HC Deb 12 April 1965 vol 710 cc961-1093
The Chairman

Before I call the first speaker I have one observation to make. There are 25 hon. Members still who wish to speak in the debate on the Budget. Last Thursday Front Bench speakers were most co-operative, but four back bench speakers between them spoke for 2¼ hours, over half an hour each. I would point out to the Committee that an over-long speech deprives some other hon. Members of an opportunity which many are anxious to enjoy. I shall try during today's debate to call those who have sat day after day hoping to catch my eye, but I hope that hon. Members whom I call will remember that there are others who wish to speak.

Mr. Robert Maxwell (Buckingham)

On a point of order. Last Wednesday I sought your permission, Dr. King, to continue my speech, interrupted on the previous evening, and you ruled that I had closured myself at 10 o'clock the previous evening, quoting as a precedent your predecessor, Mr. Chairman Whitley, on 21st April, 1920. I have done some research into the matter and have a precedent 33 years later, 15th April, 1953, by your predecessor, Sir Charles MacAndrew, who allowed the then Member for Wallsend to continue an interrupted speech on the Budget proposals in the same circumstances.

I had not closured myself. I was invited by the Chairman of the Committee to stand down as we had reached 10 o'clock. Since I am sure you would not wish either to leave me with any feeling of injustice or, what is more important, Dr. King, to deprive back bench Members of this Committee of what I understand has come to be considered a right, I wonder whether, having regard to my precedent being much more recent than the one you quoted, you would be good enough to reconsider your previous Ruling?

The Chairman

Any hon. Member who thinks he is unjustly treated by the Chair should take the opportunity of raising the matter either with the Chair in the Chamber or outside the House, and I therefore make no complaint against the hon. Member for raising again what I think is a very important point. Perhaps it would clear the matter if I were to state the position as I see it.

When the House is in Committee any hon. Member may speak as many times as he likes provided he catches the eye of the Chair. The precedent to which the hon. Member refers, the precedent of Mr. McKay—and there is another one—simply means that when the hon. Member got up on the second or third day of the debate to speak he did catch the Chairman's eye and the Chairman selected him to speak.

What I ruled last week was that in Committee of Supply or Committee of Ways and Means an hon. Member has not a prescriptive right, if he was the last speaker on the previous day, to be called the next day. That is my Ruling, which is established by precedent, and I abide by it.

I could, of course, have called the hon. Member for a second speech on the second day when he rose to try to catch my eye. If I did not do so it was not out of any discourtesy to the hon. Member. I have many factors to consider in selecting speakers for debate, and the Chair must choose who catches its eye, and that choice cannot be questioned, except by a Motion on the Notice Paper.

3.56 p.m.

The Chief Secretary to the Treasury (Mr. John Diamond)

There can be no doubt that the Budget introduced by my right hon. Friend the Chancellor is an outstanding one. It is particularly outstanding in its fairness and in its relevance to the circumstances of today. Let me demonstrate its fairness by reminding the Committee of its effects on various sections of the community. I agree, of course, that we must include the effects of last autumn's legislation to get the full picture.

So far as the poorest people are concerned, those who are below the level of Income Tax, we have provided direct help by means of greatly increased pensions and National Assistance and by removing prescription charges. Next, the impact of increased direct taxation has been so adjusted as to bear extremely lightly on the vast majority of our people. If we take as an example the average family, a man and his wife and two allowable children, we find that with earnings of £1,000 a year their tax is going up only 12s. a year; at £1,200 a year by 22s. 2d. a year; and even with an income of £4,000 a year, nearly £80 a week, such a family will still pay less than 5s. in every £ in tax and Surtax. But the supreme reason why the Budget is so generally accepted as fair is that for the first time in our tax history every one of us is being called upon to contribute according to his means whether derived from gainful employment or capital gains.

The Budget is relevant in very many ways. I shall refer only to three of them. It is extremely relevant to the task of strengthening sterling through its effect on the balance of payments. It is very relevant to our economic difficulties in helping to secure the mobility of labour. Thirdly it is relevant to our public expenditure problem in connection with the procurement of aircraft. My right hon. Friend the Chancellor will be saying a word about the first of these later this evening. Perhaps I may refer shortly to the other two.

Willingness to accept change is one of the greatest needs in our society. So far as labour is concerned, what that involves is willingness to change one's job. The key to securing such an attitude is the removal of any attendant hardship, especially by making payments for redundancy. This Budget, by relieving such payments from tax, is making a real contribution towards securing mobility of labour, and no one can be happier about this than I, who endeavoured for three successive years to bring in a Bill to provide severance pay only to find it blocked by Tory back benchers and talked out by Tory Front Benchers.

Another aspect to which I desire to refer is that of public expenditure. The previous Government did not merely incur a vast deficit on the balance of payments but seriously over-committed the nation in terms of public expenditure, and it has been this Government's task, in which I have played my traditional róle, not only to contain public expenditure within planned limits, but to begin reshaping it. As the Committee knows, public expenditure involves commitments for many years ahead—hospital programmes, school programmes, building programmes, defence programmes. All these involve commitments running far into the future.

Let me say straight away that so far as the Socialist Government are concerned a great deal of this was acceptable expenditure, but by no means all. Our complaint is that it was lopsided, excessive, and unrelated to planned resources. We have taken steps so to alter the processes of Government relating to public expenditure as to bring it under control. In addition, my right hon. Friend the First Secretary of State is engaged with the Chancellor in relating public expenditure in some detail to our resources. We have started on this task of reshaping so as to make it accord more closely with Socialist priorities. Quite simply, what this requires, in a situation where resources are fully committed, is reducing expenditure on items of lower priority and spending the money so saved on projects of higher priority.

It is for our Socialist Government to fix the priorities. Let me make it quite clear that I am not only talking of candle ends. Avoiding waste and obtaining value for money is a continuing process, the importance of which is fully recognised, and indeed in the practice of which I have participated for one-third of a century. But it is not by careful sLpervision alone that room will be found for expenditure of a kind which may be essential for the development of our social services and so on. I have in mind those thousands of old people who need pensions but lack them. It is only by policy decisions, difficult decisions, that this hard exercise is going to be achieved.

We are beginning, after the most careful thought, to take those decisions and, as was to be expected, we are unlikely to receive any help from the Opposition. What they support is a reduction of public expenditure in theory but not the courageous decisions which are needed to bring that about. We shall be debating one such decision with regard to defence expenditure tomorrow.

Defence expenditure also has its effect on our balance of payments. As the Chancellor of the Exchequer explained, our defence expenditure, including defence aid, is running at about £300 million in foreign exchange alone. Of this figure, more than £80 million is incurred in West Germany. This is a matter in which I have been particularly concerned, and I shall be returning to Bonn in the near future in an endeavour to lighten this burden and to negotiate new arrangements in place of the totally inadequate document which I inherited from my predecessor.

Perhaps I might add a word of explanation to what I have said about public expenditure. At the present time we are concerned with containment, but not for containment's sake. In the years ahead public expenditure as a proportion of our total national product will tend to rise rather than fall, for the simple but fundamental reason that human beings have learned that much of what the individual needs, society is best equipped to provide.

One of the outstanding achievements in this Budget is the Corporation Tax. It is one of the greatest contributions towards a progressive and efficient economy, and it has many virtues. It provides flexibility in the tax system. It removes existing anomalies. It is intelligible to the business man. It discourages tax avoidance. It helps sterling, and it encourages efficiency and growth.

It provides flexibility by separating companies' tax from tax on individuals. Up to now a Chancellor could not adjust the tax on companies by altering the standard rate without first taking into account the effect of that variation on individuals, and I have never understood what, for tax purposes, the profits of a paint purchaser in Poplar had to do with my maiden aunt in Maldon.

From now on companies will be treated for tax purposes in the way they would always have been had the practice of forming companies historically preceded the creation of our tax system, instead of the reverse. Not only is that separation of the greatest advantage in terms of the sensible management of the economy, but it is of vital importance in carrying out our incomes policy, on which my right hon. Friend the First Secretary of State is so successfully engaged, for this very flexibility gives the Chancellor freedom to increase or decrease the weight of company taxation as circumstances demand.

The Chancellor has described some of the anomalies which will be removed, and I need not therefore cover that ground again. It is of great importance to a Chancellor seeking to secure the maximum co-operation of the business community that the system of taxing business profits should be easily understood. Under the present system, the tax paid in a particular year mostly bears no relationship to the profits made in that year. Moreover, Income Tax may be based on one period and Profits Tax on an entirely different one. The business man quite naturally finds himself completely baffled. In future, business life will be simplicity itself. The profits of an accounting period will be calculated and the business man will know that on those profits he will be called upon to pay Corporation Tax. That will be the end of it.

Not only does this fundamental reform in the method of calculating the tax due introduce simplicity and intelligibility, but at the same time it puts an end to a series of tax avoidance practices relating to the opening and closing years of a business.

As I have said, the introduction of Corporation Tax helps sterling, for it highlights the bias which exists in our present system in favour of investing abroad, and, in highlighting it, enables the necessary corrections to be made.

Finally, I claim for Corporation Tax that it encourages efficiency and growth. The simple fact is that businesses require capital and that generally the more business they do the more capital they require. As has been said many times by my right hon. and hon. Friends, we on this side of the Committee recognise that we have a mixed economy and that it is in the interests of the nation that both the public and private sectors should go from strength to strength.

We wish these expanding businesses well. If they reply, as business men are apt to reply, to the Government, "Thank you very much, but we do not want your good wishes alone, we want help, financial help, in relief from any unnecessary weight of taxation so that we can use our hard-earned profits in expanding our businesses", then I will say to them, "For the first time in 13 years you have the right man, and his name is Callaghan".

Whereas under the present system a company can retain only 8s. 9d. in the £, or 43¾ per cent. of its profits—the rest going in Income Tax and Profits Tax—in future it should be able to retain 60 per cent. or more. I say "60 per cent. or more" because if Corporation Tax is 40 per cent. the balance is 60 per cent., and if it is 35 per cent. the amount retained becomes 65 per cent., or 13s. in the £, and this is 50 per cent. more than 8s. 9d. Under the new system business men will have the possibility of retaining up to 50 per cent. more of their profits than under the existing system to help their expansion, a truly staggering encouragement.

It is well established, both here and abroad, that most firms get the bulk of the additional capital for necessary growth out of retained profits. Indeed, I should like to emphasise that the small growing firm has virtually no other means of increasing its equity capital. It may have borrowing facilities, but it cannot go to the market to seek fresh capital from time to time, not until it is so well established as to be almost a household name. It is particularly the relatively young and growing firms that need this help.

Where part of a company's profits are distributed, Income Tax will be payable on the dividends in addition to the Corporation Tax paid on the profits. In this way the new system will deter excessive distribution and therefore encourage expansion. The right hon. Member for Bexley (Mr. Heath) disagrees. He argues that it will still be possible for a company, if it is so minded, neither to distribute its profits and dividends, nor to invest them in new plant, but merely, by retaining them, to grow fat. This is admittedly possible although by no means likely, and therefore I propose to examine in some detail the possibilities in order to demonstrate that in all cases the new system provides a healthy corrective.

First, as regards private companies, there is perhaps a danger that the principal shareholders might prefer to retain funds in the hands of the company rather than to distribute them so that they will become liable to Income Tax and Surtax. The Finance Bill will, however, contain provisions under which closely controlled companies which do not distribute a reasonable proportion of their income will have to pay to the Revenue the Income Tax which they would have had to deduct and account for if they had paid dividends. Surtax will also be payable in these cases. Moreover, shareholders in closely controlled companies will not be able to pile up profits in the hands of their companies in the confident expectation which they have at present that they will be able to extract them later in a tax-free form.

The Finance Bill will contain provisions under which money which reaches the hands of shareholders in forms which do not give rise to tax liability at present will become taxable in the same way as dividends, if a company continues in existence. If the company is wound up the shareholders will have to pay Capital Gains Tax on amounts accruing to them in the liquidation. There is therefore no likelihood of private companies growing fat and flabby as opposed to fit and prosperous.

Let us now look at the privately-owned public companies. Large public companies do not generally pile up large retentions in cash or portfolio investments. Broadly speaking they either put reserves to productive use or give out the available funds as dividends. A company which hoarded its profits would be a sitting target for a take-over bid, because the market value of its shares, which is based to a large extent on its dividend record, would be likely to be substantially lower than would be justified by the value of its assets. The danger therefore is not likely to arise in the case of public companies.

Mr. William Yates (The Wrekin)

I have been following the hon. Gentleman's speech very carefully. I am not clear what is the liability to tax, under this Budget, of the nationalised industries or partially nationalised industries.

Mr. Diamond

Broadly speaking, the answer is that it is the same as in the case of non-nationalised companies. They are taxed on their profits in the ordinary way, as the hon. Member knows, or should know.

I was dealing with the danger of public companies not distributing their profits and not investing them, but merely growing fat. If ever we were to find in future that there was a growing tendency for such companies to retain profits merely for financial investment, the solution is clear: as my right hon. Friend has already explained, he would propose further changes in the treatment of inter-company dividends, and the resulting weight of taxation would be an effective deterrent to excessive retention.

Neither with private nor with public companies, therefore, will the advent of Corporation Tax encourage the retention of profits as opposed to their productive reinvestment. The "survival of the fattest" was a striking phrase of the right hon. Gentleman's, but a wholly irrelevant one in this context, although, for aught I know—looking as I do from this Dispatch Box at the Front Bench opposite—it may be more relevant in another contest, with which the right hon. Gentleman is closely concerned.

I still have to deal with the more serious argument whether economic growth is better served through investment from profits ploughed back than from investments distributed and reinvested through the open market. Should we discourage distribution, as the Corporation Tax does, or encourage it, as the Germans do? The figures show that the former course is the only safe one. In 1958 the two-tier Profits Tax system came to an end. No longer did profits distributed by way of dividends have to bear a much greater rate of tax than those which were retained.

The effect on dividends was most marked. In the five years prior to 1958 the rate of growth of dividends was 6 per cent. per annum. The rate of growth of dividend distribution in the five years following 1958 was 12 per cent. per annum. The rate of growth had doubled as a result of the removal of the deterrent to distribution. But—and this is a very important point—the pattern of financing was virtually undisturbed. Prior to 1958 only 8 per cent. of the gross investment of equity companies was financed by new equity issues. In the following five years the proportion rose from 8 per cent. to a mere 9 per cent. Far more dividends were distributed year after year, but they did not find their way back into equity issues on the market.

Mr. Stratton Mills (Belfast, North)

What the hon. Member says does not necessarily apply to growth companies. For example, since 1957 Elliott Automation has increased its capital by £26 million and only £3 million has come from retentions.

Mr. Diamond

I have already explained that one cannot go to the market if one is a small and growing company. It is possible to do so only in the case of a big, well-established company, which has become a household name. The hon. Member has given us one of the most famous household names in the country—one of the largest and best-known companies. I have been trying to explain that I am not looking at one company. I am looking at the total investment of all companies through the Stock Exchange and through growth in their own companies. The figures that I have given are total figures. It is always possible to pick a figure for one company. The hon. Member may think that picking on one company disproves the argument about totality. I am saying that in respect of companies as a whole the dividend rate was doubled.

The argument of the Front Bench opposite is that if the rate is doubled dividends are therefore increased, money flows into the shareholders' hands, and they in turn re-invest through the market, and that companies which need to grow more get this money. That is quite wrong. The figures for this country and elsewhere are absolutely clear. Even when one has a starting place, and where one can make a comparison, as in the case of the five years prior to 1958 and the five years subsequent to 1958, where the alteration in the law resulted in the growth of dividends being doubled there was still the same answer, namely, that generally speaking companies grow out of their own resources.

As I was saying, far more dividends were distributed, but they did not find their way back into equity issues on the market. On the other hand, the proportion of business investment financed from ploughed-back profits fell only slightly as the result of the payment of higher dividends, from 69 per cent. in the five years prior to 1958 to 65 per cent. in the subsequent five years. The figures demonstrate that in this country the capital which makes growth possible comes, as to two-thirds, out of companies' own profits. Corporation Tax therefore makes possible ever faster development.

The German situation drives one to the same conclusion. West Germany lacks a capital market which is at all comparable to ours. In order to create one they have for the past 12 years substantially encouraged companies to distribute their profits by taxing them lightly while at the same time taxing retained profits very heavily. Yet the pattern of financing has remained virtually unaltered, for after 12 years the proportion of new equity capital coming from the market is still only 3 per cent.

Notwithstanding fiscal encouragement of the most direct kind the fact remains that there, as here, in slightly varying degrees, most companies depend on their profits for their own development. By increasing the proportion of those profits available for investment after tax by anything up to 50 per cent. my right hon. Friend is giving the most marked and dramatic encouragement to the growth of companies.

I have claimed many virtues for this one tax, but I have demonstrated the validity of my claims. That is why so many other countries have a similar tax. The introduction of this tax and the Capital Gains Tax will revolutionise our tax system. They are the hallmarks of a just society and a dynamic economy. These taxes, Cap. and Corp.—I might almost say Cal's Cap. and Corp.—will remain an integral part of our tax system for many years ahead and will outlive many Governments. It is therefore a great privilege for me to be associated in a minor way with my right hon. Friend in giving shape to this great reform.

4.20 p.m.

Sir Edward Boyle (Birmingham, Handsworth)

The Chief Secretary to the Treasury spoke about the importance of fairness and relevance. I want to say—because clearly it is an economic matter—that I think there was neither fairness nor relevance, in terms of the present economic situation, in the statement today from the Minister of Power. As was rightly said by some of my hon. Friends, here is a case of two important nationalised industries being forced to act against their commercial judgment.

I regard it as of the highest importance from the economic point of view that we should not go back, as a country, on the doctrine laid down in the 1960 White Paper on the nationalised industries. That White Paper laid down quite clearly that there was a part of the public sector which ought to act on commercial grounds, and equally, there was another part of the public sector in which we were primarily concerned with social considerations. I regard that distinction as of importance and I cannot imagine anything less helpful to the present state of our economy than blurring it in the way the Government have done. We look on that as a most regrettable statement.

I make this comment on the speech of the Chief Secretary; I shall be referring to one or two more details as I go along. I waited to hear what he had to say about social priorities in public expenditure, and I was interested in what he had to say about the seriously over-committed public sector. When I was Minister of Education I do not recall that anyone accused me of seriously over-committing public expenditure. I think it remarkable as an example of social priorities that one of the first things the Government reduced on coming into power should have been expenditure on minor capital works for schools. When the hon. Gentleman talks about social priorities and then says that the proper pattern of public expenditure is to reduce all items of lower priority and increase spending on items of higher priority, I beg the party opposite not to allow high sounding words to take the place of thought. We get nowhere by completely vacuous definitions of that kind.

I come on to the relevance of the Budget. Last Wednesday, the First Secretary of State and Secretary of State for Economic Affairs claimed that the tax changes proposed in the Budget were designed not only … to get our international accounts back into balance; they are designed to foster the expansion we need and a competitive economy".—[OFFICIAL REPORT, 7th April, 1965; Vol. 710, c. 521.] No one will dispute the importance of these objectives. Clearly Britain's economic future depends on the success of industry in increasing productivity and strengthening our competitive performance in the world markets. As was said by my right hon. Friend the Member for Bexley (Mr. Heath), we want a climate in which people feel impelled to increase efficiency and productivity. But we cannot agree with the claim of the First Secretary that the Budget will help to bring this about. On the contrary, we believe that this Budget fails completely—and fails at a vital moment in our economic affairs—to encourage higher efficiency in British industry and more rapid development in British technology or to give any kind of incentive for the future to British management.

The tax increases which the Chancellor has imposed in his two Budgets together with the expenditure reductions are designed to cut home demand by more than £500 million in 1965–66 and, indeed, by nearly £600 million in 1966–67. When one takes account not only of these two Bugets but, in addition, the 7 per cent. Bank Rate and the very severe credit squeeze, one understands why the Committee shows impatience with the remark of the First Secretary that this Budget signals the end of the weary recourse to stop-go measures. I must say that when I heard that remark in the speech of the Chief Secretary and was conscious of a certain impatience I could not help being reminded of the well-known observation of Huey Long, that it is the easiest thing in the world to create a Fascist party—all you have to do is to call in an anti-Fascist party.

My right hon. Friend the Member for Bexley said that everyone in this Committee, however much they opposed taxation and dislike it, must hope that the Chancellor has made a judgment which will restore strength to the £. I repeat that remark and that assurance today. My right hon. Friend was perfectly right to discuss, rationally and calmly, this issue of devaluation in the House of Commons. But let me repeat that, in my belief, while I know that a case has been and can be made for this by some economists, devalution is not the answer to our present difficulties. The disadvantages of it are greatly under-rated by some economic writers.

I wish to mention two arguments to which I think some economists give far too little heed. For one thing I agree with the view of the late Professor Sir Hubert Henderson—with whom, incidentally, I often found myself in agreement—that we could do it once after a war but that if we made a habit of it wages would adjust pretty quickly, there would be a lack of confidence in the world outside and little benefit would be achieved. The other point is do let us remember that we are dependent in large measure on our exports of capital goods. If we deliberately make ourselves poorer we have to send out more capital goods for the same volume of imports. To me that seems a highly important consideration. I repeat, as my right hon. Friend said, that the prices of our goods in the international markets today are not, on the whole, out of gear.

