Chancellor to a farce if all he can say in defence of the figure at which he has arrived is, "Well, what would you do?". He has not resigned yet; no doubt he ought to—there is still time.

I turn shortly to the next question about the Budget—there are very few questions in this Budget—and that is that if we are to raise that amount, what is the right way of raising it? We had the Chancellor's explanation. The Chancellor said in effect, "There is only one way, because I cannot do it quickly enough in any other". I very much doubt that proposition. It depends, of course, on the view that one takes of the urgency of the crisis; but if that was his real reason for it, it seems to me to indicate that this Budget had been prepared for a different occasion and for a much earlier election than we are to have.

I rather think that the Chancellor and the Treasury have not done their homework on this occasion. They ought to have had two Budgets—one in case the Prime Minister decided on a June election and another in case he decided on an October election. The Chancellor is charming but a trifle indolent, and I think he thought that if he got away with the one that would do in any circumstances. And so we got the June Budget and, presumably, an October election.

One has to take what one can from a lame duck Government and be grateful. Lame duck; may not be able to walk, but they ought to be able to quack a bit. There was not even a quack in support of all this, except for a stray sentence to say, "I have chosen this as the quickest way of doing things".

I am glad that the right hon. Member for Wolverhampon, South-West (Mr. Powell) has reappeared, because I feel that we owe it to him and to one or two other hon. Members on both sides of the Committee that this rather unpromising subject of the Budget has at times become quite interesting. I was fascinated by the right hon. Gentleman. Allow me to tell him of whom he reminded me. He came, I thought, out of his barrel, a barrel on the top benches, carrying a light even in open day to look for an honest citizen, like Diogenes. He found not one but a mass of honest citizens, and he derived from this spectacle the remarkable conclusion that if one only left them alone they could never do wrong either singly or collectively, but that one had no power whatever to ensure that they would ever do right. I hope that I am not misrepresenting him. That, at any rate, was the inference I drew from what I thought was a remarkable piece of oratory, and I mean that quite seriously.

Then we had a wonderful knockabout turn from the hon. Member for Louth (Sir C. Osborne) I hope he will not mind my thanking him for it. What I liked about it was the purity of the moral distinction he drew between the dinner that my right hon. Friend the Leader of the Opposition had with the directors of I.C.I. in Middlesbrough—

Sir C. Osborne

A luncheon.

Mr. Mitchison

—and his own vodka potations in the Kremlin. The former were all wrong and the latter were all right. On morals, we have never had a more reliable guide than the hon. Member for Louth, and it was interesting to hear his practical application of his personal and political views.

I listened with very great interest and—I hardly know the right words—a little bit of a thrill to what my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) had to say. He seems to me to import into these discussions a human element and a vigour of thinking not to be found everywhere. So to all these three hon. Gentlemen, in very different ways, and perhaps for slightly different reasons, I express my personal gratitude for brightening up what might otherwise have been a slightly tedious debate.

I turn for a moment to what the Chancellor might have thought of. This is not just a question of the immediacy of the remedy. It is perfectly possible—I am sure the Chancellor would at once admit it—to devise a remedy for direct taxation which could have a sufficiently rapid effect. There can be no doubt about that. The case that was put to the Chancellor remains unanswered, even by the Secretary for Industry and Trade. The social effect of what the Chancellor is doing by this Budget, raising £100 million, is that he will raise it from the very people from whom he ought not to try to raise it—that is to say, those who are least able to pay tax, notably people on retirement pensions who like a glass of beer. If one says it is a good thing to tax tobacco, one sees the point, but experience shows that tax on tobacco has no other effect in limiting consumption than a purely temporary one.

Mr. Maudling

Then why not vote against it?

Mr. Mitchison

I will deal with that in a moment, but, with respect to the Chancellor, I should have thought that was a rather foolish question.