The test of any Budget lies not just in its short-term effect but how its longer strategy fits in with national needs. If we are to achieve steady growth it is essential to have a consistent long-term strategy for the development of our economy within which detailed decisions may be taken. While it is true that no Chancellor can ignore the needs of the short-term, it is equally true that choices are always open to any Chancellor which affect not just the short-term but the longer-term future as well. Our case is that the right hon. Gentleman has quite wilfully made the wrong choice by introducing a whole series of tax measures loaded against productive enterprise, despite what one would have thought the evident fact, that our hopes for expansion depend to a large measure on the profitable progress of private industry.

This is particularly surprising, because this is the first full Budget of an Administration led by the present Prime Minister. With respect, I never thought that the Prime Minister had very strong commitments to particular economic or political doctrines. But on one point at any rate the right hon. Gentleman can claim, up to now, to have been consistent. In many Budget debates that we can remember the Prime Minister has laid overwhelming emphasis on the need to encourage industrial efficiency. In his speeches in the country—I am thinking especially of his Scarborough speech at the party conference in 1963 and the Swansea speech in January 1964—the Prime Minister presented himself to the nation as a protagonist of the view that we needed to develop a new science-based British industry, active, energetic and technologically skilful. I wish to quote to the Committee one or two sentences from the Prime Minister's Swansea speech: In the long run the problem is to create those structural changes in production which are needed to strengthen the economy. … It is too, to repair gaps in the economy, both in terms of physical capital investment and in the numbers of trained skilled workers, so that we do not have to restrain production through shortage either of plant, or of skilled craftsmen or technicians.

The Chancellor of the Exchequer (Mr. James Callaghan)

In the long run.

Sir E. Boyle

I heard the Chancellor say, "In the long run". But it is true that, as I said just now, at all times the Chancellor does have choices which he is at liberty to make which are going to influence the future. When one looks at this Budget it is impossible to see what its provisions have to do with the creation of the sort of Britain to which the Prime Minister referred in that speech. It seems to me clear that if we want the sort of development which the Prime Minister used to talk about, certain conditions must be met. First, there must be adequate incentives for individuals. The scientists and executives must feel that they have a promising future ahead of them. This future must surely include reasonable financial prospects, particularly for saving, and also a prospect of financial security. I saw that the Prime Minister said yesterday at Reading—when he was allowed by his listeners to talk about any subject other than Vietnam—that the new industrial revolution would go through whether we liked it or not, but he went on: Unlike the first industrial revolution, it must be tempered by humanity. If the Prime Minister meant by that remark that industrial progress ought to be accompanied by social progress and greater attention to environmental services, of course we fully agree. Indeed, that is just what was happening under the previous Government. Social capital spending, the environmental accompaniment to rising living standards, went up in the last Parliament alone from an annual level of £730 million to about £1,300 million.

But if by humanity the Prime Minister meant principally a more egalitarian tax system, I cannot see any humanity in anyone wishing to deny scientists and executives a reasonable prospect of bettering themselves and their families. If one looks at the Budget from the point of view of the efficient young man in industry, one sees that it adds to his direct taxation through the increase in Income Tax, and it most certainly affects his hopes of building up his own savings. The Chief Secretary pointed out the numbers of people who would hardly be affected at all by this Budget. But this is another way of saying what is perfectly true, that our tax system is steeply progressive.

As my right hon. Friend the Member for Barnet (Mr. Maudling) said over the weekend in an article: It is not that our taxes as a whole are necessarily higher than those of other countries. What matters most is that our system of personal taxation is much more steeply progressive than, for example, in America, Sweden or Germany; and the additional burden placed on higher rewards earned by effort and initiative is much higher here already than it is in other countries. That is the point. We know how this fits in with the sort of society which the Prime Minister said he wished to build.

Secondly, there is another essential factor. If we are to achieve a more egalitarian British industry, it is necessary that there should be a high level of capital investment. The Prime Minister used to be more critical of stop-go from the point of view of its effects on industrial investment than from any other. It seems highly surprising that the right hon. Gentleman's two landmarks in tax reform, the Capital Gains Tax and the Corporation Tax—about which the Chief Secretary was so lyrical; I have never heard anyone fall in love with institutions more than he seems to have fallen in love with these two taxes—have put Britain right at the top of the international league of major industrial nations in the severity of its taxation on the rewards of productive capital expenditure.

Mr. Callaghan


Sir E. Boyle

The right hon. Gentleman can dispute what I am saying when he replies.

I believe that this Budget is even more unfriendly to productive enterprise than many people have realised. It increases business taxation here and now, it threatens a still higher rate of business taxation for the future, and by the Chancellor's handling of investment allowances it has increased uncertainty in the business community in just the wrong way and at the wrong time. Few people would agree with the Chief Secretary's remark that from now onwards business life will be simplicity itself. I wonder whether that remark was intended seriously.

I should like to talk first of all of the Capital Gains Tax. Here we have a new flat-rate tax—besides the doubling of the length to which the old short-term gains tax applies—on longer term gains substantially higher than the United States top rate and even further ahead of Swedish taxes. We believe that it is too high. I do not consider that the Government have taken sufficiently into account the wise remark of Mr. Kaldor in one of his essays, on page 208 of the first volume. Having just reviewed both volumes, I am fairly good on the page references. He said: An efficient system presupposes relatively moderate rates of tax. This is an important point, and I think that the 30 per cent. rate is too high.

Mr. Callaghan

I noticed the right hon. Gentleman's friendly review of Dr. Kaldor's book. Is the deduction from what he is saying that he and his party are in favour of the Capital Gains Tax but they think that the rate is too high?

Sir E. Boyle

We believe that the rate is too high. We consider also that this matter must be looked at in the context of the whole of direct taxation. We are not prepared to accept a Capital Gains Tax of anything like this severity, with the rest of taxation remaining unaltered, and Income Tax actually increased.

I should like to turn to business expenses, and I hope that I shall not provoke too much otiose emotion in doing so. This distinction between a home and overseas buyer is as nonsensical and indefensible as the Prime Minister's suggestion four years ago that the Surtax concession was wrong because it could affect imports. If the object is to improve the competitive performance of the economy, the relations between the home supplier and the home buyer can be just as relevant as those between the home supplier and the overseas buyer.

On the Corporation Tax, I do not want to go over again in detail the ground which my right hon. Friend covered on Wednesday. He deployed the general case that we disagree with the objective, which is to increase the amount of profits ploughed back into firms. We believe that high retentions and large cash surpluses can make life too comfortable for inefficient managements. I totally disagree, even from my own limited knowledge of these things, with the Chief Secretary's view that the small, growing firm cannot go to the market. That view would not find much support in many parts of the Committee. I want to deal specifically with three points on the Corporation Tax: first, the rate; second, the right hon. Gentleman's refusal to revalue the investment allowances; third, the question of restricting the relief for overseas taxes paid by companies to the Corporation Tax alone.

First, the rate, I am sure the Chancellor must realise that he has caused very grave concern by his statement that there is every likelihood that the rate will not exceed 40 per cent. The Committee should realise that there is a very big difference, from the point of view of the business community, between a rate of 35 per cent. and a rate of 40 per cent. That may not seem a large percentage, but a very large amount of tax is involved.

Secondly, I consider that the right hon. Gentleman's refusal to revalue the investment allowances in the light of Corporation Tax is a strange decision. His handling of this matter has been very surprising in view of the importance which his party has always attached to Britain becoming a high investment economy. The effect on business of the right hon. Gentleman's refusal seems to me clear. Every business faced with an investment decision in the months ahead will have to admit to itself that it does not know what the consequences for its tax position will be, except that they will be less favourable on account of the right hon. Gentleman's Budget. That is the conclusion to which all business men or companies will have to come when they are faced with an investment decision. I believe that this is the last state of affairs which the Chancellor should encourage. I am sure that he and his colleagues would have opposed it vehemently if we had proposed it.

I say that for three reasons. The first is that, since our present system of capital allowances was last improved by my right hon. Friend the Member for Barnet in the autumn of 1962, it is the most favourable in the world and has been of great assistance to a number of key companies. I am prepared to agree that not all companies have taken advantage of it, but what I have said is true in the case of a number of key companies of crucial importance to the British economy.

Secondly, the National Economic Development Council has been trying hard to convince industry of the advantages of buying modern plant. Thirdly, and perhaps most important, the right hon. Gentleman said himself in his Budget speech that the rate of capital investment may ease in late 1965 or 1966. This is true. The Budget comes at a time when the present investment cycle appears to be reaching its peak. We should normally expect industrial investment to be falling off next year under any circumstances, but, on top of this natural expectation, the Government have piled two disinflationary Budgets, a 7 per cent. Bank rate, overdraft rates at over 8 per cent. and now this new tax uncertainty.

I am sure that the Chancellor is well aware that it is very much easier to kill a boom in industrial investment than to start it up again; and in view of the crucial importance of investment for the sake of innovation, I ask the Chancellor to hasten in his promised review during the coming year, because I regard this as of great importance, and I hope that he will have something to say about it in winding up the debate.

Next, I want to say something about the decision to restrict the relief on overseas taxes paid by companies to the Corporation Tax alone. This is a highly important decision which will add £100 million to the tax burden of companies operating overseas. I do not think that this decision has been properly thought through, and it needs very critical examination by the Committee and the House at a time when industry and technology are becoming more international than ever before.

Here, again, there are three considerations which I should like to put to the Chancellor. First, it is easy to talk in general terms, about removing a subsidy to overseas investment. But surely this is looking at only one side of the balance sheet, the cost of the export of capital from Britain. There is also the other side of the balance sheet—the exports directly and indirectly consequent upon that investment and the advantages which accrue to the balance of payments from these. Surely it must be relevant when we realise how often since the war economic growth has been inhibited by a too-slow growth of our external earnings.

Secondly, what I have said is especially true of one section of overseas investment of great advantage to the United Kingdom—namely, United Kingdom investment in advanced countries, which is perhaps most closely comparable with or analogous to United States investment in Britain. I am thinking, for example, of a major company which creates a new plant in Europe and which will borrow about half the cost from European sources and will provide the remaining half as a British equity investment. In such a company the equipment would be largely exported from Britain, and I am told that it is quite common for the value of the exported equipment in these cases to be greater than the amount of United Kingdom capital exported to make the investment; that is a highly relevant consideration.

Lastly, on this point, I should like to ask the Chancellor a question: how far will this extra burden in fact deter overseas investment? I noticed that the Chancellor was very cautious on this point when he spoke on Tuesday. Many major overseas investors, such as the oil companies, have very few alternative investment opportunities in this country. I am not the only person to say that. The National Institute's Economic Review—and the right hon. Gentleman seems to have followed some of its recommendations—makes precisely this point that the oil companies invest abroad because this is what oil companies are for, and we as a country are caught up in this highly important business. The new burden will not check their desire to invest at all, although it may eventually reduce their wherewithal. Do we want to attempt to check all overseas investment in this indiscriminate manner for the sake of what may be quite a marginal gain to our balance of payments?

I expect that many hon. Members saw the comment in the Statist last Friday: "The attitude to overseas investment reflected in the Budget is that of the little Englander. It will confirm many fears about the Labour Party's inherent insularity. It runs counter to any hope of Britain's eventual membership of a broader European community. At a time when the countries of Europe are moving towards real economic unity, we appear to be withdrawing into our shell. I therefore reach the general conclusion that the new taxes which the right hon. Gentleman has introduced, and about which the Chief Secretary spoke so lyrically, must have the effect of discouraging and not helping productivity and growth. The Budget offers no incentive either to investment or to export, and the general impression of being unfavourable to business which it creates is surely both unjustifiable and ill-timed. Our economic situation in any event is made more difficult by the present continuing weakness of the gilt-edged market. Even before the Budget, local authorities were having to borrow at 9 per cent., and building societies and local authorities are very short of funds to lend for house purchase. The situation in the gilt-edged market has been complicated by the very large borrowing requirement, now up to £724 million.

Mr. Callaghan

No higher than last year.

Sir E. Boyle

I can tell the right hon. Gentleman that it is very much larger than it was in 1961 and 1962, when we last had severe balance-of-payments problems, and I think that it has doubled since 1964. The situation is also complicated by the decision to apply the Capital Gains Tax to the difference between the issue price and the redemption price of dated stock.

I believe that the truth is that the Government have counted too much on the success of their incomes policy, and I want to say a word about that because I feel that my view on this point was very much confirmed by the speech of the First Secretary last week. No one doubts the vigour or the genuine sincerity which the First Secretary has devoted to this task. I personally have long believed two things about the incomes policy. First, under conditions of full employment, even when we do not have excess demand, there is a tendency for a wage increase which in itself is quite right to be copied in another sector of the economy where it has not the same justification. This is what is sometimes called the "wage-wage" spiral, and it can operate even when we do not have excess demand. Secondly, if restraint can hold down the growth of incomes by l per cent. or even ½ per cent. a year, it will have made a valuable contribution to growth.

But it is just as important that too much should not be staked on an incomes policy, and here I am supported by a document which my right hon. Friend the Member for Flint, West (Mr. Birch) quoted in his remarkable speech last Wednesday—a document by Mr. Geoffrey Denton of Bedford College. He said, It is also important that the plan for growth should not take any credit for a notyet-realised incomes policy into account in setting its targets. This mistake seriously affected the credibility of the N.E.D.C. plan, and must not be allowed to recur. On this I would make three comments to the right hon. Gentleman. First, let us not underrate the magnitude of the task of moving to this norm of 3 to 3½ per cent. when wages have just been rising during the last six months at the rate of over 8 per cent. a year. It is a tremendous task to move from 8 per cent. to a norm of anything like 3 or 3½ per cent. Secondly, I share the concern of my right hon. Friend the Member for Flint, West, at the belief of the First Secretary that he would have a bigger impact on prices than on wages. This was clearly stated in the First Secretary's speech. He said: The only point at which the endless circle of inflation can be broken is at the point of prices."—[OFFICIAL REPORT. 7th April, 1965; Vol. 710, c. 536.] My right hon. Friend the Member for Flint, made a telling reply to that remark. He said, If we can keep prices steady and wages rise only in line with productivity, that is the absolute ideal. But if wages go zooming up and prices are kept down, imports will be sucked in. That is exactly why the Chancellor of the Exchequer has been putting up the prices of various articles in his Budget. There is a certain danger here."—[OFFICIAL REPORT. 7th April, 1965; Vol. 710, c. 565.] I am sure that my right hon. Friend the Member for Scarborough and Whitby (Sir A. Spearman) will support me on this point—that achieving some success with prices but not with incomes could only worsen our balance-of-payments situation again.

Thirdly, what one might term the cards of entry, in paragraph 15, for the pleading of exceptional pay increases are fairly widely drawn. It is never too difficult to get agreement to any document when what one is saying does not exclude very much. I believe that the only justification for an incomes policy is to accompany it with an equal determination to prevent the economy from becoming overheated and, above all, to devote as much, probably more, effort to increasing productivity and competitiveness as we devote to urging pay restraint.

My right hon. Friend the Member for Flint, West was right when he said that we should think of doctors, teachers, farmers and so on as victims of inflation. And certainly my right hon. Friend the Member for Bexley was right when he said that our aim should be to become a high-wage, low-cost economy. It is because this Budget does nothing to help this that we are critical of it.

A number of my hon. and right hon. Friends have, during the debate, made suggestions as to how, as a nation, we can achieve greater economic efficiency and provide our society with a fresh dynamism. I appreciate that I have been speaking for half-an-hour and that many other hon. Members wish to speak. I will, therefore, conclude by adding only a few points to those which have already been made.

First, let us remember the very great importance to our nation of our trained manpower at every level. Here the party opposite cannot talk about 13 wasted years. Only a week or so ago the Secretary of State for Education and Science mentioned that the annual level of capital expenditure on universities was running at about £230 million. We will have this year about 1¾ million young people in our technical colleges and I believe that the Industrial Training Act is going to mean a great deal of difference indeed to the manpower situation in Britain. There are very few targets more important than the Henniker Heaton target of an additional 250,000 young people in day release by 1970.

I hope that the Government will bear in mind what my right hon. Friend said about marketing and the importance of management. I understand that we now have about 3,000 people reading for the diploma in management studies and about 12,500 doing other management courses in technical colleges. I emphasise the importance, in this connection, of the industrial training boards concerning themselves not just with training for production but also with training for management. I am sure that this is in the minds of the members of the boards and I hope that the Chancellor will do all he can to encourage them in this work.

Secondly, I draw attention to the great importance of getting greater cost effectiveness in the public sector; that is, striving all the time to find the most economical means for the public sector to meet a given requirement. The public sector now employs directly nearly 25 per cent. of our national manpower, and probably about 60 per cent. of those with full-time higher education. As Sir Richard Clarke pointed out in his Stamp Lecture: The public sector predominates at many crucial points in our modern economy—construction, research, in the use of highly educated people and the most advanced scientific and technological equipment. Surely there is something here that we can learn from the Americans, not least from what they have done in their Defence Department.

The third point is the need to enable more firms to utilise additional knowledge as it becomes available. I put it to the Chancellor that surely this should be one of the principal jobs of the new Ministry of Technology. We have been critical of this arrangement and we believed that it would have been better to have had a different arrangement and to have brought in the Department of Trade and Industry more. None the less, now that we have a Ministry of Technology it should act as a clearing house of ideas, just as the Ministry of Education has done so successfully.

My fourth and final point is that just as my right hon. Friend the Member for Flint, West rightly asked whether we have the will to pull ourselves together and to resist inflation, so we also need, as a nation, the will to grow more efficient. Lord Franks said, in his valedictory speech as Chairman of Lloyd's Bank, that the greatest handicap to this country was that when faced with any policy decision the instinctive reaction of the British people was to ask, "Is it fair?" and not, "Will it make us more efficient?" I believe that there is absolutely no inconsistency between efficiency and idealism. The more efficiently we produce, the more resources we can afford to devote to community services like housing, health and education, which are just as important as goods to the achievement of a civilised life and a tolerant and democratic society.

Our aim is a better life and greater freedom for the individual; it is to level up and not to level down. Because this Budget in our view has done nothing to further this aim that we will divide the Committee at the conclusion of the debate.

4.55 p.m.

Mr. Dick Taverne (Lincoln)

I will leave the detailed points raised by the right hon. Member for Birmingham, Handsworth (Sir E. Boyle) to be dealt with by my right hon. Friend the Chancellor when he replies to the debate, except to deal briefly with three of the points he adduced.

First, he criticised the whole progressive rate of taxation and, in doing so, did not pay sufficient attention to or give credit for the need in this admittedly tough Budget to provide a climate of social justice. His right hon. Friend the Member for Bexley (Mr. Heath) suggested in his speech the other day that we might find some difficulty in facing our constituents after this Budget. What is remarkable about such a tough Budget is how well it has gone down. It has, generally speaking, been the experience of my hon. Friends and myself that it has been found acceptable because it is considered to be fair—because, unlike previous attempts to deal with crises, the burden has not had to be borne by only one section of the community. That is why the measures for an incomes policy which were attempted after 1961 were such a failure and why we have a much better chance of success with the incomes policy now being promoted.

Secondly, the right hon. Member for Handsworth treated with a certain amount of derision the remark made by the Chief Secretary to the effect that the Corporation Tax would be a simple one. It is true that any major reform in the tax structure is bound to lead to a number of transitional provisions, but I suggest that it is difficult to contend that a simple Corporation Tax, as opposed to the dual tax which existed before—with the complex question of the deduction of Income Tax—will be more difficult to administer than the previous system.

The right hon. Gentleman thirdly criticised the discouragement which the Budget contained for overseas investment and he stressed the advantage which such investment has for the export position generally. It is true that overseas investment has great advantages. It does bring a return in exports as well as in interest, but the point to remember is that we must deal with an immediate sterling crisis. The short-term measures which we must take may, in the long-term to an extent be disadvantageous, but this does not mean that we can avoid taking them. A stop on the outflow of capital is urgently needed and I suggest, therefore, that the right hon. Gentleman's criticisms on this score are misplaced.

I wish in my speech to deal with the long-term problems and to dwell on the position of sterling and international liquidity. The Budget was very much concerned with the strength of sterling and with maintaining international confidence. As an immediate measure, this Budget should help to do that. It seems that the figure of £250 million—made up partly of Government expenditure saved and partly of extra taxes imposed—is, roughly speaking, what the international banking community was expecting. I wish to consider the long-term position, not only as a balance of payments question but in the context of the whole question of the rôle of sterling as a reserve currency, along with the question of international monetary reform.

The position concerning international liquidity seems far less satisfactory than much opinion abroad seems to recognise at this stage, not only for Britain but for the world as a whole. The United States has recently taken fairly rigid measures to stop the outflow of American capital, and these seem to be having effect. Now Britain also is taking steps to discourage overseas investment. The first fact which emerges is that the two key reserve currencies will be in shorter supply. At the same time, as a result of certain French proposals and Press conferences, there seems a considerable chance of an increased speculation in gold.

Both General de Gaulle's Press conference and the French plans for a composite reserve unit, if they are not to be utterly deflationary, would seem to envisage at some stage an increase in the price of gold. This has created a perfect set-up for the gambler. If one holds gold how can one lose? If the price of gold increases one is in clover; if the price does not increase, it certainly will not decrease. It is a case of heads I win, tails I do not lose.