This is £100 million raised in a form as near a poll tax as one can get in indirect taxation. It will hit and hurt most those who can least afford to bear the burden. That is the very worst possible way of raising taxation. The alternative seems to come—I come to the Chancellor's point—to look at company taxation, and to do it in the light of the Richardson Report, which pointed out quite clearly in paragraph 154 that the effective burden of direct taxation on companies has fallen in this country in recent years despite the fact that overall the nominal rates of tax have increased. The Report points out that this is due to improvements in the capital allowances and primarily to the introduction of the investment allowance I shall return to that in a minute, because I think it is a very important indication of what might have been done. That was the obvious alternative, and it was clearly put.

The Chancellor said, "Why did you not vote against it?" Does he really attach any importance to this? These are Ways and Means Resolutions, and the Opposition have never held that we were bound not to vote against them when the effective legislation was introduced because we had not voted against them at an earlier stage. Surely, if one wants to give one's reasons for doing a thing, if one wants to have the possibility of making amendments and the like, the right and usual way is to vote against these matters during the Committee stage and not on Ways and Means Resolutions.

Mr. Maudling

Do the Opposition, therefore, intend to vote against the increased taxes on tobacco and alcohol?

Mr. Mitchison

The Chancellor can wait and see about that. This is quite extraordinary. The Chancellor is a most engaging character—we would all admit that—but he might be his age over this. It is absurd to have nothing better to say about one's proposals in a Budget than that the Opposition have not voted against Ways and Means Resolutions. We like a little serious argument and a few real reasons against and in favour of these things, and if the Chancellor is not going to provide that, what is the use of this rather childish substitute, which is like playing a game of political hide-and-seek or blind man's buff?

I turn from that to say a few words about what has really engaged everyone's attention both in relation to the Budget and to everything else. Our complaint about the Budget is not only that we have been given no reasons for it and that we think that it has been done in the wrong way. It is more serious than that. This is not a debate, or should not be a debate, just about the sufficiency or character of the means employed. Ever since the time of Sir Stafford Cripps, it has been a debate about the general economic position of the country—and, in all conscience, there is plenty of reason for that.

We are now told that everything is fine, that another election is coming and—once again the old cry—that we have never had it so good. We are being told all this in face of large areas of unemployment and of an economy obviously in danger of overheating—hence the £100 million extra on taxation—and in face of the fact that a very large group of people, the very people who are to be hit by the increases in the prices of drink and tobacco, still are left badly behind in the rat race that appears to represent the Tory economy.

Sir C. Osborne

Whilst I agree that there are certain pockets in the country which have not done so well as others, may I ask the right hon. and learned Gentleman whether he would not agree that even in Corby, in his constituency, the people have never had it so good?

Mr. Mitchison

I will answer that fully. First, I am not a Privy Councillor. Secondly, I entirely agree about local employment. But what the hon. Gentleman forgets is, first, that a large group of people, irrespective of where they live, have been left behind in the rat race. The most obvious among them are the retirement pensioners who have to seek National Assistance. One out of every four or five of there must do so because, under the Tory Administration, National Insurance benefits are still quite insufficient. I have quoted them as an example I can easily give others.

Secondly the present recovery is hurried and heated. A short time ago, people in Corby were suffering from what many of them would regard as the results of a return to private enterprise. Certainly they connected it with a return to private enterprise. They were not working to anything like full capacity and there was a distinct pinch on the pay packet, while some lost their jobs. The result has been that, by and large in recent years, they at least have deeply regretted the passing of the time when the industry was nationalised. It so happens that they were doing very much better then than they are now. I hope that answers the questions of the hon. Member for Louth.

I turn from that to look again at the position in the country. My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) made 15 or 16 suggestions and there are a number of others in the N.E.D.C. Report to which he referred. No doubt suggestions have also been made on many other occasions and by many other people to deal with some of these matters and with something that lies behind them and which is in itself far more important.

The fact is that under the Tory Government in these last few years we have slipped badly behind other countries one can take any test one likes—the production of the steel industry, for example. Steel production in this country has slipped behind that of others. Our industry's conversion to new methods has been very dilatory. The prices have been unsatisfactory. The rings in the industry are now under discussion in court and I can, therefore, say no more about them than that.