The resulting pressure on the dollar cannot be disregarded and there may be further pressure on the £ as a result as well. If one looks at the international field as a whole one realises that last November there was perhaps more international liquidity than one might have thought. A number of measures have also been taken to ease the position. There are the General Arrangements to Borrow, the Basle-type agreements and quotas in the International Monetary Fund are up. Nevertheless, the position may be far more urgent than is generally realised. It may be that international trade may run into difficulties with the machine coming to a standstill for the want of lubrication.

What should be provided is at any rate some contingency plans so that if a critical situation should arise we may be in a position to meet it and not simply to say, "This matter is being considered. We have had all this progress in the past and there is the Ossola Group working on this at the moment." We should be in a position to deal with crises on an immediate basis.

There is no easy solution to this problem. There are solutions on the lines of the Triffin Plan, or on the lines of the Stamp Plan, and even on the lines of the plan of the right hon. Member for Barnet (Mr. Maudling) a few years ago, but they have been treated with the gravest suspicion, particularly in the banking communities of the Six, because this is thought to be an easy road to inflation and makes it far too easy to put off measures to deal with balance of payments deficits. Nevertheless, there seems to be a surprising amount of agreement on the direction in which we should proceed. There seems to be agreement that we need a new form of reserve assets and that this should be based on existing institutions. There seems to be a general feeling that this should be done by the International Monetary Fund acting through the Group of Ten. In certain quarters there even seems to be a willingness to go further, as a recent statement by the Governor of the Bank of Italy, Dr. Carli, made clear.

It may be possible for Britain to kill two birds with one stone. It may be possible, if we can achieve the right kind of reform of the international monetary structure, both to ease our reserve position and to find a way out from the rôle of international banker which has served us so ill over the last few years. Ever since the war we have been in the unfortunate position as a banker of having insufficiently quick assets to meet our quick liabilities.

The fact of sterling being a reserve currency has been a major ingredient in successive sterling crises. Often we have had to take more drastic measures than seemed to be warranted and we have been far too vulnerable to speculation. We need far more freedom of financial manœuvre and far freer measures for growth than we have been able to devise because of our vulnerability to speculation.

Arguments are advanced from time to time, by particular institutions which stand to benefit, in favour of our present rôle as international banker. First it is argued that regional trade and payments arrangements are of benefit until there is a worldwide system of free trade which would in any event not be in the interest of certain countries. Secondly, it is argued that the existence of the sterling area helps stability and that if the terms of trade move against the manufacturing countries the primary producers are helped and vice versa. So if British earnings are hit there are compensating earnings by the other members of the sterling area. Thirdly, it is argued that the very existence of sterling as a reserve currency is something which helps international liquidity.

When one looks at those arguments one sees that they do not stand up. The first argument, that regional trade and payments arrangements are of value does not actually apply to the sterling area, with anything like the force which it did since there has been a general movement towards multilateral trade. Secondly, there is sometimes a reluctance to trade in areas where there is no protection and a certain shelter is provided to the inefficient firms. The stability and growth argument certainly is not something applying to Britain. We have more often suffered from being a reserve currency than we have been helped. I take the example of 1963–64 when the Australians to some extent eased the sterling position despite the fact that they had a deficit themselves. That is an example of how a deficit cannot be put off. It is not that measures which have not been taken did not have to be taken, later put that in fact measures were put off which should have been taken earlier.

On the argument about international liquidity if one achieves some kind of reform of the monetary system that argument would fall to the ground. Often again, one hears a strong plea for a continuation of Britain's rôle as intertional banker because of the earnings of the City. However, if by some reform sterling balances should be transferred to a claim on the International Monetary Fund and if the United Kingdom liabilities could be transferred to claims on the Fund there should be no great loss of work in the City because the I.M.F. is not in a position to finance commercial transactions. The expertise of the City would be used as it was used before.

The sterling area seems to me and to many other people to be a millstone round our neck. It is a case of the white banker's burden. The Government need to do two things. First they should very urgently press for a reform of the international monetary system to see that there is an increase in the total amount of reserves. Already, in effect, the International Monetary Fund is the most effective backing for the £ sterling. In 1956 there was a loan of 1,300 million dollars, in 1961 a loan of 2,000 million dollars and in 1964 a loan of 4,000 million dollars. Effectively there is the international backing for the pound although the amount seems to increase with each crisis. What is needed now is formal transfer of these functions which are already there, formal transfer which has not yet been acknowledged.

Secondly, what the Government need to do in urging international monetary reform is to use this as an opportunity for shedding the load which is set upon us by our being an international banker. We cannot do this by ourselves or at a time when we are in debt but we can do it perhaps as part of a general scheme for the international monetary reform which is so badly needed.

5.10 p.m.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

In craving the indulgence which hon. and right hon. Members normally give to a maiden speaker, perhaps I ought to crave more than usual, since I understand that I have inherited the somewhat dubious title of baby of the House. Babies are very easily upset. They have the disquieting habit of crying louder and for longer than frequently their elders would wish. I may be heard in future to cry loudly for food, but it will be food not for myself but for my constituents. Perhaps there is no need to describe to many hon. and right hon. Members the constituency of Roxburgh, Selkirk and Peebles in detail, because many hon. and right hon. Members were kind enough in recent weeks to visit it.

Before coming to what I have to say about the constituency, I should like to pay tribute to the work done by my predecessor, Commander C. E. M. Donaldson. His death came in many senses as a personal loss to people of all political persuasions in the Borders. He was a popular figure, and in the House of Commons was a noted servant whose work as a member of Mr. Speaker's Panel of Chairmen was much appreciated on both sides of the House.

I could talk at some length about the great beauty of the Scottish Borders and of its considerable history, but there are many problems facing us there and I would prefer to spend my time talking about them. Our part of the country is one which plays a considerable part in the nation's export drive. Some of the burghs in Roxburgh, Selkirk and Peebles, through their woollen industry, have maintained the highest record in exports for any town in the British Isles. It is a record of which we are particularly proud, but it is not one which should simply be praised and then left at that. We are facing difficulties. There are many opportunities open to Government to ease those difficulties and to enable our traditional industries to make a still greater contribution to the nation's export drive.

During the last ten-year census period, 1951–61, there was a drain of population in the Scottish Borders of about 6½ per cent. While this figure may seem high for ten years, a closer examination of the census figures reveals a still more disquieting situation because the drain of population has been concentrated in the age group 20 to 45 and in the group, over the ten year period, the drop in population was not 6½ per cent. but 21 per cent. No part of the country can afford a continual drain of its young and skilled people of that order.

This brings me to one of the themes which the Liberal Party has constantly taken up, and that is regionalism. In looking at the Budget, I would have hoped for greater incentives and greater opportunities for the less developed parts of the country. I would draw the Chancellor's attention to an article in the pre-Budget issue of the Economist which said: The Chancellor should turn to bigger regional taxes rather than bigger national ones. Those who bewail the lack of prosperity in Scotland have been right to point out this week that exactly two years ago when unemployment throughout Britain equalled 3.1 per cent, of the insured population the talk was of recession and how to reflate the economy. Today, when unemployment in Scotland equals 3.2 per cent. of the working population, the talk seems to be how to deflate the economy by general measures, which would in fact fall most harshly on Scotland. … I was glad to see a reference in the Budget to improving facilities for certain local authorities to borrow from the Public Works Loan Board. This is certainly a step in the right direction, but I would plead that the local authorities which are allowed to have this concession should not be limited to local authorities within the existing development districts.

One of the criticisms which people in my part of the country have of the way in which the development district system has worked is that largely the yardstick is unemployment. We in the Borders have no unemployment on a very large scale and do not qualify as a development district. We have been constantly passed over and yet we have this tremendous drain of population year by year. I consider that depopulation is nothing more than exported unemployment.

I would draw the Chancellor's attention to the possibilities of more regional variations in taxation. We have had so far from this Government an increase in the cost of petrol and in the Road Fund tax on commercial vehicles. I suggest that as the price of petrol already varies from one part of the country to the other, according to distribution costs, there is no reason why the tax on petrol should not be regionally varied to assist the furthermost parts of the country. Since the Road Fund tax is administered by local authorities, there should be no great difficulty in varying that either. But perhaps a more substantial contribution can be made towards helping the less developed parts of the country if a variation could be introduced into the employers' share of the National Insurance contribution. There is no reason why this should be at a flat rate throughout the country.

This question of depopulation which concerns us in the Scottish Borders is no local or parochial question. I hesitate to quote no less an authority than an editorial in the Spectator the other week which pointed out that the evils illustrated in the Milner-Holland Report are simply due to population pressure on London, and the social evils which we see at this end of the country, and the overcrowding in London, are part and parcel of the same problem that we see illustrated in the Scottish Borders—the constant movement away of population. I should like to see a passion for regionalism pervading every part of the Government. It is not enough that one Ministry should be concerned with setting up regional economic and planning boards if the same concern is not also expressed through the Ministry of Housing and Local Government, the Ministry of Transport and certainly the Treasury.

Twenty years ago a Royal Commission on depopulation reported that population trends should be one of the leading preoccupations of Government. Since then nothing has been done to make it one of the leading preoccupations. I hope that we shall see in future more signs from this Government that they are prepared to make it a preoccupation. It would help solve many of the problems of London and at the same time it would bring greater satisfaction to my constituents.

5.18 p.m.

Mr. Ted Leadbitter (The Hartlepools)

The Committee will have been heartened to find the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) making such an early start in the House of Commons in Committee and in such an important debate. I am certain that it will bring a great deal of pleasure to his constituents and to his many friends. The manner in which he made his maiden speech had some special significance, in addition to the pleasure which it gave us, in that the care with which he prepared it has shown that he is bound to become a very active, informed and stimulating Member of the House of Commons, I am certain that the hon. Member's constituency, the members of his party, and certainly all hon. and right hon. Members on both sides of the Committee, will look forward in the months and years to come to further contributions of the kind which he has given us this afternoon. I, for one, will look forward to them.

Hon. Members opposite are in a dilemma. They seem to be the only ones out of step. This will be shown tonight when we go into the Lobbies. They are rather obdurate, difficult and stubborn. They will not realise that reactions abroad are very favourable to the Budget. They will not recognise that the responsible Press in this country is complimentary. They will not accept that authoritative opinion is utterly different from the cacophony of failure and false indignation which they exhibit among themselves. Like many hon. Members, I have been in my constituency over the weekend, and the impression which I have gathered there and from my colleagues is that ordinary people in all walks of life have a very sound assessment of the circumstances which determined the pattern of the Budget.

The pattern of the Budget is strange to Conservative reasoning. On Wednesday, the right hon. Member for Bexley (Mr. Heath) was bleating that the Budget soaked the rich and also soaked the poor. Is it to be assumed that, if we had accepted the implication of that remark, we should have spread the net over a smaller section of the community? Should we have had the authority even to do so? If we had applied the right hon. Gentleman's rule in the way in which, so one assumes, he wished it to be applied, should we have cast the net over the rich and confounded the practice of his own party over the years?

Mr. J. T. Price (Westhoughton)

I have been very interested in the speech of the right hon. Member for Bexley last Wednesday. It called forth what I regard as a most eloquent comment in the British Press on the Budget and these debates. The Guardian described the right hon. Gentleman's speech as "Blacker than black and wetter than wet". Did my hon. Friend see that?

Mr. Leadbitter

I have been following these comments. There has been a most interesting reaction in the country. The speeches of right hon. Members opposite have caused no little comment in the Press, but, whatever else can be said, they have confirmed in the minds of ordinary people the realisation that the insincerity of Conservative Members is such that they will say anything at any time to prove that they are always without blame and they are always willing to take the credit for what others do. This point was made by the Leader of the Liberal Party earlier this Session. I remember the right hon. Gentleman noting this inclination on the part of right hon. and hon. Members opposite, an inclination which is becoming more and more irritating to the public at large.

Would the right hon. Member for Bexley have cast the net over the rich and confounded the practice of his party? If not, would his new-found concern for the poor coincide with his conception of the rôle which he has found in Opposition and his anxiety to confirm in our minds that his real desire is to keep the right hon. Member for Enfield, West (Mr. Iain Macleod) at bay and the right hon. Member for Wolverhampton, South-West (Mr. Powell) beyond the pale of such sympathetic reasoning?

The right hon. Gentleman said that he wanted to look at the Budget proposals from the point of view of the citizen. He described the Budget as the worst since 1951. He went through an economic exercise based on simple arithmetic, pointing out how well the Conservative Government had reduced taxes and how excessively this Government had increased them. It was a remarkable claim to make. In the light of excessive Government expenditure over the past 13 years, it amounted to an assertion that his Government had managed to get something for nothing. I have looked through the Financial Statements for the years 1952–63. I find that Income Tax increased from £1,690 million in 1951 to £2,789 million in 1963–64.

Mr. Terence L. Higgins (Worthing) rose——

Mr. Leadbitter

I am sorry, but I shall not give way. I am following the advice of the Chair, realising that there are 20 other hon. Members who wish to speak. I hope that the hon. Gentleman will listen for a change instead of having so much to say throughout the week. The Financial Statements disclose that Surtax increased in that period by 48 per cent., death duties by 55 per cent., and the total tax on income and capital by 58 per cent.

The right hon. Member for Bexley asserted that the previous Government had reduced taxes. I assert in reply that, for the income group which appeared to be the subject of his sympathetic claim, a deeper searching into the ways and means by which money was raised for national expenditure shows that those people did not benefit at all. On the contrary, they suffered. During the period to which I have referred, taxes were raised on essential goods. The range of indirect taxation was such as to hit the lower-paid worker the hardest. In the same period, tax reliefs were given to people with an income of £5,000 a year or more. The temporary surcharge of 10 per cent. in indirect taxation imposed in 1961 was followed the next year by the surcharge becoming a permanent feature giving a further £210 million in indirect taxation. The nature of all this was more important than just the amount. In that year, down went the tax on cars, on jewellery, on binoculars and other luxury goods. Up went the indirect taxes on shoes, clothes, furniture and—some people have forgotten this—even on kiddies' sweets.

The Income Tax story of the Tory Party begins with pre-election calculations giving relief to the higher income groups but successfully passing the incidence of their generosity to the lower income groups in ways other than by direct taxation. The story of Tory taxation continues at length with gripping force and ends with the cycle as it began. In brief, a handshake, a "clobbering", a handshake.

The effect of tax cuts under the Tory Government was generally very beneficial to the people with fairly high incomes. For those earning £700 a year or less, taking National Insurance contributions into account as well, things were far worse under Conservative Administrations. So much for the boast of the right hon. Member for Bexley.

I would remind the right hon. Gentleman, also, of the most pernicious tax of all—the g.p.s. If he looks at this Budget he will probably find out the citizen's view of that hot potato, the graduated pension scheme—or the "general poor surtax", as I prefer to call it. It is a rotten potato, and hon. Members know quite well that tax policy over this period has been to pass the incidence of taxation to the lower incomes groups in the form of higher charges, particularly in indirect taxation.

The citizens will also draw their own conclusions from what the right hon. Gentleman said on Wednesday: Our … citizens do not understand taking £250 million out of consumption … to make room for exports. This is a concept which eludes the ordinary individual."—[OFFICIAL REPORT. 7th April, 1965; Vol. 710, c. 519.] In order that the citizens shall not be deluded, we have a right to ask the right hon. Gentleman whether he is saying that we did not need this sum, taking into account the balance-of-payments deficit; the need to correct the imbalance of exports and imports to show the outside world that we intended to bend the economy in directions that would strengthen the £?

The question might briefly be put: is it not time that the right hon. Gentleman and the party opposite told us what they would have done in the same circumstances? The right hon. Gentleman might have helped the Committee a little more, and people might have been the more convinced, if he had told us last week what he would have done with the problem we inherited, a problem that the right hon. Member for Barnet (Mr. Maudling) claimed that he diagnosed, and that we had inherited the diagnosis that he had decided on in November of last year. The odd thing is that the Leader of the Opposition said last week that the problem only started in November. We therefore have a contradiction between the right hon. Members for Barnet and Bexley and the Leader of the Opposition. If the three of them are not careful, the right hon. Member for Enfield, West will be leaving the Spectator with other ambitions in view.

The Budget is one of a number of signs. It is a political quickening to solve the problem of poverty, to seek the priorities that are best for our people, and to establish a more equitable spread of responsibilities in regard to the needs of the nation. It is a turning point, welcomed by fair-minded men and women everywhere thankfully leaving behind the past drift, indecision, waste and appeal to greed, and with, before us, new opportunities, new incentives and a new purpose. This Government have shown great courage and, whatever hon. Members opposite may say, the country's reputation and standing abroad is the better for it.

5.34 p.m.

Mr. R. Gresham Cooke (Twickenham)

If the hon. Member for The Hartlepools (Mr. Leadbitter) had been a little longer here he would have known that in 1951 the rate of Income Tax was 8s. 9d. in the £, and that it was gradually reduced by Conservative Governments to 7s. 9d. At the same time, personal allowances were increased—particularly the allowances for married couples and older people. In every way, therefore, those suffering from direct taxation were better off in 1964 than they were in 1951.

The point of the remark of my right Friend the Member for Bexley (Mr. Heath) about soaking the rich and soaking the poor was to bring to attention the fact that in the Chancellor's two Budgets some £500 million of extra taxation, in a full year, has been taken, together with another £200 million, I think, from National Insurance contributions. That is a very heavy load to put on the British public during one year, and I am sure that the public, and particularly the people of The Hartlepools, will understand that point.

The Chief Secretary in his rather delightful little essay—I am sorry that he is not now with us—told us that life would be simpler under the Socialists, but he cannot deny that the Chancellor has this week introduced the most complicated Budget ever produced in this Committee. The Chancellor spoke of the amount of time at present taken by directors and tax accountants on taxation affairs, but I believe that their present efforts will be but a drop in the ocean compared with what they will be required to do in the coming year to tackle the new taxes.

Speaking as a director, I can see immense complications in the change over from Income Tax and Profits Tax to Corporation Tax, the assessment of the working of the Capital Gains Tax, working out initial and depreciation allowances against Corporation Tax, the changes in the tax position of overseas companies and what has to be done in future about dividend policy. Doing it in the most honourable way possible, I am sure that more time will have to be spent over tax matters in 1965 than in any previous year.

I do not speak as one biased against a Corporation Tax—far from it. I can see special advantages, particularly to politicians, because they will be able to have two separate rates of taxation, one for individuals and one for companies, and will be able to juggle with those two rates as and when they need to do so. In fact, a few years ago I suggested to my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) that he should look into the question of a Corporation Tax. I asked some questions about this, and advocated it in a speech during the Budget debate.

Finally, however, my mind turned against it for the fundamental reason that the basis of our company law is that the equity shareholder owns a share of the equity proportionate to his share of the business and, therefore, the company's income is, in truth, the same as the shareholder's. That is why Income Tax is not paid on a company's income twice over. When a company pays Income Tax, that covers the dividend of the shareholder, but the Corporation Tax will mean double taxation for the shareholder. The company will pay Corporation Tax, and the shareholder will have to pay Income Tax, collected by the company as a sort of P.A.Y.E. agent.

Let us see how this will work out for the shareholder. Taking profits at £100, a company at present pays 56 per cent.—as the Chief Secretary said—leaving a net possible dividend of 44 per cent. Under the Corporation Tax, taking profits at £100, the Corporation Tax will be £40, leaving a net profit of £60, but when the Income Tax on the individual shareholder's dividend is deducted it leaves a net dividend of 35 per cent. As I see it, therefore, the shareholder will be some 20 per cent. worse off——

Mr. William Shepherd (Cheadle)

My hon. Friend is assuming that all dividends are distributed. Surely, that is not the fact in all cases?

Mr. Gresham Cooke

Certainly not in all cases, but where it is fully distributed, the shareholder generally will be worse off as a result of the operation of Corporation Tax.

Mr. Joel Barnett (Heywood and Royton): rose——

Mr. Gresham Cooke

I will not give way, if the hon. Member does not mind. We have had a Ruling from the Chairman that we should get on as fast as we can.

Of course, the Chancellor argues that the new tax will encourage retentions by companies and so encourage capital investment. That is beginning to look a little old-fashioned nowadays. If the Corporation Tax had been introduced after the war, we might have been modifying it now in favour of the shareholder. The introduction of the tax at this stage is a little old-fashioned when compared with what is happening on the Continent and in the rest of the world, where the tendency is somewhat in the other direction.

For instance, other countries are seeing that old established, undynamic companies can go on adding to their retentions year after year without any great benefit to themselves or to their country. They can have a long series of profitless expansions. Mr. I. M. D. Little, in his book "Higgledy Piggledy Growth", came to the conclusion that the rate of return on ploughed back profits is often low and sometimes even negative and that the really efficient companies go to the market for capital because they are so attractive to stockholders. As has been pointed out, since 1957 Elliott Automation has increased its capital only about one-eighth by retentions. Most of its new capital has come from the market. That is an example, surely, of a growth company.

Most countries that have the separate systems of corporation tax and income tax—the United States, Canada and South Africa, for example—allow plenty of exemptions to dividend holders to make up for this double taxation effect. As the Chief Secretary pointed out, German companies have to pay 51 per cent. on their undistributed profits and only 15 per cent. on distributed profits so as to get a somewhat similar effect to our present system. Now, however, the exact opposite is proposed here. It is interesting that the Neumark Committee of the European Economic Community recommended that Europe should harmonise its tax systems on the German pattern.

As a company director, I may personally like the Corporation Tax. I am sure that many company directors do. But as someone who wants to see the economic health, growth and competitiveness of our country, I am rather alarmed, and future Tory Governments will have to modify its evil effects. I regard this Budget as being in some ways an attack on the small shareholders, of whom there are 3 million and many of whom are very small. It is about time someone in this debate spoke up on behalf of the shareholders. I want to do so because, whatever industrialists may think about the Corporation Tax, shareholders may have a rather different outlook. In addition, the Chancellor has loaded the cost of luncheons, penthouses and yachts on to the shoulders of the shareholders, as it will all have to come out of taxed income.

As deputy-chairman of the Wider Share Ownership Committee I have been trying to encourage the man in the street to take an interest in companies by acquiring shares in industry. I believe that to be a beneficent social purpose. Just as the man on the shop floor is acquiring his own motor car, I should like to see him acquiring a few shares as well. But the Corporation Tax will not encourage that. The yield on blue chip companies after this tax will be worse than the new Post Office savings rate which, incidentally, may force the pace on savings rates. I see that the mortgage interest rate of building societies is going up to 7 per cent.

I am sure that unit trusts and investment trusts, the natural homes of small investors, will find industrial companies less keen to pay out dividends. Companies with large overseas interests, like Shell, the Hudson Bay Company and others, are bound to be affected too. I believe that the small investor investing through unit trusts will not be as well treated as the rich man who owns his own portfolio.

If my reading of the situation is correct, an investment trust makes a capital gain by changing its investments and will have to pay 40 per cent. Corporation Tax and the investor at the end of the year will be presented with a certificate showing the net Capital Gains Tax paid out on his behalf. Of course, that will be very complicated. I suggest that investment trusts might be exempt from Capital Gains Tax just as industrial companies will be exempt—as they are at the moment—when exchanging factories. If an industrial company sells a factory and buys another it is exempt, and I believe that investment trusts might equally be exempt from Capital Gains Tax when they exchange one share for another.

Of course, on any profit it attains, an investment trust will have to pay Corporation Tax and in this way the small investor will be penalised, as, indeed, will be the pension funds, charities and similar bodies with money in investment trusts. I hope that the Chancellor will look at this when drafting the Finance Bill.

A great deal of nonsense is talked about the Capital Gains Tax in the United States. We have heard some of it from hon. Members opposite. We have been told of the rate being 25 per cent. and so on. But that is only true for rich men. The average rate of the tax in the United States is 25 per cent. or the investor's average rate of personal tax on half the gain. A family man reaches 25 per cent. only when his income exceeds 40,000 dollars a year. The average rate of this tax in the United States is 8 to 10 per cent. I fear that Capital Gains Tax at 30 per cent., reasonable as it may seem to some, will lead a number of people to make attempts at evasion and dodges to get away from such a high rate.

Although the Chancellor, I know, does not think so, I am afraid that the Budget will be inflationary in practice. Extra taxation on individuals is inflationary. Men faced with 6d. extra on the Income Tax, higher National Insurance contributions, 1d. on beer and 6d. on cigarettes will think about getting higher wages or salaries and the unions in the engineering industry, instead of abiding by the three-year contracts—as we all hope they will—may turn their attention towards escalation clauses to cover the rising cost of living.

Industry is making laborious efforts to push up exports by the 5 per cent. hoped for this year. It will be ridiculous if that increase is absorbed by £357 million worth of aircraft and spares to be bought from the United States in place of the TSR2. The £35 million a year to be saved on the TSR2 is chicken feed when compared with the whole of the Budget.

Glancing through the book published by The Times about the General Election, I was struck by the number of hon. Members opposite born in the 1920s—some even in the 1930s. They have no memory of pre-war Labour Governments. I will remind them, however, that these Governments ended in disaster. In 1924, after the fall of the Labour Government, the Conservatives came back with a majority of 200; in 1931, when there were 2 million unemployed, they came back with a majority of 400; in 1951 the late Hugh Gaitskell dissolved into tears over the ebbing £. The same thing will obviously happen with this Government, because of the usual inflationary spiral caused by rises in taxation. The value of the £ is falling at the rate of 7 per cent. per annum and that rate will, I am sure, be accelerated by the end of 1965.

5.50 p.m.

Mr. Ioan L. Evans (Birmingham, Yardley)

This has been a most fruitful debate and it has been interesting to note how the plans of the Government have emerged over the days. I want at the outset to congratulate the Government spokesmen on the positive way in which they have outlined their plans. I join with many on this side of the Committee and in the country in paying tribute to the way in which my right hon. Friend the Chancellor of the Exchequer presented the Budget and, more important, on its content. One of the advantages of speaking in this debate on a Monday rather than last week is that over the weekend one has had the chance to meet constituents and so sound out the man in the street about the Budget. I can assure my right hon. Friend that in Birmingham at any rate it is felt that at last we have a Chancellor who is playing fair with the British people.

Following the Chancellor's statement, on Tuesday my right hon. Friend the Secretary of State for Defence made his statement about the cancellation of the TSR2 project. Hon. Members opposite have said that they were anxious to hear the statement, but at 7 o'clock they were still loudly protesting because my right hon. Friend was trying to make a statement. If they had allowed him to speak, his statement would not have taken more than 10 minutes, but instead it lasted for an hour and 10 minutes. Be that as it may, when we are debating raising taxes and raising revenue we should constantly remember that, in addition to spending money on the social services and on maintaining living standards, the Government are also involved in military expenditure, and it was therefore realistic for the statement about the cancellation of the TSR2 project to have been made during the course of the Budget debate.

On Wednesday, my right hon. Friend the First Secretary of State and Secretary of State for Economic Affairs outlined plans for Britain's future economic progress. Over the weekend, the right hon. Member for Bexley (Mr. Heath) said that the First Secretary was tired after six months whereas he had not been tired after 13 years. We can understand why right hon. Gentlemen opposite were not tired after 13 years—they did not do anything. One can well understand why Ministers in the present Government should be tired after six months, because they have done more in six months than right hon. Gentlemen opposite did in 13 years. It was not that right hon. Gentlemen opposite did nothing. We have seen from recent debates that they have now realised that they were wrong with such things as their Rent Act, as has been shown by the fact that they did not vote against the Government's proposals to repeal it.

On Thursday, the President of the Board of Trade outlined the Government's plans for increasing exports. For many years we have talked about increasing exports, but at last we have a Government getting down to the problem of doing something about the matter. Today, my hon. Friend the Chief Secretary dealt with the Budget's main proposals for a Capital Gains Tax and a Corporation Tax. It is very difficult to find out whether the Conservative Party is for or against these measures. We are told that this is a Socialist scheme, but America has had both these taxes for a long time. It will be interesting to know why, if right hon. Gentlemen opposite do support these proposals, they did not make them themselves during the 13 years that they were in office.

The Government are now getting to grips with the economic problems which confront the nation. How stupid and silly now appears the Tory cry, which we heard over and over again in the election, when it was said that a Labour Government would be a one-man band! We have a hard-working team, while the Opposition are so ineffective that they lack not only a one-man leadership, but effective collective leadership.

The Budget has two prime objects: first, to correct the balance of payments and enable us to repay our debts to our overseas creditors and, secondly, to reform our taxation system so as to make it more socially just and geared to our economic needs. I am convinced that the Chancellor's proposals will go a long way to achieving both. As one who believes that the economic future of the nation and its place in the world depend on how long we take to build a democratic Socialist society in these islands, my criteria for determining whether this is a good Budget depend on the answers to three questions. The first is whether the Government are speaking the language of priorities, a question already largely answered by the Chief Secretary. The second is whether the Budget counteracts the state of affairs best described by Professor Galbraith as the state of public squalor amidst private affluence. The third is whether the Budget encourages development towards an economic society where the political concept of democracy is increasingly applied to our economic, industrial and social affairs.

It is true that some may say that the Budget could have gone further in certain directions, but, in view of the situation in which the Chancellor found himself, this is a Budget of which we on this side of the Committee can feel proud. It has to be appreciated that the Budget was formulated in a very difficult economic context. The task of the Chancellor could well be likened to that of the tightrope walker walking on an untried tightrope, blindfolded and with the full realisation of what would happen if he took one false step. That is a difficult situation and we can see from these proposals what progress has been made.

We must also consider the background of events which led up to the General Election. What was the situation facing the country which for years had been drifting aimlessly while urgent problems were neglected? We had a long postponed General Election while the new leader of the Conservative Party was establishing himself, a task to which even today he is still dedicated. Imports were far higher than exports and the nation was sliding deeper and deeper into debt. Home and land prices and rents were out of control and public services like the schools and hospitals were short of funds and short of staff. Very little, if anything, was being done for pensioners and the needy. The railways were disorganised and the roads were becoming disorganised. If production was not stagnant, at least it was generally admitted to be stagnating. In defence we had a mixture of muddle, waste and fantasy while the then Prime Minister spoke over and over again about the need for the illusory independent nuclear deterrent. What we need in this country is emphatically not an independent nuclear deterrent but a realistic independent economic policy, and we are certainly now moving towards it.

That was the situation in which we found ourselves at the General Election. When my right hon. Friends took office, they found the largest trade deficit ever recorded. There was some dispute about this, but now it is generally recognised—and this was brought out in the White Paper—that this was so. The £ sterling was at its lowest ebb. The gold reserves were over £100 million lower than when the Labour Government left office 13 years ago. The hon. Member for Twickenham (Mr. Gresham Cooke) said that every Labour Government was followed by disaster. Of course, that is so: we ended up with a Tory Government. But there is no fear of such a disaster happening again.

Let me return to the economic situation. The Times said this about the economic mess on 26th November: Its immediate origin is a legacy of the last Government This must be said, because unless memories are refreshed a Conservative myth will grow up that Sir Alec Douglas-Home and Mr. Maudling left behind them a sound, well-based economy which Labour promptly ruined. This is not so said The Times. "This is not so", said the people of Britain in the election, and we should certainly agree in this debate that it was not so.

The Government have shown that they are beginning to tackle the long-term economic problems confronting the nation. Already the constructive measures are emerging. There is the incomes and prices policy. There are plans for steady industrial expansion and greater efficiency; aid for exports; and a drive for technological change. All these developments—we have heard about them in this debate—are making good progress. There is a great need to organise the nation's industry so that more resources emerge from factory and field, first, to meet the demands for expanding the social services, secondly, to raise the standard of living of our people and, thirdly, to make a greater contribution to solving the world's problems and to make a contribution in overseas aid.

While there is not the poverty which existed in pre-war Britain, there are still crying needs in the social services. It is important that in discussing the Budget Resolutions and our economic plans for the future we should have in mind the needs facing the people of this country. During the Queen's Speech the Leader of the Opposition said that he knew what the people of Britain would decide when it came to making a choice between maintaining a sector of the aircraft industry or removing the prescription charges. This matter was taken up by the right hon. and learned Member for St. Marylebone (Mr. Hogg) this weekend. I am prepared to meet the electors at the next election and to ask them where they stand on this choice. By abolishing the prescription charges, the Government removed a charge which was constantly imposed by the last Government and previous Governments on the cancer sufferers, the rheumatic sufferers and sufferers from many other diseases who month by month had to go to the doctor and pay the increased charges which they imposed. The hon. Member for Twickenham said that there would be a saving of about £40 million a year. There will be a saving with the cancellation of the TSR2——

The Temporary Chairman (Mr. Grant-Ferris)

Order. I am sorry to interrupt the hon. Gentleman, but he is inclined to stray from the terms of the Budget. If the hon. Gentleman will keep an eye on that matter he will be all right.

Mr. Evans

I will bear that in mind, Mr. Grant-Ferris.

We are beginning to get the economy moving. As a nation we have the required power, the industrial equipment and the technical skill. What we need is the purpose to produce the economic policies to use these resources to the best advantage; and they will have to be Socialist economic policies. We must win the co-operation of the British people. We must not just convince the economic experts. We must also win the people's approval. If we do this, there will be conscious participation. I believe that the people understand what the Government are trying to do. I have heard the Budget referred to time and again as a "fair-play Budget".

I should like to take up the reference made in the debate to the economic consequences of the cancellation of the production of the TSR2. I believe that as a nation we should be opposed to manufacturing military white elephants. Certainly, as I have said before, we should oppose the wastage of public funds in endeavouring to make these white elephants fly. Every week that the TSR2 programme was continuing cost the taxpayer about £1 million. Earlier in the debate the hon. Member for Louth (Sir C. Osborne) appealed to the Government to cut back public spending. He said that the Chancellor of the Exchequer made a marvellous speech and that it was a great rallying call to the nation. I interrupted him and asked whether he supported the Government's plan to cut back the TSR2 project. He had no answer to that. The Chancellor of the Exchequer has introduced an alteration in Government policy which will lead to a cut-back in public expenditure. We must ensure that we put this money to greater use. This project was an intolerable burden on the economy. There are better ways of using the nation's resources than to earmark £750 million for a military project which, in my view, would have become obsolete before it was finally developed.

I am pleased that defence expenditure is being looked at more realistically and that our economy will not be bled white so that we may make our annual sacrifice to the war gods. Our best defence as a nation is first to achieve economic independence; secondly, to build up our social services as we did in 1945 so that we can set an example to the rest of the world; and, thirdly, to fulfil our international obligations and to realise that they will be better fulfilled by giving economic aid to the under-developed countries and by assisting them to develop their economies and to increase their trade with us than by putting our faith in obsolete military weapons, which appears to be the sole aim of hon. Members opposite in this Parliament.

6.7 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

I hope that the hon. Member for Birmingham, Yardley (Mr. loan L. Evans) will not mind if I do not comment on his arguments either too closely or too immediately, which will perhaps allow the fragrance of his economic effervescence to linger longer in the Chamber.

I should like to take up the constant reference to the legacy of the past 13 years. If we are to take this analysis more deeply, we should refer, in the context of the British economy and of the Budget, to the legacy of 100 years and the arthritic conditions in the British economy. Who is responsible for those conditions? Where do we find these conditions—not only on one side of industry but deeply throughout both sides of industry. If we want to find the responsibility, we must look further and more deeply.

The hon. Member for The Hartlepools (Mr. Leadbitter) referred to the generosity to the higher income groups. This is a most astonishing phrase which is increasingly used in the Chamber. It seems to imply that the income, not only of those in the higher income groups, but of those in all the other income groups, belongs, in the first place, to the State, and that it is handed back as an act of extreme generosity by the Chancellor of the Exchequer. What absolute nonsense. This income belongs, in the first place, to those who earn it, irrespective of their income group, and by the mechanism of the House of Commons the State is allowed to take what it chooses to take.

To a Member such as myself who is new to Budget debates, the relatively placid calm of the Committee contrasts more than favourably with the rather explosive situation which obtained on the first afternoon of the debate. It was perhaps somewhat pathetic that, on entering the Chamber, I received a notice inviting all Members to a demonstration of the sonic bang at Upwood. It seemed to me that on that occasion the House produced its own sonic bang with a decibel level in debate probably unprecedented.

May I come back to the question of the responsibility for the economic situation in 1964. Since we will not abandon our view, and since hon. Members opposite will not abandon their view, about where the responsibility lies, surely it is fruitless to spend time debating this question. If it is pointless to attempt to control the economy by looking up last year's Bradshaw surely as an instrument of economic management last year's HANSARD is of even less relevance. It is one of the most curious mixtures of fact and opinion in which agreed fact has a very low survival rate.

Surely the responsibility in this situation must be shared. It must be shared not only between pre- and post-election Governments but by the Civil Service, which advised both Governments, and perhaps to an even greater measure by the nation as a whole. Surely nine-tenths of this responsibility belongs to nine-tenths of the nation, and it is the one-tenth which we are discussing here. Even in a nation where the public sector is 100 per cent.—and we are a long way from that, fortunately, and I hope that we shall never reach it—this is still true. Even Mr. Khrushchev recently decided that there are lessons to be learned from the private competitive system. It is interesting that that is so, because it demonstrates, if nothing else, that there are limits to the competence and efficiency of human communications, and this is one of the fundamental determinants of what we are trying to do.

If the Labour Party can claim no special relationship with sonic or Parliamentary bangs, it has originated a new economic phenomenon. Some years ago that very distinguished columnist, Sir Dennis Robertson, despairing of the words used to describe the complicated postwar economic situation of 1947–48, originated the delightful phrase "sloom and bump" instead of "boom and slump". I think that "sloom" is too innocent a word for the present situation and "bump" obviously lets the right hon. Gentleman off too lightly. He has produced a new phenomenon, the Punic boom. It is a situation in which "Every prospect pleases but only the plan is vile".

In conditions of general economic prosperity, it has been regarded as necessary to introduce what by common consent are Punic and extreme measures and to promise more. The Chancellor's claim in his speech was that he was ready and anxious to work with industry. In fact, he set out on a scalping expedition. One scalp, reeking of 100 per cent. octane, he has draped across the Box—the scalp of the aircraft industry. There are others about which we have heard very little. What about the second scalp, which he has kept in the wigwam and not shown to the other members of the tribe—the shipping industry, about which I shall have more to say later? And if this is a scalp, what about the shipbuilding industry which, despite the statistics used by hon. Members, supported the shipping industry last year to the extent of 86 per cent. of its orders?

Fourth, there is the vitally important overseas mining industry, an industry of very great significance to this country and a very great contributor to the balance of payments. Fifthly, there is the industry of nuclear ship building, which seems to be one out of which we are contracting, before we have even started. The Chancellor has out-Machiavelli'd Machiavelli, because it was Machiavelli who said that Severities should be dealt out all at once, that by their suddenness they may give less offence; benefits should be handed out drop by drop. But the right hon. Gentleman has outMachiavelli'd Machiavelli, because he has even succeeded in taxing the drops.

Next, there is the question of the Capital Gains Tax. I make only one reference to it. Surely in an inflationary age some mention should have been made of the impact of inflation on capital gain. I have been here through most but not all of the debate, and to my knowledge no mention has been made of this. In an age in which inflation is proceeding at roughly 3 per cent. per annum, surely there should be written out of any capital gains situation whatever is the annual rate of inflation, however the right hon. Gentleman wishes to determine it.

Next there is the question of entertainment expenses. This is simply an extension of the basis on which profits are taxed, no more and no less. In a most considerable variety of cases it ignores the fact that it is very necessary for small companies to control their costs, and that is true even of many big companies which find themselves in a serious competitive situation. May I ask the Chancellor whether we may have, as a basis for guidance and policy-making in the House, a much more comprehensive list of statistical data about expenses—how they are composed and how they compare in the same industries between companies of different size and turnover? If we have some information of this kind we can make some intelligent guess as to the element of abuse and the element of necessity, because the element of necessity must clearly continue while that of abuse must clearly, by the consent of both sides of the House, be eliminated.

We have heard that there must be a shift of resources from the TSR2 to other sectors of industry. That is no doubt an ideal. May we have a guarantee from the Government that the trade unions, which have not shown themselves singularly willing or co-operative to facilitate such shifts of resources as the Government have already tried to make, will be ready and willing on all possible occasions and in all occupations to facilitate this shift? I am sure that the House and the country would like that assurance.

I referred earlier to the shipping industry, and I should like briefly to go back to it. The shipping industry makes a major contribution to the balance of payments. I will not bore the House with the figures; both the Chancellor and the House know them well. The contribution is about £700 million gross or £250 million net calculated one way, and minus £27 million net calculated the other way and including the whole of the nation's freight account.

The size of the contribution of British shipping to the balance of payments is so great that if we seriously damage this industry, as the Chancellor knows that his new tax will seriously damage it, then it will slowly contract and perhaps disappear if there is no change. This means that the Government must somehow or another find an industry or series of industries and guarantee that they will provide about the same amount for the balance of payments—£700 million gross or £250 net, or perhaps minus £27 million on the final basis of calculation.

The general picture of the shipping industry is extremely disturbing. I should be the first to admit to many criticisms which hive been made. There are no easy solutions to these general problems. I have been closely associated with this industry, and perhaps inside it I have been one of its foremost critics, and I therefore bow to no hon. Member on either side of the House in my willingness to accept some of the serious criticisms which have been made.

Nevertheless, let us face the fact that the overrall economic environment in which this industry operates is one which is increasingly hostile to it and is an environment over which the Government have no control. The only sector of its environment over which the Government have control is in this vital question of taxation. In this respect, this industry suffers more harshly and more severely than practically any of its international competitors. Unlike the overseas mining industry or the other technical industries which have some choice as to whether they operate inside the United Kingdom or abroad, the shipping industry has no choice whatever. It bestrides the sea, as it must do, from the very nature of its operations. Surely we are not to withdraw gradually from this industry. It would be a counsel of defeat and despair. If we do, we must at least be offered feasible alternatives, as I have suggested, which will produce a dramatically large contribution to our balance of payments.

May I turn, briefly, to another question—the fundamental political difference between hon. Members on this side of this House and hon. Members opposite when they come to the question of economic planning and what is possible. Professor Norbert Wiener—hon. Members may remember him as the first man to use the phrase "cybernetics", now so popularly used by the pundits, said that Economics is a one or two-digit science". By that he meant scientifically within the order of the limit of accuracy which was normally obtainable in the economic parameters. He had no illusions whatever, if I may say so, on public finance. The right hon. Gentleman, whom I am glad to see here this afternoon, would have us believe that he is a 10-digit operator on a 2-digit fruit machine, that there is, of course, I am sure he would like to think—we would all like to think—a precise and predictable relationship between the coin he puts into the machine—his policy—and the vehemence with which he releases the plunger, and the display of lights and bells which accompany his pronouncements here and elsewhere.