The Whole history of the industry is a history of lack of enterprise and lack of technical advance This is the point that N. E. D. C. brought out so clearly in its report—the way in which we in this country have been slow not to make the basic discoveries but, once they have been, made to apply and use them. The result has been shown over the years in this slipping back by comparison with other countries.

That is what is wrong at the moment, and one would have hoped that even in an election year one would have had a chancellor of the Exchequer who would have considered whether Diogenes was entirely right and it was impossible to do anything about this kind of thing by the Budget or budgetry measures, or whether, as he and other chancellors have thought on other occasions, it was possible to do something There are obvious kinds of things.

Mr. Maudling

What?

Mr. Mitchison

I shall not suggest the measures to the chancellor—that is his job, not mine—but there are obvious kinds to do.

Mr. Callaghan

He is not in opposition yet.

Mr. Mitchison

He is jumping the gap too quickly.

Let me instance two. We have had legislation to use fiscal means to make distinctions between one part of the country and another, and the same thing has happened in the Local Employment Acts. That ought at least to have been considered on this occasion, having regard to the position in Scotland, on the North-East Coast and in some other parts of the country, notably Northern Ireland. The conclusion might well have been that what was wanted was not so much new legislation as tight enforcement of the existing legislation in favour of those distressed areas. That might have been the conclusion and, if so, it was a conclusion appropriate for the Chancellor of the Exchequer and appropriate in a debate on the economic situation. We did not hear a word about it.

We did not hear a word from the Chancellor about the effect of the special allowances in favour of scientific expenditure, research expenditure generally. We got nothing about that subject and yet we were discussing, or were supposed to be, the country's economic situation. He might at least have told us whether he thought that they were entirely satisfactory, or whether, as I believe to be the case, they were insufficient and that more needed to be done, and that the proof of their insufficiency was the way we had slipped back in this respect, as instanced by the first report of N.E.D.C.

At the end of three days it is a little unsatisfactory that so many hon. Members opposite have contented themselves, as the Chancellor of the Exchequer was childish enough to do just now, with asking why we did not vote against the Ways and Means Resolution, or with simply asking, "What would you do? Supposing you were Chancellor of the Exchequer, what is the limit? What taxes would you put on?" We expect even the lamest of lame ducks to quack a little in its own defence. It is not necessarily reduced to complete silence by its own complete inefficiency. For those reasons we shall wait with interest and fascination to hear whether the Economic Secretary is to give us something a little more positive than we have yet had from any member of the Government.

Before I sit down, may I deal with the Secretary of State? It was an engaging, lively performance, a mass of irrelevancies, omissions and half-truths, the kind of argument that must have annoyed de Gaulle so much. I have never understood why the French got so testy about the Common Market, but when I listened to the Secretary of State I said to myself, "There is the answer" I hope that the Economic Secretary will do better. He has an enormous gap to fill. Let us hear him fill it.

9.20 p.m.

The Economic Secretary to the Treasury (Mr. Maurice Macmillan)

Despite the directive that I have just been given, it is clear what my real task is tonight in winding up on this third day of the debate. It is to act as a sort of scavenger for this debate, to clear up some of the points which have been made and tie up the loose ends which have been left lying around before we resume our debate on the major issues on Monday.

For that reason I hope that the hon. Member for Middlesbrough, West (Dr. Bray) will forgive me if I do not reply to his points in detail, because they are some of the points which will have to be dealt with by my right hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Chancellor of the Exchequer. I thought that some of the points made by the hon. Gentleman were suitable to be dealt with by the hon. Member for Sowerby (Mr. Houghton). I am referring to the more technical aspects of taxation to which he referred, with which I am not sure whether the hon. Gentleman agreed or not.

Mr. Houghton

Is the hon. Gentleman expecting me to speak from the benches opposite?

Mr. Macmillan

The hon. Gentleman's views might qualify him to do so on some matters.

I do not think that there is a great deal of the main argument left to be dealt with. The hon. and learned Member for Kettering (Mr. Mitchison), after an agreeable opening essay in fiction, went on to say that there was very little defence of the amount which the Chancellor was taking out of the economy. That does not surprise me very much, because there has been very little attack on it, and certainly the demolition work carried out yesterday by my right hon. Friend the Secretary of State for Industry and Trade on the somewhat jerry-built structure of the Opposition's case was a complete job, and earlier this afternoon my hon. Friend the Financial Secretary knocked down the two fragments that remained.

The right hon. Member for Battersea, North (Mr. Jay) and the hon. and learned Member for Kettering made some attempt at restoration. They were not very impressive, and I do not think that very much has yet been said to indicate that my right hon. Friend the Chancellor is wrong. The hon. Member for Cardiff, South-East (Mr. Callaghan) said that this was an "if" Budget—if exports were increased, if imports were decreased, if world trader was increased, if Government spending was restrained, and so on, certain things would happen.

The Committee will appreciate that practically every economic judgment is an "if" judgment of that sort, simply because it is a matter not of fact, but of judgment. Despite the strictures from the benches opposite in 1963, and despite the criticisms of all the economic pundits, my right hon. Friend was proved right last time, and I have no doubt that he will be proved right again this time.

My right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell) sad that he thought that the Budget went to the limit of prudence. On economic matters, my right hon. Friend is not a speaker or a thinker who is inclined to be anything but prudent, and I think that that in itself is an answer to the strictures of right hon. and hon. Gentlemen opposite that my right hon. Friend the Chancellor has been imprudent and has not gone far enough in what he is taking out of the economy.

My right hon. Friend the Member for Wolverhampton, South-West has been accused of going back to Gladstone. It seemed to me that the right hon. Member for Battersea, North went back at least as far as the late Sir Stafford Cripps. The right hon. Gentleman was a little disingenuous in the way in which he argued from the particular to the general, and also in the way in which he quoted percentage increases in various parts of our economy without giving any indication of the relative size of the elements to which he was referring.

The right hon. Gentleman took the same sort of line in contrasting—as he put it—the views of the Board of Trade and the Ministry of Agriculture on the question of restraining manufactured goods. The difference in attitude arises because the objects and functions of the policies are different. My right hon. Friend make it quite clear that as a trading nation we are, naturally, constrained to do everything we can to increase and not decrease the volume of world trade. The recent experiences in Italy and, to some extent, France, have shown the view to be widely shared there. A great deal of trouble was taken by international authorities to ensure that their economic problems were resolved in a way which did not lead to a diminution of trade.

The Ministry of Agriculture is concerned to protect the agriculture industry rather than to deal with the balance of payments situation.

Mr. Jay

That is a surprising statement. Do we understand that the Government have no collective view on this matter? Are the Government opposed to import control, as such, or are they not?

Mr. Macmillan

I do not know whether the right hon. Gentleman disagreed violently with the Leader of the Opposition in some of the remarks that he made about agriculture when the Common Market negotiations were proceeding, but it is quite consistent for the Government to take a view about agriculture as a whole, which does not require the same techniques to be applied as have to be applied in the case of industry as a whole. We do not use the same methods for different objectives, and there is not any inconsistency in using different techniques in different spheres of operation.

The sneer of the hon. Member for Cardiff, South-East at the concessions which allow United Kingdom airlines to carry more cigarettes, alcohol, and so on, for sale, were rather cheap. He implied that this concession was made to benefit the richer supporters of the Tory Party rather than to allow British airlines to compete more successfully with their foreign competitors in providing what might be called fringe benefits.

The right hon. Member for Battersea, North quoted as a sort of magic figure the £65 million difference in respect of our balance of trade. Again, this was slightly disingenuous, because that is the c.i.f. figure, which includes elements which are earnings and not charges. It is more accurate to take the figures for the first quarter, in respect of which the balance of trade is minus £35 million, and not £65 million, on a monthly basis.