However, the reliability of these figures is very much, of course, open to question. Underlying the assumptions which so many make about these matters is, I think, the idea that the blueprints of the economy are something like a Canaletto, precise, detailed, perfect, predictable. In fact, they are nothing of the sort. They are, probably, at best, something like one of those Impressionist paintings which we can only recognise provided we know it is the right way up. We can only use something as reliable as an Impressionist painting, but the Government, and debate in this Committee, proceed as though they are Canalettoes, or even, perhaps, blueprints of a complex machine tool.

A most distinguished economist, Morgenstern, the joint author with Keynes of the theory of games—I remember how excited Maynard Keynes was about this more than anything else just after the war—the economic statistics which are the bread and butter of hon. Members opposite and of their policies, said on this question of growth rate that a reliable growth rate of two significant digits is impossible to establish. … Even the first is in grave doubt. Yet emphasis in public discussion is usually on the first decimal. A growth rate simply cannot be computed with the stated or demanded degree of refinement or reliability. This applies to the existing national income data of any country in the world. … There is no possibility of making concessions as far as the scientific use of growth rates is concerned. As available today they are worthless in view of the exacting uses to which they are being put. The data are limited and untrustworthy and the method of computation is at best"— at best— based on the tremendous oversimplification that there are no errors in gross national product. This brings us to the fundamental point between us. Hon. Members opposite and the Government are, of course, committed wholeheartedly to the question of incomes policy. This is wholeheartedly committed to the precision of the data necessary to govern it. Therefore, if the precision of those data is in any sense in question, so must the incomes policy, to that extent, be in question.

6.24 p.m.

Mr. Edmund Den (Birkenhead)

I have listened with considerable interest to the speech of the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd), particularly his remarks on shipping. This is a subject with which the Government must be carefully concerned, bearing in mind that many countries at the moment, as was shown at the U.N.C.T.A.D. conference at Geneva last year, are looking curiously into the invisible earnings which our shipping industry is making.

I sympathised with the hon. Member when he asked us not to enter into discussion as to the responsibility for the situation in which we find ourselves. For us not to enter into such discussion would, of course, be convenient for hon. and right hon. Members opposite. The trouble for many years—I do not speak now of the last 13 years but for a very much longer period than that—has been the lack of any sense of urgency from Conservative Governments which over a long period, with only very short intervals, unfortunately, have governed this country. Fortunately, however, the interval before the next Conservative Government will be very much longer.

I propose this afternoon therefore to turn my attention to my right hon. Friends. The Chancellor has made a judgment and has taken the view that he has to restrict home demand by approximately £250 million. He has looked at last year's deficit, examined the estimates for revenue and expenditure, speculated on this year's imports and exports and has come to the conclusion that it is necessary to restrict home demand by approximately £250 million. It is necessary to say at once that the judgment which the Chancellor has made seems to be welcomed by most of those people who can claim authority in this field. Some say it should have been a bit more, some say it should have been a bit less, but, in general, the Chancellor has the support of a great deal of informed opinion on this matter.

Unfortunately, it does not seem to be equally clear what results are expected from this restriction. In his Budget speech the Chancellor said: Taking the early months of next year as my period of reference, I have concluded that we must act so as to reduce home demand in that period by £250 million at an annual rate."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 287.] It seems to me that at that point at which these tax changes takes effect the impact is likely to be at an annual rate greater than £250 million, and it might be substantially greater at that point.

There is also the question of what the effect on total home demand is likely to be. Many economists are supporting the Budget because they take the view that it will only slow the rate of the growth of home demand. It will not stop it or result in a reduction of it. In other words, it will not be a case of stop-go; there will still be a slow movement forward even though a brake has been applied. But is this how the Chancellor himself judges the possibilities? It appears from one of his remarks in his Budget speech that that is not his view. He said: I expect to see some easing of home demand as the year progresses …"—[OFFICIAL REPORT, 6th April, Vol. 710, c.287.] Does "easing" mean that he expects a fall in home demand?

I regard this is being of the utmost importance because, unfortunately, in this country the level of investment is dependent to an enormous extent on the level of home demand. Far too few companies in this country are export oriented. They are not export oriented in the sense that they do not plan their investment to include 40 to 50 per cent. of potential exports. Too few companies make any reasonable provision for exports in planning investments and I am afraid that if we cut home demand investment will fall and that investment will be less productive because if home demand is not strong and reliable even less provision will be made for exports.

Of course, the Chancellor may be right. He has himself spoken of the dangers of working on last year's Bradshaw. However, I do not myself like heroic cuts in the level of home demand. I prefer the type of delicate adjustment, to which my right hon. Friend himself referred in his speech on the Third Reading of his first Finance Bill. It is better to follow the Greeks who used to use as their slogan. "Never too much". Indeed, my view of this point is confirmed by reading the interesting book, "The Management of the British Economy, 1945–60" by J. E. C. Dow. I hope I may quote him even though he has now returned to O.E.D.C. He concludes his review of fiscal policy with the words: … it is a good deal if policy moves cautiously step by step, waiting for more remote repercussions to emerge before intervening further. It may be that this cut of £250 million in home demand has been chosen to satisfy our foreign creditors and that if they had not been satisfied the £ would have had to be devalued—something which none of us wants. Only the Chancellor can say what was the state of those negotiations. Nevertheless, as my right hon. Friend pointed out in his Budget speech this country has certain important elements of strength. By the end of 1964 our total stock of long-term assets abroad was £11,000 million. As my right hon. Friend said, the trouble is simply that our national balance sheet is badly lopsided in its emphasis on long- rather than short-term assets."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 262.] We should correct that balance, but if I have £100 in current account——

Mr. Jeremy Thorpe (Devon, North)

On a point of order. Would it be possible for the right hon. Member for Flint, West (Mr. Birch) so to conduct his conversation that it is possible to hear the hon. Member for Birkenhead (Mr. Dell)?

The Deputy-Chairman (Sir Samuel Storey)

I have no difficulty in hearing the hon. Member. I hope that right hon. Members will carry on their conversations quietly.

Mr. Dell

As I was saying, if I have £100 in current account and securities worth £10,000 and have to pay a bill of £300, my guess is that my bank manager would accommodate me. It is a matter of negotiation, just as the situation of this country at the moment is to a certain extent a matter of negotiation. I think that our foreign creditors might have been satisfied with less. Nevertheless, if £250 million had to be taken out of home demand, no one could have done it more skilfully or more painlessly than my right hon. Friend.

My main criticism of the Budget and of the Government's economic policy is that my right hon. Friend has not done enough about exports. What is being done by the Government for exports? First, I should like to give a warm welcome indeed to the cancellation of the TSR2. My welcome will be even warmer if the Government finally conclude that they do not need to buy the F111. It is intolerable that we should be carrying a burden of defence expenditure so much greater than our main competitors. There must be a great deal more sharing of defence responsibilities, particularly east of Suez. There is no greater contribution which the Government could make to stimulating exports than by redeploying people now employed in defence production to industries capable of exporting and earning money for this country. In my opinion the redeployment of skilled workers to export industries by substantial cuts in defence expenditure is essential.

I come now to one of the most important points in the Government policy, and that is the relationship between the attempt to achieve an incomes policy and our exports. I support an incomes policy and have done for many years. I support it because I believe that people should understand the considerations which should govern the distribution of incomes and the rate of increase in incomes, but I believe that there are two dangers in the Government's attitude and in the enormous amount of political capital which they are investing in their search for an incomes policy.

First, the Government appear to believe that an incomes policy is a prerequisite for a faster rate of growth. I believe that a faster rate of growth is a prerequisite for the successful achievement of an incomes policy. Secondly, I believe that the Government may be overestimating the advantages that will accrue from achieving an incomes policy. I do not believe that price, with the exception of certain industries, such as shipbuilding, is a major factor in holding back our exports. I believe that it is lack of energy and lack of organisation. In those cases where price is a major factor in holding back our exports, a great deal more than an incomes policy will be required to correct the position.

What do the Government expect from the achievement of an incomes policy? My right hon. Friend the First Secretary said on Wednesday: If British costs could be reduced in relation to those of our competitors by even as little as 1 per cent. per annum, the effect on our balance of trade in a few years' time would be worth several million pounds."—[OFFICIAL REPORT, 7th April, 1965; Vol. 710, c. 535–36.] The Government cannot hope to achieve that by an incomes policy. They will be lucky if an incomes policy slows the growth of incomes by as much as 1 per cent. per annum, and incomes are only a part of costs.

But there is a way of achieving what the Government have in mind. If firms were more capable of calculating the profitability of their exports, and if we had better overseas selling organisations which could send back information about genuine competitive price levels, we could then have what the Government are searching for without looking for an incomes policy, and both these things would be made a great deal easier to achieve if the Government gave greater financial incentives for exports.

I propose now to say something about investments for exports, because the Government have decided not to increase investment allowances to compensate for the fact that with Corporation Tax at between 35 and 40 per cent. the value of investment allowances will be reduced. The Government may be right in this decision, but it is nevertheless important that incentives should be provided.

The Chancellor has noted the conclusions of the Richardson Committee, and of recent reports by N.E.D.C., to the effect that investment allowances are not in all cases efficient incentives. The fact that they are not efficient incentives in the case of a host of small and medium-sized firms does not mean that they are not efficient incentives in the case of a number of large firms which are the key to our exports. Incentives are needed, though it may be necessary that they be better conceived.

I am glad that the Chancellor is to consider incentives which will give a positive stimulus to new techniques of production, thought I regret that it will take him a year to carry through the study. He must remember that it is not just a matter of new techniques of production. Investment in this country must be export-oriented, and there should be incentives, possibly by direct cash subsidies, to stimulate export oriented investment.

I think that the Government are right to look more closely at overseas investments. Far too little is known about the results for this country of its overseas investments. The Board of Trade is about to do a study of royalties, but this is far too limited an investigation. I believe that it is clear that investment in overseas portfolios brings this country nothing like a commensurate return, but that does not mean that the same is true of investment in British overseas manufacturing projects.

If, for one reason or another—and there may be many reasons—one cannot export British goods of a particular type to a foreign country, it may be better to enter manufacture in that country than simply to retire from the market, because by doing that one provides an outlet for British made raw materials, intermediates and parts, and capital goods which can be exported to the overseas manufacturing project. Secondly, because of that, one can sustain in that country overseas a selling organisation which is very much larger because it is selling locally made goods, and it can as a result be a good deal more effective in selling British-made goods. One of the consequences of this can be the considerable increase in the export of British goods.

This second result is, I think, of considerable importance, and should be borne in mind by the Government in considering the justification for any particular overseas investment. It is certainly the view of many of this country's major exporters—firms like I.C.I., Leyland Motors, B.M.C., and so on—that the return to this country from their overseas investments is a good deal greater than many people think, just looking at the returns as a simple rate of return on investment, royalties, technical fees, and so on.

This also seems to be true of the United States of America. The United States Department of Commerce reported a few months ago that foreign affiliates of American firms operating overseas accounted for at least 5,000 million dollars' worth of United States exports in 1963, out of a total of United States exports in that year of 13,300 million dollars. Of all these exports to American firms overseas about 40 per cent. were in goods requiring extensive processing.

I asked the President of the Board of Trade whether he had similar information in respect of this country. Unfortunately, such information does not appear to be available. I am not saying that the case for British investment overseas in all cases is open and shut; it is one that requires investigation. But in considering each case the Government must bear in mind the multiplier effect on our exports of a British manufacturing presence overseas. This extends far outside the direct results. It is easier to sell British goods in any country where a British firm manufactures. American exports are highest to those countries in which America has invested to a large extent, and exactly the same is likely to be true of this country.

In passing, I want to say a word about overseas investment in developing countries. In his Budget speech, the Chancellor said: I do not expect that the impact of the measures we are taking on the developing countries, towards whom we have special responsibilities, will be adverse to any significant degree … I shall be watching this aspect of the question with great care …"—[OFFICIAL REPORT, 6th April, 1965; Vol. 710, c. 268.] I hope that he will watch this aspect with great care. According to the Board of Trade Journal of 2nd April, the value of our investments in less developed countries fell from £91 million in 1961 to £52 million in 1963. There appears to be a pattern of disinvestment by developed countries in developing countries. This is already a matter of considerable concern.

I welcome the proposals announced by the President of the Board of Trade last Thursday of further incentives for export. It has been decided to extend cheaper export finance facilities down to periods of credit over two years instead of three years as was previously the case. This still excludes by far the greatest proportion of our exports, and I see no reason why this limit should not be eliminated. I see no reason for any limit on these cheap export finance facilities.

I also welcome my right hon. Friend's announcement of an improvement in Export Credits Guarantee Department terms. As my right hon. Friend said when announcing these improvements, the E.C.G.D. can afford it in view of the profits that it is making. I would like to see the E.C.G.D. not merely improving the terms for credits which it would in any case guarantee but widening the risks it is prepared to take both market-wise and customer-wise. At the moment it does not take sufficient risks, especially in the developing countries.

In an attempt to discover the facts I asked my right hon. Friend the President of the Board of Trade if he would give, for the most recent date, a break-down by area of the total value of credits guaranteed by the E.C.G.D., specifying in particular the value of credits guaranteed to the Soviet bloc, South America, India, Pakistan and Egypt. His answer was that he could not give these figures because it would be against the commercial interests of the Department to disclose its credit insurance liabilities on individual markets or groups of markets.

But this information which the E.C.G.D. is not willing to give is available in respect of its German equivalent. I do not know why it is against the commercial interests of the E.C.G.D. but not against those of its German equivalent. The simple fact is that the E.C.G.D. is not prepared to provide evidence which may be used against itself. But it is in the public interest that such information should be made available. It is significant that the lion's share of the German guarantees is in respect of the developing countries—where we are doing particularly badly and the E.C.G.D. is sometimes less than helpful. In December, 1964, out of a total of DM 20,600 million guaranteed by Germany—representing 10 per cent. of German exports—20 per cent. was in respect of South America. I should like to know the equivalent percentage in respect of the E.C.G.D.

Then there is the problem—again touched on by my right hon. Friend last Thursday—of a national export selling organisation. He said that an expert working party of the British National Export Council was testing the feasibility of this plan. I hope that it will come to a speedy decision. This idea could be one of the best organisational means of promoting our exports. I hope that my right hon. Friend the President of the Board of Trade and the Government will bear in mind Japanese experience, which seems to show that large expert merchanting companies can have an important effect on stimulating exports. What the plan needs is expert management, and there is no reason why it should not be a success.

There are other means open to the Government for stimulating exports. There is need for a review of our system of indirect taxation to see if we can provide incentives for export. There is need for a review of the way in which the Government's purchasing power can be used to stimulate exports. I do not deal with either of these important matters, because they have already been mentioned by previous speakers, but they are very important and they might help to solve the important question of increasing our exports a great deal faster than they are increasing at the moment.

My main criticism of the Budget is that the Government have not yet done enough to promote exports. Two hundred and fifty million pounds has been taken out of home demand to make room for exports. We are not told how this figure was arrived at—it was a matter of the Chancellor's judgment—or how much room this figure will make for exports. We do not know how much room for additional exports will be provided by these tax changes. But the Chancellor said that it is not enough to make room for exports; the markets have to be sought and the sales have to be made. Much remains to be done before we can claim that the pressure behind the export drive is as great as the Government need to make it, but for once a beginning has been made.

6.47 p.m.

Mr. William Shepherd (Cheadle)

The Committee will agree that the hon. Member for Birkenhead (Mr. Dell) made a useful and interesting contribution to our debate. I particularly commend to the Committee his criticism of the Corporation Tax, in the sense that it is likely to diminish the investment allowances. Looking at the very small base in manufacturing industry on which the whole of our economic position depends, we realise how important it is to avoid anything which will reduce the level of efficiency. I therefore hope that the Chancellor, in giving further consideration to this aspect, will bear in mind the necessity to preserve the investment allowances in some form. I am grateful for one thing: the Chancellor did not yield to pressures to reduce the level at which Surtax begins. This was a very agreeable thing. It is one small step in what I hope will be ultimately the right direction.

I cannot commend the Budget very much further, because it fails to take a great opportunity for some radical reform. It fails because the party opposite is still a doctrinaire party. I was disappointed to find no reference in the Budget to further gambling taxes. I hoped that we could have got £1,000 from each betting shop, £500 from every one-armed bandit, and £5,000 from every roulette or chemin-de-fer table. Far too much gambling is going on at present, and it would seem relatively easy to tax it. A tax should have been applied on this occasion.

The right hon. Gentleman has dealt a slashing blow at businessmen's expenses. I regret the motive behind that. On the whole, I think it a good thing if people do not eat quite so much at lunchtime, but I feel that the motive behind it, the sort of class resentment, is disagreeable. I would have hoped that the right hon. Gentleman might have done something more along the American pattern.

Basically, the Budget lacks a radical turn. It is true that we have the Capital Gains Tax, but it is a terribly involved and complicated business, and, like a lot of other taxes on capital gains, it will yield little with a great expenditure of administrative effort. A simple sales tax on land might well have done what the right hon. Gentleman wants to do with very much less effort and certainly with much greater certainty than a Capital Gains Tax is likely to have. Similarly, why deal with a Capital Gains Tax when the death duty position is left so unsatisfactorily? Death duties yield a very small amount in total terms—about 5 per cent. of the total revenue. They are grossly unfair in their incidence and punishing to privately owned businesses. Despite their enormous disadvantages they are small revenue yielders. Surely to tackle them would have been much more intelligent, in terms of a growth society, than to attempt a Capital Gains Tax. Once again it is a question of the doctrinaire approach. Because right hon. Gentlemen opposite have talked about a Capital Gains Tax for so long, they must tackle the idea rather than the logical idea of reforming death duties, which would have been more valuable to the community in my opinion.

I wish to turn to the general considerations of the Budget and to reinforce what has been said by my hon. Friends. We tend to imagine that we have much more control over the economy than is the case. These are delightful calculations, about taking X million pounds out of the economy in order to make room for something else, but they ignore all the variations of human reactions. Even when we have a figure in the total equation of £2,000 million of personal savings, these figures knock any policy sideways.

I wish that we could get out of the habit of assuming that there is a scientific manner of controlling the economy. We are dealing with men and women, and no scientific control is possible within the limits of a democratic society. Within such a society, it is virtually impossible to dictate the pattern of the economy. That is why I do not look with so much distaste or concern as do some of my right hon. Friends on the development of an incomes policy. The acidulous cynicism of my right hon. Friend the Member for Flint, West (Mr. Birch) is not for me, although I recognise some of the motives which inspired it.

Nevertheless, it is true that in this community we cannot achieve a balance in our economy, a degree of restraint and growth element, merely by economic means alone. No Government can do all they want to do, and feel that they ought to do in economic terms, to achieve these standards. A Government have to temper what they know is economically necessary by what they believe to be politically feasible. So I welcome an incomes policy, provided that it does not bring about a limitation of the economic measures which the Government feel ought to be the minimum to ensure the safety of the community.

I hope it will be accompanied by some reform by right hon. Gentlemen opposite, and in the dropping of their foolish approach to the concept of free enterprise. The First Secretary of State and Secretary of State for Economic Affairs made the extraordinary remark that, despite what the Government were doing, it was still necessary for private enterprise to do something. That is a perfectly ridiculous approach to the problems of our day. Almost the whole of the export drive depends on private enterprise and not on public endeavour. I hope that we shall see some change in the attitude of right hon. Gentlemen opposite, but we have not seen much yet.

We know that one of the defects of our economic society is a lack of competition. Instead of stimulating more competition, for example, by saying to the steel industry, "You must be competitive", they are going to impose upon it a massive monopoly. This is going entirely in the wrong direction. In the dynamic economy of Western Germany the German Government are selling Government-owned enterprises to the public. Yet we are going in exactly the wrong direction.

I wish to say a word about the controversy raised by the hon. Member for Birkenhead about whose fault it was. I regard this situation as of crucial importance and I must say that I wholeheartedly condemn right hon. Gentlemen opposite for the position in which we now find ourselves. I am not saying to the Committee that I do not think they inherited other than a particularly difficult situation. Of course it was a difficult situation without any doubt, and of course I am not so stupid as to realise that they would be less able to handle this than we would. They would be looked on with more suspicion abroad than we would be. I appreciate and accept this. But, nevertheless, I am convinced that the difficulties in which we find ourselves today, with the 7 per cent. Bank Rate and the incubus and trouble it has brought about, are due to the political approach of right hon. Gentlemen opposite.

During 1964 we were trying to carry out what was, for this country, one of the most important experiments ever attempted in the post-war world. It was to ride out an economically difficult situation without recourse to extreme measures. Had we done that successfully, it would have reinforced confidence in sterling to an extent that no other method could possibly have done. That was the object of the exercise.

Mr. Sydney Silverman (Nelson and Colne)

By "riding out", does the hon. Gentleman mean that the Government should have done nothing about it and waited for the situation to cure itself? Is he saying that if they had not said anything about the enormous deficit in the international economic field, nobody would have noticed it?

Mr. Shepherd

I was not suggesting anything quite so foolish, and the hon. Gentleman ought to know that.

I am saying that we were conducting a difficult experiment at riding out a situation and, had we been successful, it would have fortified sterling in a manner in which no other method could have done. I blame right hon. Gentlemen opposite because I believe they took a definite decision, as they saw the situation confronting them, not to risk having this economic situation slung round their necks. I believe they calculated carefully that, if they allowed it to go on for two or three months to see whether we were right and that the situation would improve, then, if it went wrong, they would be in a considerable political difficulty. So they said to themselves, "We will make a show now and do something." In order to justify the immediacy of their actions they went about shouting about a £800 million deficit.