The second point which the right hon. Gentleman ignored in relation to this extremely serious part of our economic problems was the element of the increased outflow on long-term capital account and its relatively large size at the moment, together with its causes and results. I hope that he will forgive me if I do not take the argument much further, especially as one of my right hon. Friends will be talking about it later.

Mr. Jay

We have got lots of time. The hon. Gentleman says that I did not mention the outflow of long-term capital, which is now considerable. Surely that makes the problem more, and not less, difficult and disturbing.

Mr. Macmillan

Yes, but to the extent that capital is also part of the problem it reduces the likely effect—of what the right hon. Gentleman regards as a sort of conjuring trick—of resolving the problem by controlling the importation of consumer goods. The hon. Member for Dewsbury (Mr. Ginsburg) asked for a reply to a point connected with this which seemed to concern him and other hon. Members opposite. It related to the abolition of the so-called property dollar.

Again, the right hon. Gentleman mentioned that this would make it easier for people to buy villas—on, I think, the Riviera. This is an exchange control operation which comprises several parts. There was a special allowance of foreign exchange which could be obtained for buying property abroad for health reasons. This has been abolished, and that will save about £2 million a year. On the other hand, the repatriation of the proceeds of the sale of direct investments through the switch market will mean a loss of approximately £2 million to the official exchange, which roughly offsets the amount gained by the abolition of the requirement for official exchange for health property.

As a consequence, former purchases of property overseas is now allowed through the switch dollar market in the same way as other investments which do not qualify—

Mr. Bence

Will the hon. Gentleman please explain what is the switch dollar market?

Mr. Macmillan

The switch dollar market is a method of obtaining dollars for overseas investment for which the qualifications do not allow official dollars. It is a method of buying dollars at no loss to our official exchange, dollars which are already, as it were, overseas. Because the demand for them is greater than the supply, it involves whoever wishes to buy dollars in this way in paying a premium which I think is something between 10 per cent. and 11 per cent. This facility is available to those wishing to buy property. It cannot by definition in any way increase the burden on our official exchange.

Mr. Callaghan

It enables more villas to be bought.

Mr. Macmillan

I do not see that that remark makes the slightest difference. It does not affect the pressure on our official exchange.

Mr. Callaghan

If the two markets are merged, it clearly means—although the total call on our resources is no greater—that we shall have less direct investment which could be profitable and more purchases of overseas villas. The purchase of overseas villas is not likely to yield additional income to this country.

Mr. Macmillan

That seems to me a very dogmatic statement, made on rather slender evidence. Since it is very expensive to buy these dollars, I should have thought that, normally, it would not be worth while doing so, except for a purpose which yielded a return.

I wish now to turn to some of the arguments which have been advanced about the burden of taxation. I do not wish to repeat the figures or the arguments deployed so clearly earlier this afternoon by my hon. Friend the Financial Secretary. But I would remind the Committee that they showed that the proportion of revenue raised by indirect taxation is no higher now than it has been, in fact it is marginally lower, and that the level has been fairly consistent over quite a period of time.

In the various arguments used about the profits tax there was a tendency to make use of what Sir Alan Herbert used to refer to as "witch" words—words not clearly defined, and which, although constantly repeated to convince hon. Gentlemen opposite, did not seem to have any precise meaning.

Various hon. Members have admitted that the advantage of increasing indirect taxation is the speed of its action on the economy. The hon. and learned Member for Kettering appeared to see in this, evidence of a very urgent crisis. I prefer to see in it evidence of the foresight and wisdom of my right hon. Friend in taking action before a crisis can descend upon us. There is an old saying, which appears to have escaped the hon. Member, learned though he may be, that "A stitch in time saves nine".

While we are on the subject of indirect taxation, I should like to tell the Committee about one other change which has not so far been mentioned in Purchase Tax and Excise duty. It refers to a beverage—which, I think, will be more familiar to the hon. Member for Sowerby than to some other members of the Committee—known as "black beer". To, those hon. Members who do not know about it, I must explain that "black beer" is not beer in the ordinary sense of the word. It is a syrup brewed from malt and sugar, mainly in the north of England, either for medicinal purposes or as a basis for other drinks. I think one such other drink is familiarly known as "Sheffield stout".

Mr. Houghton

I am grateful to the hon. Gentle man, but, since I have many temperance constituents, to avoid any misunderstanding I ought to say that I do not drink black beer and that I have never had any black beer, but it happens to be a Yorkshire brew. I am content to have my position in this matter made clear to my constituents.

Mr. Macmillan

The hon. Member is betraying over this matter the same unnecessary anxiety which he and his hon. Friends are betraying over the argument on the Budget. Black beer is, in fact, not an intoxicating drink. The duty was imposed on it to protect the beer revenue against the danger of it being used as a basis to make ale, rather than being taken as a drink itself.

The pattern of the industry has altered to such an extent that that danger no longer exists. It is quite impossible for black beer to become a substitute for beer. There is no justification for the continuance of the duty, so it is proposed that it should be abolished and that black beer should come under the category of soft drinks for Purchase Tax purposes.

Mr. Bence

We teetotallers escape the burden on beer.

Mr. Macmillan

The hon. Member is being very captious. He complains that drinkers of beer bear the burden and then that teetotallers have to share it.

The hon. and learned Member for Kettering said that the Budget imposes taxes on the consumer rather than on profits and dividends. Another way of looking at it is that it is a tax on spending rather than on earning or saving. My hon. Friend the Member for Cheadle (Mr. Shepherd) made a valid point when he contradicted the hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), who complained that the economy was not in better shape, by pointing out that people are a great deal better off and the improvement has been measurable and substantial.

I wish, next, to refer to a point my right hon. Friend the Member for Wolverhampton, South-West and my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) made about the increased provision for Exchequer loans to local authorities this year.

My right hon. Friend the Member for Wolverhampton, South-West doubted whether it was logical to disregard the increase of £165 million in net lending to local authorities when considering the rise in the net borrowing requirement between last year and this. My hon. and learned Friend the Member for Darwen, on the other hand, was disappointed that the lending to local authorities had not been reflected in lower rate demands. I do not think that there can be any real dispute in economic terms about the "transfer" nature of the increased provision for loans to local authorities.

The new arrangements, introduced this month, will enable local authorities to borrow more from the Public Works Loan Board. Their need to borrow from the market will, therefore, be correspondingly less. Since new borrowing arrangements are not necessarily accompanied by a pro rata increase in capital expenditure, we are not adding to the calls on resources by the change in the borrowing arrangements but simply providing a greater proportion of a given total via the Exchequer.

Mr. Houghton

Does not that mean that there may be an additional charge on the Exchequer and, indeed, on internal finance? As I understood it, a number of local authorities have taken advantage of short-term loans from overseas and it was partly to correct the danger of that tendency to our balance of payments that the Public Works Loans Act was introduced.

Mr. Macmillan

I believe that I am still right in thinking that the economic effect is not so great. It is to the fiscal effect that the hon. Member refers rather than to the purely economic. He was anxious to anticipate me, as always, and I was about to come to that point because my hon. and learned Friend the Member for Darwen referred to the burden on the rates. In this, of course, he was contradicted by the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn), who said that it is a mistake to talk about the burden of rates—they are a great bargain. I am bound to admit, of course, that the right hon. Gentleman does not live in Westminster.

My hon. and learned Friend the Member for Darwen went on to say that The public was led to believe that when industrial hereditaments were to be partially included in the rating system the burden on the individual householder would be relieved. But that is no one's experience as far as I can see, even in the areas which have been least hard hit."—[OFFICIAL REPORT, 15th April, 1964; Vol. 493, c. 509.] It has happened in many places, among others in the County Borough of Halifax.

The point I make is twofold. The first is that any attempt to reduce the charge of interest rates on local authorities by having a lower rate of interest is merely a transfer of the burden of the cost of borrowing from the ratepayer to the taxpayer. There is no way round that, though the right hon. Member for East Stirlingshire seemed disposed to doubt it. But whatever views the Committee might have on the desirability of taking such action, there is no doubt that it is merely a transfer of burden from one section of the community to another.