If we look at the White Paper which the Government published we find that they talk about a deficit of £374 million on current account. If instead of going about the world shrieking about £800 million, right hon. Gentlemen opposite had, in the latter part of last year, talked about a £350 million deficit on the trading account, the world would have taken a very different view of the situation. I say that if one examines the situation carefully, the conclusion cannot be avoided that right hon. Gentlemen opposite wished to avoid the risk of having this situation fastened round their own necks, and in order to justify the immediacy of their action they overstated the difficulties in which this country found itself. The result is that we face a deplorable situation.

May I finally say a few words about our economy? Despite the fact that we have been involved in a situation which could have been avoided, it is nevertheless true that there are certain very important decisions which this country must take. The first is to realise that we are not doing well enough to sustain our position in the world. I suspect that when we see the figures for the national output of France and Germany for 1963 and 1964, we shall have an even more disturbing revelation. What we are doing is not good enough. Secondly, what we are trying to do is far too much for our resources. This, I think, is the situation which we have to face. Can we go on, as we have been doing since 1945, with a series of crises affecting sterling? I do not think we can.

Therefore, while I support what the hon. Member for Birkenhead said about exports and pushing them harder, I would say that exports represent a very flexible factor. What we have to see is that the burdens we carry are rendered flexible. We should cut down those burdens so that the need for exports is not as great as it is at present. There is some doubt about the adequacy or inadequacy of our present export performance. If one looks at the three years preceding the last war and compares the performance then with what we do today, one sees an immense improvement, a great transformation. We should be bankrupt on the basis of the three or four years' trading preceding the last war. Therefore, I think that the assumption that we can push exports up to almost unlimited figures is false. Our endeavour should be to make the economy less dependent on exports.

Obviously, the first proposition to tackle is the expenditure on defence. To some extent I take the view that we cannot produce sophisticated aircraft of the nature of the TSR2 for domestic use alone, but it seems to me grossly absurd that the present Government should cancel the TSR2, on the one hand, and commit us to further defence east of Suez, on the other. I do not want to be responsible for the nuclear defence of India against China, for the simple reason that this country cannot afford to do it. Therefore, to my mind, the first proposition for making this country less dependent on exports is to cut down our defence commitment overseas to a figure which we can afford. We should tell the defence chiefs what they can spend and get the best defence for the money available, and not, as has been done, let the defence chiefs tell the Government that they have to have this, that and the other, well beyond the capacity of the nation.

As a good starting figure, instead of spending £260-odd million net overseas on defence, we should spend £150 million net. In other words, we should not start off, as we do at present, by having to find £481 million of Government expenditure overseas plus about £2,000 million of investment and trade in terms of a favourable balance of trade. It is clearly impossible. If hon. Gentlemen say that some of these figures which I quote are unreasonable, I would point out that the aircraft industry alone has an export potential of about £100 million, and I understand that the Leyland Group alone exports roughly that figure.

Mr. Callaghan

Probably more.

Mr. Shepherd

Probably more.

The next point with which I want to deal briefly is one already dealt with, and that is the reserve currency. It is impossible for us to go on bearing the immense burden of the reserve currency. We cannot do it successfully. It depends almost entirely upon the United States and ourselves running a deficit with the rest of the world, and this is clearly not a proposition of any real merit. Indeed, it is almost laughable that we live in an age in which we will shortly land a man on the moon, and yet we have an absolutely out-dated concept of reserve currency and international trading currencies. It should not be beyond the wit of man to design a reserve currency which restricts people in their internal policies—that is an essential—and which provides for international liquidity and frees the £ sterling and the dollar from the most unwelcome burden of financing international trade. I hone that the right hon. Gentleman will devote his energies to this, because the expansion of world trade depends on international liquidity, and the existing mechanics are grossly unsatisfactory.

I now turn to overseas investment. Here again, I have some sympathy with the Chancellor. I accept the view that many companies overseas, particularly trading corporations, give us an immense return. Very often one gets business quite as large as one had before in total export by putting up a plant. I want to see that kind of investment encouraged. Clearly, we cannot go on with portfolio investments at our present level—£4,000 or £5,000 million—if we are not earning money on current account. I do not know exactly what our foreign investments are. I think that probably the gross income from foreign investments, or the net income after tax overseas is paid, is something of the order of £1,000 million. A good deal of the revenue is not remitted to this country at any rate, £1,000 million net after tax being paid in the local territories is, to my mind, as far as we want to go.

Mr. Callaghan

indicated dissent.

Mr. Shepherd

The Chancellor shakes his head, but it is not far short, when one bears in mind that, in respect of direct investments, only half the dividend is remitted to this country, so the total——

Mr. Callaghan

I will look at the figures, with pleasure. I should say that about £500 million net on portfolio and direct investment is remitted to this country, but that leaves a lot overseas still.

Mr. Shepherd

I was saying that about £1,000 million, after tax, is earned by British investment overseas. When we have this difficult reserve position, we ought not to encourage any further portfolio investment, but we should have regard to those firms which have net investment overseas, because they are extremely valuable to British trade.

We have to be more realistic with those with whom we have trading relations. We are far too easy with many people, and far too easy with the Commonwealth in many respects. Look at the situation during the last 10 years, when it cost us £1,500 million to trade with Canada. This country cannot afford to go on as the fairy godmother of the Commonwealth and the rest of the world. I want to see a more realistic basis for Commonwealth trade, as well as a more realistic participation by the Commonwealth in defence matters. I would urge the Chancellor, having done all these things, to make this country a much more competitive society. I know that this conflicts with the idea of the party opposite that the monopoly is the spice of life.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)


Mr. Shepherd

This is so. I accept quite freely that there are spheres where there is no desire for duplication, where a monopoly position may have value, but when one has to have diverse products it is only by competition that we can really be as efficient as we ought to be.

I hope that the right hon. Gentleman will do all he can to reward people who are efficient and enterprising and to penalise monopoly at every point. I do not believe that this country is doing as well in international trade or in home trade as it is capable of doing. I believe, as I said in the House a short time ago, that we are amongst the most able and intelligent people in the world, given the right set of conditions in which to operate. No trading nation, no manufacturing nation, can do better than the United Kingdom. We have not done as well as we might be doing. If we get a different trading attitude. if we can be freed from some of the burdens which we have imposed on ourselves, and if we can get a policy which is designed to promote competition and to eliminate monopoly, then I feel that we can make this country pay its way year after year.

7.10 p.m.

Mr. Edward Milne (Blyth)

The Committee and the hon. Member for Cheadle (Mr. Shepherd) will understand if I do not follow him too closely in his speech, although there were one or two rather startling departures in it from his usual logical argument. He complained that the Chancellor's attitude was doctrinaire. It is surprising for him to regard as doctrinaire a Budget which sets out to give a measure of social justice to the country when the same type of criticism was not made of Budgets which looked after Surtax payers and others.

I was at a loss to understand his reference to riding out the economic storms at the end of 1964. Had this been the first of the economic storms of the past decade, I might possibly have understood that remark but we have had a series of these storms over the period starting particularly, with the 1961 Budget of the right hon. and learned Member for Wirral (Mr. Selwyn Lloyd), who was sacked in July of the following year in a general Cabinet purge.

I have listened to many Budget speeches in the short time I have been a Member of the House, and it was particularly interesting to listen to the first major Budget debate with the Conservative Party in Opposition. Two speeches particularly intrigued me—those by the crazy mixed-up kids of Tory economics, the right hon. Member for Bexley (Mr. Heath) and the hon. Member for Louth (Sir C. Osborne). The right hon. Member for Bexley chided the Chancellor on having concentrated too much on the distribution of wealth and having paid too little attention to the production of wealth. Both these criticisms are invalid. Surely Budgets are about the distribution of wealth. The measure of a Chancellor's success is the stimulus which he gives to industry and the measure by which he sets out to see that the various sections of the community benefit from it. In this respect I feel, as do many hon. Members who have taken part in the debate, that the Chancellor of the Exchequer has done an exceptionally good job.

Hon. Members opposite have mainly failed to realise the changes which are taking place in the country—the social purpose behind the Budget and the fact that the people who produce the wealth of this nation should have access to it and the right to use it. This is why raising the income limit of people over 65, providing about £10 million of extra spending power in the nation, is particularly welcome at this time, and on top of the measures introduced by my right hon. Friend the Minister of Pensions and National Insurance, it shows the trend which Conservative Members have failed to take into account.

This social justice has been absent from past Budgets. When we have been dealing with business firms, previous Chancellors of the Exchequer have generally managed to reward the firm with the slick accountant rather than the firm with the technical "know-how" to get on with the job. It has been far more important to work on two telephones in many cases than to work with two hands, and the real business men in the community have been hampered and hindered while speculators have flourished. This is why we particularly welcome the Corporation Tax and the Capital Gains Tax. A prominent business executive in this country said 18 months ago that by an increase of 3d. on each of his shares, he made about £75,000 in one day.

Mr. Shepherd

What happened when the price went down?

Mr. Milne

When people are employed and pay P.A.Y.E., and subsequently become unemployed, they are still liable to taxation at the level which the Chancellor decides. [HON. MEMBERS: "No."] It is all very well for hon. Members to shake their heads and to talk about rebates, but the fact remains that failure to introduce the measures which the present Chancellor has had the courage to introduce has resulted not only in considerable taxation being lost to the country but in the Conservative Party being unable to introduce the type of measure which ought to have been introduced into Britain in the second half of the twentieth century.

When we consider other methods of approaching the type of society which we have indicated, such as a clamp-down on expense accounts, we find a measure of Tory uneasiness at the failure to grapple with the problem. Many speeches, and points made in speeches, have indicated that this decision is not as important as it sounds. But this is possibly the main item of taxation which indicates to the country that we are set out on a new course. In a previous Budget debate, my right hon. Friend the Prime Minister quoted an advertisement from The Times of 1961. These advertisements are still appearing in various newspapers. This advertisement was for an experienced butler— Forty to fifty years of age, required for directors' suite of world-famous company in the West Middlesex area. Duties will involve the control of three dining rooms and a staff of two or three waitresses including wine service. This is a permanent staff appointment with good wages and bonus. I do not know how permanent that staff appointment is to be now.

I want to look at another aspect of the Chancellor's remarks particularly in relation to a gambling tax and the examination which he intends to make of its possibilities. This point was made by the hon. Member for Cheadle. In some way there is a link between dealing with expense accounts in a Budget and a gambling tax. It was noticeable that the hon. Member was a little doctrinaire in this matter, because he went mainly after one aspect of taxation and left out many of the others.

In a previous debate I referred to an article in the Observer which referred to Crockfords and the estimate that profits in this sphere were running at about £10,000 a week. The Observer mentioned in that article that if one felt a little jaded with what Crockfords had to offer one could go to Aspinalls in Berkeley Square, where the record gambling loss was reckoned to be about £100,000.

It can be seen, therefore, that in an effort to introduce greater equity, my right hon. Friend the Chancellor's examination of a gambling tax might result not only in more revenue for the Treasury but perhaps a reduction in taxation in other directions. For example, a tax on aerated waters, sweets and ice cream has been mentioned. These are items which might be considered by my right hon. Friend at a later date, and if he did decide to take action he might receive the thanks of manufacturers, workers and parents who hand out the pocket money to the youngsters, who spend it and who, in the long run, would also thank him.

Another measure which I believe will be universally welcomed is that concerning redundancy payments. This will be further amplified in the Finance Bill. As my right hon. Friend said in his Budget speech, this would make a significant contribution to the redeployment of manpower. Such a move would be welcome not only in my constituency but throughout the North-East—in the northern region in particular because it would help to provide the skilled labour we need to speed the return to full employment.

On similar lines is my right hon. Friend's proposal to give a special measure of assistance to local authorities in the less prosperous areas. The efforts of the Public Works Loan Board, in addition to Exchequer loans, will be welcomed by these local authorities. This is the sort of way in which the instrument of the Budget can be used to bring prosperity to all parts of Britain.

It should be remembered, in this connection, that the Borough of Blyth was excluded from the growth zone in the Hailsham Report, after which the council got down to the task of itself attracting industry to the area. As a result of the excellent work done by Councillor Woolfrey, by officials and by members of a committee, industry has been attracted to the borough and, for example, a piece of land on the Kitty-brewster Estate has been turned into a thriving industrial area. However, areas such as this, which have had to take special measures of this kind, have had to carry extra financial burdens as a result of the policies of the previous Government.

Many people are gratified to note the Budget proposals for a closer supervision to be kept on the use of foreign exchange for travel purposes. We are pleased to know that the genuine holidaymaker will still be all right but that those who abuse the foreign exchange facilities will be closely watched. My right hon. Friend in his Budget speech made an appeal to holiday makers to take their holidays at home, in this country, and to take advantage of the delightful and not over-crowded parts of our island. I am certain that he had in mind the hills. beaches and facilities offered in Northumberland

I would not entirely rule out people being able to take holidays abroad. Hon. Members opposite should take note, after 13 years of so-called Conservative affluence—during which time they continually spoke of keeping Labour out of power because we would ruin the affluent society—of what has been taking place in some Scandinavian countries for a good many years. Norway and Sweden have the highest standards of living in Europe and they have had 32 and 25 years respectively of Governments similar to the Labour Government in Britain at present.

Mr. John Harvey (Walthamstow, East)

Do not believe it.

Mr. Milne

It is easy for the hon. Member to make remarks of that type, but I suggest that he studies this matter further and looks at the economies of those countries.

The Government's intention to secure a reduction in the existing burden of defence expenditure must hearten all hon. Members on this side of the Committee and the majority of people in the country. In response to the appeal from the Chair, I will be brief and close with a few general observations. I regret that the hon. Member for Louth is not in his place. I followed him in my first Budget debate in Parliament and I recall him on that occasion appealing to the then Chancellor, as he has done in successive debates, to follow the spirit of Sir Stafford Cripps. In support of his appeal he told us of an aeroplane journey he made—either to or from Peking, I cannot remember which—and read an extract from a speech delivered by the Chinese leader, Mao Tse-tung. The hon. Member for Louth said that the Chinese leader had stated that his countrymen had to be prepared for several decades of intensive effort which would include, among other things, carrying out a policy of building the country through hard work and thrift, practising strict economies and combating waste. I was surprised this year that the hon. Member for Louth made the same sort of appeal but failed to realise the change in the outlook of the present Chancellor compared with his predecessors.

Several hon. Members have referred to the cancellation of the TSR2. I do not want to anticipate tomorrow's debate. I wish that the former Minister of Aviation had had the courage to resign his seat over the Ferranti affair, in the same way as he is throwing out challenges in this direction now. Of course, no one would prevent him resigning if he feels so inclined and feels so confident of the outcome.

I concluded my speech in the last Budget debate by saying that it was the last Budget we should have from a Conservative Government for a considerable time before the Tories disappeared into the limbo and the country moved on to new order of society. We were certainly right in our prediction of the General Election result. I am certain that the foundation laid by the Chancellor in this year's Budget will lead to a term of office sufficiently long to give the country the overwhelming benefits of a Labour Government in the years that lie ahead.

7.31 p m.

Mr. Michael Alison (Barkston Ash)

The hon. Member for Blyth (Mr. Milne) has spoken about what he described as the social purposes of the Budget. He referred to words used by my right hon. Friend the Member for Bexley (Mr. Heath) in connection particularly with the Capital Gains Tax and Corporation Tax and said that the purpose was to secure a redistribution of income. I think that was a correct quotation and a correct observation. Personally I agree with both. The main overriding purpose of the Capital Gains Tax and the Corporation Tax is to secure a redistribution of income.

That is the main aim, and I believe that it will be the exclusive result, but to state this obvious fact is not necessarily to criticise it on those grounds. It may be perfectly legitimate and praiseworthy to aim at this sort of social purpose with one's fiscal weapons at this time. Indeed there may be some sympathy in all parts of the Committee for this underlying purpose in these tax measures. What we criticise is not so much the purpose the Chancellor has aimed at but whether the taxes are relevant to the economic situation of the country at present. What we especially criticise is the Chancellor's presentation of these changes in taxation in terms of their being weapons directed towards economic efficiency.

The Chancellor particularly said that the Corporation Tax is something most conducive to economic growth and efficiency. He went further than that and labelled a little section of his speech dealing with the Corporation Tax as: "Tax Reform Efficiency". It is precisely that that we call into question. To do so I pray in aid two particular witnesses in this connection. The first I refer to is the Committee which reported under Lord Radcliffe in 1958. There is a very interesting section on the question of growth and the means of finding finance for growth of various firms. Lord Radcliffe called witnesses who analysed the finance of growth of net assets of growing firms.

It is particularly interesting at this time to examine the findings presented in the Report because the period in which these analyses were made into how these growing firms acquired finance was 1949–53, a period in our economy when there was a very high degree of liquidity after a war-time accumulation, a period of high profits following the war, when everyone was prepared to buy practically anything. And it was a period of more or less official dividend restraint.

This was the sort of period when it would be easy for companies wishing to develop their net assets to find the resources within the companies themselves. Yet the findings of Lord Radcliffe's Committee, after examining a group of companies which were described as "very fast growers" and putting this group at about 25 per cent. of the total, still found in this period of liquidity and considerable company resources that half its new investment finance had to come from capital issues on the market. The next group, to which the Report referred merely as "fast growers", not "very fast growers", was stated to represent about 19 per cent. of the total number examined. The Committee found that in that group, although the companies found a good deal more of their growth capital out of profits, they still went to the market for one-third of the capital required.

This was in a period of considerable liquidity, between 1949 and 1953. I will read the conclusions which the Radcliffe Report drew from this phenomenon: All this was at a time of abnormally high liquidity among companies generally, and it would seem to imply that by 1957, when there was much less liquidity in total among these companies, growth … must have been much less dependent upon internal finance and much more on market sources than is often supposed. There is reason here for expecting British industrial investment to be much more sensitive than it was before 1957 to any measures affecting conditions in the new issue market. I believe this a true analysis and that it is much more difficult for the growing companies to find the resources they need from within their own domestic sources of finance.

Some would say that the Corporation Tax would tend to remedy this situation by its encouragement to growing companies to retain more profits than hitherto. It is worth calling in aid the second witness, the evidence of the United States experience in this field to which the Economist made reference in its current issue in which it pointed out that in the United States the proportion of retained profits with a 52 per cent. Corporation Tax is much the same as under the present system …". So it cannot be said that Corporation Tax is going to swing growing companies away from the capital issues market and into finding more of their resources from out of the companies themselves. I believe that the combination of Corporation Tax and Capital Gains Tax will tend to immobilise the flow of capital and make it very difficult for the companies which we want to grow to do so.

In this connection I should like to make a point relating to my constituency. A large number of small firms have grown there through hard work, energy and enterprise from small beginnings. I am thinking of a blanket firm which literally started with two people working in an upstairs room. It has blossomed out and now employs several score of people. It has a large booming factory. This sort of firm does not have a great deal of profit to retain. It has to depend very much on the bank and other sources of finance. With a 7 per cent. Bank Rate and credit squeeze, the realities which underpin our economic activity at the moment, the Government are penalising growing firms which we should support. It is the new, growing firms which are innovators, and that almost always means the substitution of capital for other factors. By Capital Gains Tax, Corporation Tax, 7 per cent. Bank Rate and credit squeeze we are hitting the very firms which we want to see grow, the new ones which have to substitute their capital progressively for the other factors.

I therefore believe that these two measures at least, the Capital Gains Tax and the Corporation Tax, although they may be socially justifiable, are economic nonsense when taken with the hidden realities of a 7 per cent. Bank Rate and a credit squeeze. But if they are inefficient as weapons to mobilise the economy, the rest of the Budget is ineffective. Here I refer to the specific application of the Budget proposals to a specific area, not taking the global picture by which very often we fall into error in the attitude which we have to measures proposed.

To take one town in my constituency, Selby, the starting point of analysis is that we have an unemployment rate of 0.6 of 1 per cent. What sort of relevance has the Budget to a situation of that kind? The principal exporting firm in this town is a small shipbuilding firm which builds medium-sized ocean-going trawlers and tugs. Alongside there has recently been deposited, to the firm's great consternation and considerable anxiety, a vast programme of power station construction by the C.E.G.B. There is the Eggborough power station, which is half-finished, and the Drax power station which will take six years to construct. In this special situation the earnings at the Eggborough power station are in some cases 80 per cent. higher than those which could be derived from the basic hourly wage rates, that is 80 per cent. higher than the agreed weekly rate. This is due largely to the regular working of Sunday overtime, as opposed to Saturday overtime, by contractors to the C.E.G.B.

Although I grant that high overtime rate does not necessarily mean that there is no commensurate increase in output and productivity, this is obviously a situation where wage drift will occur. When a vast amount of overtime is being worked, particularly under Government contract where resources are unlimited, something will have to give. If demand in this particular sector of the economy is not reduced to manageable proportions it will not be the C.E.G.B. contract which will give but small firms like the local shipbuilding firm. It will find that its delivery dates will lengthen or that its costs will rise if it is to obtain and pay for the required labour. The Budget takes no steam out of the economy in this case. All that the Government have done is to put up the price of beer and tobacco to those who work there. It will not make the situation more competitive or assist exports.