When considering this point it is worth remembering that the general burden of rates is now a smaller proportion of the gross national product than it was before the war, that less than one-half of local authority spending is met from the rates, and that the rates which householders pay provide less than a quarter of local authority spending. It is worth remembering, also, that the average rate burden is much the same in real terms as it was before the war. I stress the word "average". The point to be recognised is that this burden is very uneven. It is by no means certain that in every case the highest burdens of rates are on the richest areas. It is for this reason that the Government have taken steps for the interim relief of hardship, a problem on which the Allen Committee is also working to provide a more permanent solution to the longer term problem, covering also the human aspects.

Mr. Mitchison

No doubt, rates are a hot potato—we all agree on that—but I think that we can agree that there is room for a careful review of the relations between central and local finance. Would the hon. Gentleman also agree that if, after a review, we come to the conclusion that there is a case for transferring some of the burden from the ratepayer to the taxpayer, then the method of a specially low interest rate for local authorities, at any rate, falls to be considered as one of the practical possibilities?

Mr. Macmillan

The first thing to do is to consider the extent and the amount of the problem and to get some idea of the facts. Any Government who committed themselves to using one method of solving a problem before they discovered what the facts of the problem were would be very foolish indeed. We all know what the problem is, but we do not know all the details and there is a strong case for making a careful study. Turning to Customs and Excise matters, and particularly to the consideration of changes made in implementing the E.F.T.A. agreement—

Mr. Callaghan

I am obliged to the hon. Gentleman for giving way. Is there any chance of getting a reply to the question that I asked yesterday about the yield from the speculative gains tax? We were told that no estimate could be made. Legislation has been on the Statute Book for two years. I ask the question with 13 minutes to go, and I hope that the resources of the Treasury can provide an answer by ten o'clock.

Mr. Macmillan

I have nothing to add to what my right hon. Friend the Chancellor of the Exchequer said.

Mr. Callaghan

I apologise for interrupting again. I realise that the Chancellor has decided that we cannot be told, but why is the information not available? The tax yield for the year ended 5th April has been published. This is one of the key features in the Government's policy in relation to pay and incomes. We were told that this was to be the offset to doing injustice to the nurses and the teachers. Now, two years after the legislation has been introduced, the Government cannot tell us whether there was any yield. The Chancellor must not mind if we draw the conclusion that the yield was derisory and that he is ashamed to tell us.

Mr. Macmillan

I do not think that the hon. Gentleman will really expect me to answer those somewhat naive remarks.

Mr. Bence

We do.

Mr. Macmillan

My right hon. Friend has already answered this question completely and in a perfectly straightforward manner. There is no reason, in the face of taunts of that nature, for me to be induced to add to what has already been said. My right hon. Friend explained in his Budget speech that certain of the proposals made in this year's Budget are in fulfuilment of our obligation under the E.F.T.A. Agreement. The Convention requires us to eliminate by 1st January, 1965, any effective protective element in Customs duties on goods imported from E.F.T.A. countries. That is the reason why we have had to remove the protective element in the Excise duty on hydrocarbon oils produced at home and to make the adjustment by removing the residual protective element in the duties on tobacco, beer, and spirits.

There is, however, the adjustment which has had to be made in order to avoid bringing about a reverse preference on Commonwealth imports. I do not think that I need detain the Committee longer on this technical matter. It is hardly a point of dispute. It is in fulfilment of our treaty obligations, and, as regards hydrocarbon oils, the industry has until 1st January, 1965, to make the necessary adjustments.

While I am on the subject of Customs and Excise, I wish to take this opportunity to congratulate the Department on the way in which it succeeds in keeping pace with some of the changes which are required by both treaty obligations and technical advances. It does not take a great deal of imagination to understand that, in the construction industry, the heating of houses, and so on, the technical advances associated with prefabrication impose considerable difficulties of definition on the Department, which is always charged with the responsibility of balancing encouragement of efficient techniques with the need for definition and avoidance of erosion of the tax. I congratulate all concerned on the way in which they succeed in doing this.