Finally, on the subject of beer, which is also relevant to my constituency where there are a number of brewers, may I urge the Government to avoid the temptation in future of always seeking to tax beer and tobacco together as if they were part of the same evil, two commodities which are essentially anti-social and should be taxed? Beer for many people is becoming something approaching a staple commodity, a basic foodstuff, particularly in the North where people work in shipbuilding and coalmining. The Chancellor puts 6d. on tobacco and at the same tine 1d. on beer, but the consumption of tobacco is a great deal less elastic than the consumption of beer. So the consumption of beer goes down while the consumption of tobacco keeps very much to its existing level, and therefore the brewers suffer. Could the Treasury not adopt a simple slogan, a principle which should not apply to them as individuals but only as it affects them officially? The slogan is quite simple: steer clear of beer.

7.45 p.m.

Mr. Ted Fletcher (Darlington)

It was not my intention to follow up the remarks made by the hon. Member for Barkston Ash (Mr. Alison), but he has made one or two statements which provoke me to reply. I was interested particularly in the expression "wage drift" so often heard during the Budget debate. One would imagine from it that wages continue to drift away and become much too high for the economy to bear. The right hon. Member for Wolverhampton, South-West (Mr. Powell) has a philosophy that the seller should be entitled to get as much as possible for the product that he is selling, but presumably the party opposite is endeavouring to exclude the man who has his labour to sell. If we live in a capitalist society, a free-for-all in which everybody is selling for the highest possible price, hon. Members opposite should not condemn working people for selling their labour for the highest price that they can get.

One would imagine from listening to their speeches that hon. Members opposite were concerned only with two classes in our society, the bankers and the employers. The points of view that they put are those of the bankers and employers, but 80 per cent. of the population are producers. They are the steel workers, the transport workers, the engineers and others who are producing the goods on which the prosperity of the nation depends. Consequently, for the first time for many years a Chancellor has taken this factor into consideration when framing his Budget.

A number of hon. Members opposite have spoken on the present state of our economy. The hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) said that the Government had inherited a difficult situation. Surely that must be one of the under-statements of the year, but even that is a concession because during the debate on the Address we were told by hon. Members opposite that the economy had never been better and that lack of international confidence was due entirely to the fact that a Labour Government had imposed import charges and had increased the duty on petrol. They alleged that it was the Labour Government's failure to inspire confidence in international banking circles which had caused an economic crisis. The hon. Member for Langstone went on to say that he thought that this responsibility should be shared and that it was fruitless to hold an inquest on who was responsible for the trade deficit. This is a big step from the attitude of the right hon. Member for Bexley (Mr. Heath) who during our debates has placed the whole responsibility on the present Chancellor and the Labour Government.

We are now told that we are to share responsibility with the previous Administration who accept some share of the blame for the situation in which we find ourselves. In October, when my hon. and right hon. Friends were warning electors from a hundred platforms of the serious economic situation with which we were faced, we were told by the complacent hon. and right hon. Gentlemen opposite that our economy had never been sounder. Indeed, as late as November we were told that the figure we gave of the possible gap between imports and exports had been exaggerated. Now we know that the figure is £746 million and might well have been over £800 million had the fact that we were not paying capital and interest on the North American loan been taken into account.

These are facts which cannot be challenged. The public know that they are true. It is, therefore, no good hon. Members opposite inviting us to share the responsibility. When they are faced with a problem and they get into a mess they tell us, "Let us take this matter out of politics. This is not a matter for controversy between the two sides." Now that they have created these difficulties, they are again inviting us to take the question of the trade deficit out of politics. They want us to agree that all share the responsibility, and there ought not to be inquests on who was really responsible.

We have to consider the Budget in the context of the economic situation in which we found ourselves after 13 years of Tory financial policies which had sapped and weakened the industrial power of Britain. The question to ask is whether this is a fair Budget. Now that the dust has settled since last Tuesday and we can look at the Budget in retrospect, it is clear that the public see this as a fair and just Budget. People who have been interviewed on television or in the streets by newspapers have agreed that, in the circumstances, it is a fair Budget.

Hon. Members opposite, apart from attacking the Chancellor, attach no great importance to suggesting what they would have done in a similar situation. Many times they have been challenged to say what they would do if faced with the task of raising an additional £250 million of revenue. We had the bright suggestion this afternoon that a £1,000 tax should be put on betting shops and a £5,000 tax should be put on fruit machine operators. That is not a very helpful suggestion. We all know that many bookmakers are now closing their fixed odds betting businesses and about 10,000 people are likely to be unemployed as a result. However, although not very helpful, it was at least a suggestion of how the Chancellor could raise revenue.

There is really no need for hon. Members opposite to tell us how they would set about solving our economic problem. We know only too well what they did when in office. Their traditional method for dealing with an economic crisis is to cut school building, to stop hospital building, to attack the social services, to stop local authorities borrowing money and to hold them back in their plans for redevelopment. If any money is available, of course, it is usually put by the Tories to the benefit of the Surtax payers. The traditional Tory method for making our economy work is to attack the social services and to cut down on anything for the welfare of the infirm, the aged and those who are unable to defend themselves.

As my hon. Friends have done, I invite hon. Members opposite to tell us how they would raise £250 million. Would they find the money at the expense of the Army, the Navy or the Air Force? I am sure that those who are admirals or group captains would raise their hands in horror if they were called upon to cut our defence expenditure, the sacred cow of the Tory Party. We shall see something of the reaction to that sort of suggestion in the hysteria which will probably develop tomorrow in the debate on the TSR2. We cannot really expect any useful suggestions from hon. Members opposite. It is certain that they would not find the money at the expense of defence costs. Indeed, under the Tories we should have been committed to spending about £750 million over the next ten years on the TSR2, an aircraft which might well be obsolete by the time it was finally completed. How would hon. and right hon. Members opposite find the necessary £250 million, the estimated amount required to reduce purchasing power in this country? There has been a lot of criticism of the Budget but very little helpful or constructive suggestion on how our problem could be met.

The Budget must be considered in the context of our general economic plan, particularly in the context of our plan for guaranteed incomes. The mass of the people, those who work for a living and do not live by owning capital, must be assured that they are living in a just society if they are to be asked to co-operate in building up our economy. Because the Chancellor has produced a just and reasonable Budget, we can expect the co-operation of those who earn their living at the bench, in the factory or at the desk.

The Chancellor has attacked the speculators, the property manipulators and the land racketeers because it is unjust that people should make vast fortunes in this way, often without putting in any effort—particularly in the case of land—to increase their capital while, at the same time, ordinary working people have to fight hard and, perhaps, even strike to get 4 or 5 per cent. increase in their wages. The Chancellor has shown that he intends to treat all sections of society on a just basis.

The right hon. Member for Bexley said that this is a Socialist Budget, and he used the word as a term of derision. But there is nothing wrong in a Socialist Budget if the basis of the Budget is social justice. We believe that this is an instalment, perhaps a hesitation instalment, in social justice. We are very proud to have a Socialist Chancellor opening the door to social justice by his Budget. What do the Tories expect us to do, produce a Tory Budget, give £100 million to the Surtax payers, and cut the social services? Of course, it is a Socialist Budget. The right hon. Member for Bexley seems to imagine that he and his right hon. Friends are still the Government and that we should have produced a Tory Budget. That day has gone. They must learn to live with the cold hard fact that it will be many years before they sit again on these benches.

The nation must have confidence that our priorities are right, that the emphasis is on the people who earn money, not on the people who make money. Although most speakers opposite have concerned themselves with the point of view of employers and bankers, the vast majority of the people want equity in the Budget. Fears have been expressed about the effect of the Corporation Tax and the Capital Gains Tax on certain sections of society. We must look at this question in the context of our guaranteed incomes policy, and I commend what the Chancellor has done in this respect. Hon. Members opposite have talked about incentive being destroyed, about employers being no longer able to make profits, but, if we are to develop our economy at a growth rate of about 5 per cent. with wage rates increasing by about 3½ or 4 per cent., we on this side will expect the Chancellor to see that the growth is justified in profits as well as in wages and salaries.

We have heard this very day of a strike of shop assistants in one of the largest stores in the North-East. These men are being paid £9 4s. 6d. a week, and their take-home pay for a 44-hour week is just over £8 a week. Many of them are married men with families. The firm is the House of Fraser. Lord Fraser is the man known for his activities in the markets, his take-over bids, and the rest. We therefore have to consider that we are not only dealing with the people who are making the money but with the people who are earning it.

We are concerned that in the North-East there is no wages drift. The wage rates are very much below the rates prevailing in the Midlands and the South, and that is precisely because our rate of unemployment is twice the national average. We therefore look to the Chancellor to give our economy whatever assistance he can. The North-East has been based for far too long on its traditional heavy industries, and if new industries are to go there we must have periods of retraining for many tens of thousands of people. That is why we on this side welcome the Government's proposals for substantial redundancy payments to give those in the older industries the opportunity to move to others.

From the regional point of view, we also welcome the Chancellor's declaration that local authorities in such areas as ours will be able to borrow up to 50 per cent. of their requirements from a Public Works Loan Board. In the past, most, if not all, the larger authorities have had to go into the finance market to get capital.

This is a progressive Budget. It has not done everything that some of us would have liked. We should have liked to have seen the Chancellor acting a little more vigorously towards the Surtax payer, looking again at death duties and doing a little more, perhaps, for the regions and, in particular, doing a little more to help local authorities with their rate burden. Nevertheless, we have only made a start. My right hon. Friend has said that this is the first of many Budgets by which he wants to make a comprehensive reform of our present tax system. It is all very well for the party opposite to say that this Budget soaks the rich; they have not even got their toes wet yet—they are just feeling the cold water. We hope that subsequent Budgets will show that this one has opened the way to real social justice.

I am convinced that people will welcome this Budget because, recognising the difficulties created by the former Administration, they know that the present Government will tackle them in a fair manner. Consequently, whenever the Government go to the country—and it may not be for many years yet—they will be given a vote of confidence because by this Budget, and similar measures now in hand, they will have laid the foundations for a system of society based on justice and equity.

8.5 p.m.

Mr. Terence L. Higgins (Worthing)

I feel rather in the position after 14 years of international athletics, not of the athlete who started too soon and was recalled by the gun but of the athlete left at the post when the gun went. However, I am delighted to have an opportunity to participate in this debate. I want to take up a point which, perhaps rather unusually in Budget debates, has been stressed in the speeches of the last four days, and that is the need for improved management in industry and in the economy as a whole. I will make that the background of my speech.

I begin by considering the question of incomes policy, because it is quite clear that this is becoming a large and important part of the Government's present policy of controlling the economy. It is also clear that we must, in appraising the Government's incomes policy as it is now emerging, be particularly concerned to appraise it realistically, because there is a danger in any incomes policy of a Government being tempted to resort to what one economist has called ear stroking. The Germans have a more emotive term—soul massage. There is always the tendency to resort to exhortation rather than to positive measures. We must, therefore, look at the Government's White Paper in a critical but sympathetic frame of mind.

The White Paper contains as the basis of the incomes policy what is now called a "norm" and what was previously called a "guiding light", against which, apparently, income increases—and in particular wage increases—are to be appraised. In this we may well follow some of the arguments put forward recently by my right hon. Friend the Member for Wolverhampton, South-West (Mr. Powell). I would not go all along the road with my right hon. Friend, but I think that he is right to point out that the aggregate change in incomes on average in the country as a whole is determined by individual changes, and not the other way round. His second point is that no one can be absolutely sure how any individual change will affect the overall change in incomes. Thirdly, he points out that there is a real difficulty in appraising which particular wage increases are to be more than the average and which are to represent less than the average. I shall deal with these points a little later.

Finally, we should remember that changes in differential wage rates are the means by which we allocate resources in the economy, and attempts falsely to narrow differentials may result in bad allocation of resources. Despite what was said in the White Paper, we should be clear that if an industry is expanding, and if the demand for its goods is expanding, there is a case for granting a more than average increase, compared with the national economy as a whole, in order to attract more workers to that industry. Conversely, when an industry is contracting, and the demand for its products is contracting, we may find that we should grant no increase at all. This is a fundamental point to be borne in mind.

There has been some danger in recent years of taking a partial view of wage determination. In particular, we have been concerned with either the doctrine of productivity—and this comes out very strongly in the White Paper—or the doctrine of comparability. If there is an agreement in advance that in exchange for removing particular restrictive practices people should have a right to benefit from this increased productivity and be paid higher wages, that is fine, but we should beware very much of saying that because, after the event, the productivity of an industry has increased, therefore the wage increases are justified, or, conversely, that if productivity has not increased wage increases should be turned down. Such a productivity doctrine is a very dangerous one.

Perhaps I may quote two examples. My first concerns pit ponies—and I leave aside questions of cruelty to animals or any other implication of that sort, although after today's statement by the Minister of Power we may well be going back to pit ponies in the mines. Their number has declined considerably but coal output has continued to go up. Thus, the output or productivity per pony has been rising very steeply. But that does not mean that we should increase the amount of oats or whatever they eat in order to attract more pit ponies to the coal mines. Such increases in productivity are not the sort of factor to be considered in determining wages for any particular group.

The second example is that of hairdressers for men. This is an industry very difficult to mechanise or automate, at least with acceptable results. Productivity in it has barely increased in recent years, but if we were to say that there should not be any wage increases in the industry we should find ourselves very short of hairdressers because they would simply move to other occupations.

We should, I suggest, beware of becoming obsessed with productivity. The new Council on Wages and Profits should be careful. The argument of productivity is not alone justification for a wage claim.

Mr. John Rankin (Glasgow, Govan)

Does not the hon. Gentleman agree that the fall in productivity amongst hairdressers is due to the increase of baldness among men?

Mr. Higgins

No, Sir. I am quoting a homely example to bring home an important point.

We should beware of the doctrine of comparability, because we frequently find wage claims put forward on the ground that there has been either some average rise in national earnings or a rise in earnings in some comparable occupation. That is a dangerous way to look at wage claims; the real criterion is whether an increase is justified because we want to attract more labour into that activity when the industry concerned is expanding. Conversely, if we want to transfer people to other activities when an industry is declining we should not give an increase comparable with others. I agree that, in order to increase mobility, we must also give bigger severance payments and so on.

Now I come to what I believe to be the core of our present economic problem. In the post-war era, we have been balancing on a knife edge between over-full employment and inflation on the one side and a return to heavy unemployment on the other. There has been a very distinct regional pattern. If we have had to increase aggregate demand in order to mop up employment in the North-East or the North-West, we have had inflation in the South and the South-East. If we had to damp down because of inflation we have created unemployment at a politically unacceptable high level in the North-East and the North-West. We have constantly been sitting on this knife edge.

It is clear that we should improve regional policy. The Budget does very little to improve it, however. If we are to have an incomes policy then above all it should be a regional policy which reflects the real supply and demand situation in particular areas and we should get away from national wage agreements which, after all, are a form of restrictive trade practice, and concentrate far more on plant bargaining. That is what the incomes policy should aim at.

We should be clear that there are also other restrictive trade practices, particularly in setting raw material prices, which, with wages, are among the main factors which influence decisions by business men on plant location. We should make a definite attack on the system of having national prices for raw materials, or prices for an area involving basing points and freight averaging. I hope that this is one of the general practices that will be considered by the enlarged Monopolies Commission.

Thirdly, in addition to these measures to remove imperfections in the market, the Government can take positive action by way of investment allowances. The first point here is that, under present conditions, the investment allowances are generally subjected by the Board of Trade to a restraint on the number of jobs created as against the amount of capital invested. This is a restraint which can with advantage be removed because it is deterring industries from going to the North-East and the North-West which are capital intensive themselves but which will act as the nucleus around which labour intensive firms can group themselves. This would bring new industries to the development regions, which is what is needed.

There has been a great deal of talk of the need for industry to appraise investment more accurately and with more modern techniques. I welcome the constructive suggestions on investment appraisal in the recent N.E.D.C. pamphlet "Investment Appraisal". Investment allowances of a regional kind should not be reduced. Clearly we must get industry to appreciate the value of these allowances. That is the answer to the problem. The answer is not reducing the allowances, which should assist the regions and strike at the heart of the economic problem with which we have to contend.

My final point concerns the Corporation Tax. Here there is a fundamental difference between the two parties; whether we believe profits should be ploughed back into companies and taxes should encourage this, or whether we should encourage the distribution of profits and the operation of the capital market in such a way that capital is attracted into new uses by market forces.

We on this side believe strongly that it is better that the balance should be in favour of distribution rather than that there should be a very serious move in favour of ploughing back. If one ploughs back, it means that capital is retained by those companies which are already in existence. This in turn, means that there is less opportunity for new firms to obtain capital needed to expand and these firms are, indeed, the growth points of the economy. This is a fundamental difference between the two parties.

On overseas investment, I want to take up a number of points made by the Chancellor. First, the right hon. Gentleman produced some figures to bolster his argument in favour of the Corporation Tax, which will clearly deter overseas investment. He quoted some rates of return on capital at home and overseas. On this point, he might well have taken the advice of the Chief Secretary and read the pamphlet by the N.E.D.C. on investment appraisal, and other documents concerned with investment decisions.

What the Chancellor is doing is to alter the tax system in such a way as to deter overseas investment and to bring it to this country. He quoted figures for return after tax and I take his main point, which is concerned with whether our country gains from tax in these circumstances or whether the tax goes to an overseas country. But to quote figures as he did is not a satisfactory support for his argument. First, we were given no source for figures. We were not told where they came from or any other details. We were simply told: Without going into too much detail, I should like to illustrate my point with some figures."—[OFFICIAL REPORT, 6th April, 1965; Vol. 710. c. 263.] Secondly, the Chancellor quoted figures for book values. This biased his argument in favour of the Corporation Tax because, of course, a great deal of investment overseas is of fairly recent origin—a far higher percentage than the capital invested in this country—and therefore book values will tend to be somewhat understated on one side of the equation and overstated on the other. If the overseas investments are more recent, in real terms these figures have been distorted in favour of the Chancellor's argument.

The other comment which I have to make in this connection is that the figures which the Chancellor has been quoting are figures for past average rates of return. In other words, they are an appraisal of how we are doing on past investments. But it is quite foolish to take investment decisions on that basis. If the Chancellor wants figures to support his argument he should use the expected rates of return from future investments overseas and in this country and not the returns from investments already made. The kind of figures which he has quoted may or may not he right in broad outline, but they provide no real support for his argument in favour of the Corporation Tax.

Finally, it has become perfectly clear that we on this side of the Committee feel that the Budget is sadly lacking any real incentives to get the economy going. On the whole, it is a repressive Budget, and the statement by the Minister of Power this afternoon showed a most regrettable protectionist tendency. He said that we should gain on our balance of payments by having saved on imported fuel and using indigenous resources, but he made no attempt to appraise what the effect on exports would be in terms of higher fuel cost.

Clearly, if we were to allow the import of fuel oil, that would increase competition in the fuel market and drive down prices. If in certain circumstances we allowed the import of American coal, that would increase competition and drive down fuel prices. It is not right for a Minister to say that his proposals will save on the balance of payments and to present only one side of the case.

There has been a tendency in the debate for only one side of the case to be put. It is very important that we should make sure that the appeal, rightly made one both sides of the Committee, for better management techniques and better means of appraising investment should be answered not only by private industry, but by the country as a whole and by the Government.

8.23 p.m.

Mr. Eric Ogden (Liverpool, West Derby)

At least part of the speech of the hon. Member for Worthing (Mr. Higgins) seemed to he based on the productivity of pit ponies. This may get him into some difficulty with the R.S.P.C.A. or the N.C.B., because the productivity of pit ponies is severely restricted by law and by humane considerations and they do not work hard simply in order to increase productivity.

Hon. Members may know that I was a miner and I can recall a saying among miners: "They took the pit ponies out of many pits a long time ago but left a lot of the donkeys behind." We felt that rather keenly at times when we were producing 15 or 20 tons per man per day and then looked at our wage packet at the end of the week. It is surprising that hon. Members opposite, perhaps of the management type, should be very willing to lecture us on these benches about the need for increased productivity when one of the keenest organisations in the country on increased productivity at low cost is the National Coal Board. That was just an aside, but it is just as well that we have got it out of the way.

I am still rather buffeted and worried about the appeal for the "poor suffering brewers" for whom the hon. Member for Barkston Ash (Mr. Alison) appealed. It will not be understood outside that we have been seriously asked to spare a thought for the poor suffering brewers.

Mr. Alison

I asked that we should spare a thought for the poor suffering consumer of beer.

Mr. Ogden

Over the weekend I toured a number of Labour clubs in the West Derby division of Liverpool and the consumption of beer at those places, soberly consumed, did not seem to be diminishing. There may have been a switch from whisky, I do not know.

It seems fairly clear that hon. Members opposite have made up their minds that they do not like this Budget. On Tuesday they were the "Don't knows". By Wednesday they had begun to be a sort of floating voter, with some movement amongst them. By Thursday we had a glimmer of a radical opposition among them and by the weekend, no doubt spurred on by the Young Conservatives meeting, they had at last decided that they were true blue Conservatives and did not like it at all.