There has been a similar attempt to modernise—if that is the phrase in the jargon which is used now—the National Savings Movement. In his Budget, the Chancellor announced various changes to help the movement. I join with him in his congratulations to Mr. Archer and, even more in my particular position, to Lord Mackintosh for his great work for the movement.

We are now proposing to make to the Trustee Savings Banks payments for management expenses of the Government stock department. I wish, also, to congratulate them on the passing of the Act enabling them to offer cheque facilities, and I hope that they will make other adaptations of their methods to meet the needs of their depositors in the future.

The whole question of savings has now become one of making sure that the methods and techniques available meet the changing needs of the general public. I apologise to the hon. Member for Glasgow, Craigton (Mr. Millan) for being absent during his speech. I think that the hon. Gentleman identified one of the difficulties of contractual savings, that is, switching between savings rather than attracting new savings. I think that this danger can be met to some extent at least by devising savings media which are accurately suited to the needs of the public investing in them.

This, of course, underlies the Chancellor's announcement of an investigation into the possibilities of offering facilities for contractual savings through the National Savings Movement. Clearly, any new form of ordinary savings certificate must depend to some extent on the outcome of that study, so that the whole field of demand is covered by the various forms of saving available.

There is one other point about switching. Despite the very high rate of savings now, there is a surprising amount of what one might call loose cash almost lying about. The other day, I went to a building society conference at which the figures revealed were really remarkable. In 1937, there were about £9 6s. in savings in a sock, so to speak, per head of population. This figure had risen by the present date to over £40 per head—man, woman and child—or about £120 per household. This is a very cheap form of Government borrowing, but it is a form which, the Committee will agree, is rather wasteful in real terms.

I can assure my hon. Friend the Member for Twickenham (Mr. Gresham Cooke) that his ideas will not be excluded from consideration in the Treasury as long as I am there. I viewed his remarks with a certain degree of nostalgia, but I must point out to him that my right hon. Friend's announcement concerned itself with a survey of the possibility of contractual savings within the National Savings Movement. My hon. Friend put one of the great difficulties which stand in the way of his ideas. He said that one could not draw out on the form of savings which he was proposing over a long period of years, but some provision must be made for premature withdrawal, and that is where the real difficulty arises.

The pattern of savings over the years is reassuring for the future. One of the reasons why I look forward with such confidence to the outcome of the Chancellor's Budget in the next few years is that I think that there is every hope and possibility of maintaining the marginal propensity to save which has been going up steadily since 1954. Although it is not a factor which can by itself obviate the need for fiscal and other action, it is one which is, as right hon. Members opposite have admitted, of some importance.

The charges which have been levelled at my right hon. Friend have, I think, been refuted completely, not by me—because I have not tried to refute them—but by my right hon. Friend himself and by my right hon. Friend the Secretary of State for Industry and Trade. Such claims and contradictions by right hon. and hon. Members opposite which as yet have not been exposed are awaiting the onslaught of my right hon. Friends on Monday next. As has been repeated constantly, the Opposition have failed to produce any coherent alternative. They have not tried to show that the amount which the Chancellor is taking out of the economy is wrong. Although they have tried their best, I do not think that they have established the case that the incidence of taxation has that degree of unfairness that they claim. They have spun out the thread of their verbosity finer than the staple of their argument. But, despite the Job's comforters of the expert Press, events prove that my right hon. Friend was right last year, and I have equal confidence that he will be able to make the same claim from this Box next year.

Mr. Bence

If the hon. Gentleman cannot give us the figures of yield from the capital gains tax for the last two years, could he by Monday ascertain for us the cost of the efforts which have been made to collect it?

Whereupon Motion made, and Question, That the Chairman do report Progress and ask leave to sit again—[Mr. Finlay]—put and agreed to.

Committee report Progress; to sit again Tomorrow.