There is a well-known saying that money talks. Frankly, much of the talk about money in this debate has been above my head, and I think that it has been above the heads of many people outside. Certainly over the weekend I did not try to discuss international liquidity, or mopping up surplus resources, or surplus capital in people's pockets, because I have never met anyone with surplus capital in his pocket to be mopped up. The time has come for speaking in a language which can be understood by ordinary people. I was very grateful that right at the beginning of his marathon statement my right hon. Friend the Chancellor of the Exchequer said that exports had to be maintained and that £250 million had to come off home consumption, so that we had a rough idea of what would happen. When it came to his announcement about the Capital Gains Tax the Corporation Tax, the expenses account reform and so on, we could decide that they were fair and reasonable, although his proposals were tempered by our appreciation that at least we knew that something was going to come off this side as well.

I am glad that the prices of essential things like food and clothing are not to rise, but in that case there has to be some other way in which the Chancellor can raise sums of this size. It is a rather strange comment on our society that we are financed by the revenue from beer, cigarettes, petrol and so on. If the tax were completely removed from beer and cigarettes, I imagine that Income Tax would be about 12s. 6d. in the £ and the outcry would then be remarkable. At least the tax on cigarettes and beer is a tax which we can legitimately avoid to some extent and still keep ourselves within the law.

It has been suggested that because we support the Budget we are therefore in favour of taxation. Someone should say that no one in the House of Commons likes taxation of any kind at any time and that the sooner we can reduce these taxes the better. But we all know that revenue has to be raised and that someone has to pay it. Do not let us have this hypocritical attitude by those who say that because we are supporting the Budget we are therefore in favour of taxation, or that because we say that this is a fair Budget we are a masochistic society believing in taxation for taxation's sake.

My duties over the weekend were to find out what people outside were thinking about the Budget. I read as many newspaper reports as I could and the opinion seemed to be that the Budget was fair but tough, or tough but fair.

In Liverpool there is another well-known character called Callaghan, who plays for the City football team. The comment which was made was that he had got a cheek putting 1d. on beer and 6d. on cigarettes and turning out to play for Liverpool the same night.

The people of Liverpool have accepted the Budget as a necessity and see it as the beginning of a whole series of legislation, and equally they see the prospect of getting something back for the money taken in taxation. A few days before the Budget we had news for £65 million extended port facilities. Industrial training schemes have been announced. We have had proposals about advance factories, pensions and other things. People feel that money is going out of their pockets, but that at least they are getting something back. In these circumstances, there will not be too many complaints from Merseyside.

Above all, the Budget has not affected adversely the employment position in regions of high unemployment such as Merseyside. At this time of year three years ago, unemployment on Merseyside was up to 8 per cent., much higher than the national average. We may talk about a percentage of unemployment, but to a person unemployed that is 100 per cent. unemployment. For a long time—we will forget the phrase about 13 years—whatever the Chancellor of the Exchequer has done, areas of high unemployment have suffered most. That charge cannot be made against this Budget. We have as much chance, and possibly a better chance, of reducing the high level of unemployment to a much lower level, and for this we are grateful.

We do not like taxation, but this is a Budget which we will swallow because we believe that it is part of great things to come. In two or three years we hope that things will be better and that my right hon. Friend the Chancellor of the Exchequer will announce the results of the sacrifices which we are making this year.

8.31 p.m.

Mr. Alick Buchanan-Smith (North Angus and Mearns)

I think that the hon. Member for Liverpool, West Derby (Mr. Ogden) is slightly premature in saying that he does not expect the unemployment position to be adversely affected by the Budget. I should have thought that only seven days after the Budget judgment was slightly early and that the hon. Gentleman should wait a little longer before passing it. Time could very well tell a different story. I was interested to hear that the comments on the Budget which he heard in his constituency at the weekend were confined to such terms as "tough". I was in my constituency, too, at the weekend, and I can assure the hon. Gentleman that some of the adjectives and epithets which I heard were much more colourful than that.

It is rather unfortunate that a great deal of the discussion on the Capital Gains Tax has centred on comments to the effect that this is a tax on a class of people who are best able to bear it and who have missed paying tax before. It may be argued that some people operating on the Stock Exchange are getting an income in this manner, but hon. Members should take into account also people in a much smaller way of business—for example, small farmers, a mechanic taking over a garage or a person taking over a hotel—who through their own hard work and application have built up the business into a real asset and then, when they come to sell it, find that that asset has appreciated considerably. These people through the sweat of their own labour, through their own business skill and good relations with the public have built up an asset; they are just as liable to be caught by the Capital Gains Tax as others who I know hon. Members opposite would like to see caught by it.

Much of the discussion has centred on the question of exports and the fact that, while provision is made in the Budget to curb consumption in the hope that more room will be made for development of exports, little is done to give positive encouragement to exports. A survey which would be well worth while the Treasury conducting would be into industries which save imports. This is a point which has arisen several times this afternoon, particularly in relation to the statement made earlier today about the coal mining industry and the favourable taxation position of this industry compared with other fuel industries such as the oil industry. It has been said that because this industry is using indigenous raw materials it should have greater encouragement.

Exactly the same argument which has been applied to the coal industry applies to agriculture, another industry which saves imports. In the early 1950s a number of surveys were made into agriculture and other industries which were saving imports whilst the country was in balance of trade difficulties. Various assessments were made of the amount of resources which had to go into, for example, agriculture or coal mining to save, say, £100 worth of imports, and this was then compared with the resources used to produce £100 of exports. Comparison between different import-saving industries of this nature could be of immense value to the country in the formation of future policy. I hope that this is something to which the Chancellor will pay attention and that he will guide thought in this direction.

One of the most disappointing features of the Budget is that apart from certain shifts of emphasis in taxation and the distribution of taxation, the Chancellor has adopted no new basic or radical approach to the methods of taxation and of the use of taxation methods to cure our economic ills. What my constituents see in the Budget is a curbing of demand. The methods of doing this are what in my part of Scotland would be called "cauld kail". The methods are the same as we have seen used before. To the ordinary person, it is very much the same medicine. The only difference in this year's Budget is that the dose is rather stiffer.

Mr. Ogden

Perhaps the hon. Member and I could arrange exchange visits. There seems to be a difference of opinion between our two constituencies. If the hon. Member would like to come to West Derby, I should be glad to arrange it.

Mr. Buchanan-Smith

I extend a reciprocal invitation for the hon. Member to come to the north of Scotland.

In particular, I support what my hon. Friend the Member for Worthing (Mr. Higgins) has said. One of the disappointing features is that the Budget contains no element of differential taxation for regions and nothing is done in budgetary terms to assist and encourage the less prosperous areas. A heavy blanket of taxation has been placed over the country, but this blanket, unfortunately, has been spread evenly and no area escapes. The blanket lies heaviest on the areas which need help most. This is seen most clearly in relation to the Vehicle Duty.

All hon. Members would agree that the more remote an area, the greater is the proportion of total costs which is taken up by transport charges. We already have problems enough in the Highlands and in the north of Scotland. As a result of the increase in the fuel tax in the November Budget, our agriculture industry in Scotland already faces an extra bill of £300,000. To this has been added the extra Vehicle Duty. In the Price Review, we have been forced to absorb many other rising costs. This is yet another one put upon us which the industry will find difficult to absorb.

Exactly the same considerations apply to our fishing industry in Scotland. In recent weeks, rail freight rates have generally been raised. When shell fishers in my constituency send their produce to Billingsgate, transport costs absorb one-third of their returns. Now, as well as rail rates increasing, they have the prospect of road rates going up also, which gives them little confidence for the future.

These extra costs are borne by people and by industries who are already at a disadvantage compared with people and industries further south. It is unfortunate that in these so-called dynamic days of Socialism, the Chancellor has made no attempt to devise a system of differential taxation. We appreciate the need, to curb demand in the South-East and the Midlands, to take some of the steam out of the economy in those areas; but in other areas such as Scotland, unfortunately, we do not have all that much steam to take out and we do not want to lose what little steam we have.

If the Chancellor were to embark upon a system of differential taxation for regions, he could make a good and imaginative start by excluding areas such as my constituency from increases in, the tax on tobacco and spirits. One of our biggest problems is that of migration. If the Chancellor had been imaginative enough to do as I suggest, our problems of migration might have been solved overnight. The Chancellor's name would have become popular and when I returned to my constituency at the weekend the comments would have been very different.

It is true that many of these areas do benefit from the Local Employment Act, and also the increased powers of borrowing for local authorities will help certain areas; it has also to be appreciated that there are areas where there is low unemployment rate but also a high migration rate. As has been stated in the debate already, migration is a form of exported unemployment—hidden unemployment—and it is these areas in particular which are hit by the Budget. We have no direct incentive to develop industry, and we are held in the grip of a vicious circle: because we have migration of population, our unemployment is low; because our unemployment is low we do not, qualify for assistance under the Local Employement Act; because we do not qualify for assistance we are unable to get our share of new industry, and industry develops elsewhere; we are back where we started, with people leaving. particularly the school-leavers and other young people, who have to find work elsewhere. This point was made very forcefully by the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) in his maiden speech this afternoon in pointing out other areas which are affected in the same way. I thought it was particularly disappointing that in his speech last Thursday the President of the Board of Trade gave very little prospect to areas such as the one that represent that assistance would be given so that this migration could be stopped or stemmed.

I should like to turn to one other aspect of development in Scotland and one which has been highlighted by the cancellation of TSR2. It is true that in Scotland it has probably meant a loss in terms of jobs of something just over 1,000, but the loss is not to be measured just in terms of jobs but by the fact that, as a result, we have lost part of our technological industry. Scotland desperately needs more technological industry. Technological industry is growth industry, and growth industry of this type is not only good for its own sake but as an influence upon and as an impulse to new ideas to assist the maturer industries. Moreover, it would help to keep within Scotland a much greater number of our science graduates who, at the moment, have to go south of the Border to find work. I think that at the moment from Glasgow University very nearly 90 per cent. of pure science graduates have to leave Scotland to find work.

Scotland has never had a particularly big share of the defence programme. It has never had as big a share as has England. I think that possibly one of the reasons for this is that the Government-sponsored research establishments, which are at the basis of the defence industries, are entirely centred in England. Atomic Weapons Research Establishment. the Royal Aircraft Establishment, and the Radar Establishment—all these establishments, from which new ideas in defence stem, are centred in England. As a result, for reasons of close contact and so on, many of the contracts placed for defence have gone to England.

The great importance of defence contracts of this kind is that, more than any other kind of development, they provide a link between research in the laboratbry and development on the factory floor of particular products, in this case weapons. Some Government-sponsored research, such as through the D.S.I.R., tends to be of a more fundamental nature, or even of a more general nature, but is not directly related to producing a particular product. We do not see, in these fields of research, the same pushing of new developments into production, and it is the pushing of new developments into production that we so urgently need at present in Scotland.

As I said, we in Scotland do not get is big a share of defence contracts as England, but the share we have had has been vital to us and to our economy. That is why I regret bitterly the fact that we are losing it now. I trust that in this present state of affairs the Ministry of Technology will be pulled in to make sure that, as other new industrial developments of a technological nature take place, Scotland gets its share of this kind of development. In Scotland we cannot afford to miss out getting this kind of development which we need so much. Whatever form these new developments take—computers, electronics, precision engineering, or whatever it is—we want to see as much of them as possible channelled to Scotland. This is fundamental to keeping our economy on a sound footing.

Unfortunately the Ministry of Technology is London-based. Any developments that come from technology must not be London-based, but must be guided elsewhere throughout Britain. If this is done, I believe that industrial growth in areas such as Scotland will be stimulated, and we will be able to retain many of the university graduates whom we lose under present conditions.

Another important development would be to build up a closer link between universities and industry. This is something which we lack at the moment. There should be a link between fundamental research in the university, and actual practice within industry and in factories. This is something which most of us hope to see developed, particularly with our new universities at Strathclyde, Stirling and Dundee.

In debating the Budget it is very important to look, as I have tried to do this evening, beyond the immediate effects of the higher burden of taxation on the individual and on industry. We have also to look beyond the immediate effects of the curtailment of defence contracts. For areas like Scotland it is vital to have regional policies for growth and development. In those policies it is vital that technological development looms largest of all, and it is this aspect of the Budget which offers us very cold comfort indeed.

8.47 p.m.

Mr. Colin Jackson (Brighouse and Spenborough)

It has been interesting to contrast the approach of the two sides of the Committee during this debate. From the Government benches we have heard positive optimism. From the Opposition benches we heard a plea from the hon. Member for North Angus and Mearns (Mr. Buchanan-Smith) not to take away from Scotland the last bit of steam that it has; the hon. Member for Worthing (Mr. Higgins) gave us a most interesting dissertation on the productivity rate of hairdressers—he represents a seaside resort which is frequented by teddy boys, for whom haircuts take a long time—and the hon. Member for Barkston Ash (Mr. Alison) made a strong plea for taxation not to be levied on beer and tobacco at the same time—altogether quite dismal and irrelevant.

I agree with the hon. Member for Liverpool, West Derby (Mr. Ogden). Having conducted a survey of my constituents over the weekend, I know that they regard the Budget as tough but fair, and this is interestingly borne out by the National Opinion Poll in the Sunday Telegraph. Nobody likes taxation, but, given the appalling mess in which the country was left when the Tory Government departed, and given the fact that we had to get the country on to a proper balance, extra taxation was necessary.

I think that the Chancellor expects to obtain about £12 million from the Capital Gains Tax. We might get about £15 million from the abolition of the concession on business vehicles, and about £20 million from the abolition of expense account lunches. I am sure that had this £47 million been collected by hon. Gentlemen opposite they would have imposed the extra taxation on essentials. They would have obtained the money by an increase in Purchase tax.

I hope that when my right hon. Friend the Chancellor is working out his Budget next year he will give some relief to those members of the public who pay tax on refreshment and tobacco. In that respect I was disappointed in the Budget. My right hon. Friend might have noticed a field of taxation which would yield a very useful revenue, namely, "pop" records. Our young people under 21 are enjoying a great deal of revenue, and are let off lightly in taxation. I am sure that they would not mind contributing in this way, thereby helping Britain for the future.

I want to devote some serious remarks to the question of the way in which the Exchequer and the Government can help the export drive. I endorse what was said by my hon. Friend the Member for Dewsbury (Mr. Ginsburg), namely, that the Exchequer might give further consideration to the question of export rebates. Hon. Members will know of firms in their own constituencies which are doing exceptionally well. They might be rewarded by some additional rebate, as an incentive. Although the flat export rebate incentive is desirable, it is not available specially to particularly efficient firms on which we shall rely in the productivity drive.

I now turn to the question of commercial attachés and trade commissioners in our foreign embassies. I have been able to travel about the world a good deal and I am sure that much more needs to be done to alert our commercial attachés and trade commissioners to the need to tie in with our new emphasis on exports. Without mentioning names, I can say that when I went to a Middle Eastern country to talk about trade between Britain and that country I found that the officer at our embassy was unable to give me the simplest figures about individual items of trade between the two nations.

I do not wish to indulge in a smear campaign against our overseas commercial attaches, but they would be the first to admit that they have not had an opportunity for business training here, or for becoming acquainted with the business world to the extent they would like. I wonder whether, within the purview of the Exchequer, we can make arrangements whereby our commercial attachés overseas can be acquainted in a detailed fashion with the trade requirements and the specific problems of our export firms. This practice is carried out to a certain extent, but it needs to be increased if we are to have the necessary drive.

I want to say a few words about trade fairs and our export effort. In 1967 we shall have the Montreal Fair. We were pleased to hear from the Minister of State for Commonwealth Relations that Britain intends to spend £3 million on this trade fair. On the other hand, France will spend £4 million and the United States £7 million. It is not too late to put forward suggestions as to how our £3 million should be spent. Our exhibition will be designed by Sir Basil Spence, and it will be a fine piece of cultural achievement.

I should like to know whether we could spend some of that £3 million—I have reason to believe that its expenditure has not yet been planned—on detailed market research in North America, so that the exhibits in the fair can be designed to attract the whole of the United States and Canada. Despite the ease of travel in North America, the Montreal Fair will be visited only by a small number of people. We remember the mistakes that we made in respect of the Brussels Exhibition. I hope that we shall not make the same mistakes again.

When this trade fair is planned I hope that we shall bear in mind the possibility that some sections of it might be dismantled and sent on to be displayed throughout the United States and Canada. I can think of a number of fairs—for instance at Manitoba, Saskatchewan and Alberta—where portions of the fair could be displayed to great advantage. There is a tendency to hold a fair for prestige purposes and then to pack it up and take it home. That is not good enough. All who know North America know that it is the colourful details of the visit that are important. In Nebraska we had a display of British commerce. We had the inevitable double-decker bus and one double-decker bus in Nebraska got more attention than will a great number of artistic products at Montreal. On the other hand, we want to get away from the double-decker bus and the "Ye Old Worlde" public house and the "Bobby". I do not know whether we could get a BAC111 at the trade fair or the best aircraft in the world, the VC10. If one could pay a visit, that would be highly desirable.

Much more imagination is needed with regard to these trade fairs. It is not a question of expenditure but of imagination. On this question of imagination and how Britain can contribute in the export field I wonder whether—this is not directly within the confines of the Chancellor's duties, but it is within the expenditure of the country—we might consider using the Royal Yacht "Britannia" from time to time. At a trade show at Libya I saw a successful Japanese trading ship which called at Tripoli, and thousands of people had a fantastic first-hand view of Japan. Someone may say that this sort of suggestion is lese-majesty and that it should not be made. One most distinguished Sovereign of this country, Queen Elizabeth I, was extremely interested in the trade of Britain abroad and I have not the slightest doubt that our Sovereign would be so interested. The Royal Yacht is by no means fully used. We need to give our sailors experience and show the world what this country can do. Hon. Members may think all this a little farfetched or colourful, but I do not think that the customers would be in any way disappointed. They would be delighted.

We might start with Europe. Mention has been made of Norway, Denmark, Sweden and Gibraltar. What is wrong with sending the "Britannia" abroad during next year for exhibition purposes? Reference has been made to tourism and I do not think that there would be anything wrong if in the summer, with of course the approval of Her Majesty, Buckingham Palace were opened to the public. They can do it at the White House and it is done in Paris. Why cannot the same thing be done here? We need to sweep away the cobwebbed idea that we cannot do something because it has not been done before, or that we should not push the trade commissioners as they have a difficult enough job already, or that we should not ask too much of a trade fair.

We must look for new ideas, and if some of the suggestions may sound to some hon. Members to be a little farfetched I would remind them that other ideas which have flourished originally sounded equally far-fetched. I hope the Government will consider making a bigger effort in the export drive and that trade commissioners should be trained in this country and export rebates provided for our exporting firms.

8.59 p.m.

Mr. Anthony Barber (Altrincham and Sale)

It has often been remarked that by the last day of a Budget debate all has been said, yet the variety of points which have been raised by hon. Members on both sides of the Committee and by Ministers—points which they have selected for explanation and debate—show that four days is by no means too long to consider this long and complicated Budget. Only a few minutes ago my hon. Friend the Member for Worthing (Mr. Higgins) raised yet another point, which I have heard mentioned before by economists but not in this debate, concerning the productivity of the barber. I am grateful to him for his consideration for my welfare. Indeed, I know that there are still many hon. Members who wish to speak, and I have no doubt that they are already making the necessary adaptations to their speeches to fit them for the Second Reading debate on the Finance Bill.

The new Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) made a maiden speech which, I think the whole Committee will agree, was as commendably lucid as it was commendably brief, in accordance with the advice which we were all given by Dr. King earlier in the day. The hon. Member concentrated on the advantages of differential regional taxation. He may well have the opportunity, at a later stage, of seeking to amend the Finance Bill to accord with the policy which he was advocating. I certainly hope that we will have the opportunity of listening to the hon. Gentleman on many occasions during the somewhat indeterminate time we expect him to remain in the House.

I hope that the Chancellor will not think it presumptuous of me if I too—as one who, for four successive years at the Treasury, saw the gradual buildup of Budget speeches—add my congratulations to the right hon. Gentleman on his presentation. One very distinguished gentleman who was listening to him last Tuesday observed that the sequence of his speech was not very logical. He may have been right, but if there was any truth in the criticism, I suspect that it was due to the determination of the right hon. Gentleman so to arrange what he had to say as to hold the attention of the Committee throughout his marathon performance. That he certainly achieved.

Before I turn to certain details of the Budget—its effect on the individual and on industry—there are one or two matters which I think must be cleared up. I do not know whether it stems from the guilt complex of right hon. Gentlemen opposite, but again and again in the debate Government spokesmen have sought to shirk responsibility for the swingeing increases in taxation which were announced on Tuesday.

We have had it from almost every speaker from the Government Front Bench. Of course, it is the same old line with which we have become familiar in almost every sphere. When our relations with E.F.T.A. went sour, the Europeans were told that it was all their fault because they did not understand what the British Government were trying to do. When mortgage interest rates reached an all-time high, it was said to be all the fault of the building societies, until the Chairman of the Co-operative Permanent Building Society told the right hon. Gentleman that he was talking nonsense, which he certainly was.

I am sorry, as I am sure we all are, that the First Secretary of State is forced to take a short rest. We all hope that he will soon be quite fit again. Because of the official explanation which has been given, I shall make no comment on the extraordinary answers which he gave in the television interview the other night, but the First Secretary was fully in command of himself when he spoke in the Budget debate on Wednesday. He bears, and I am sure that he would agree, a heavy responsibility for the trend of our economy, and he is still fulfilling his engagements. I am sure, therefore, that he would be the last person who would wish me to mollify my criticisms merely because he is in need of a rest after some six months of responsibility.

After four years as a Treasury Minister, I am sure of one thing. Whatever the circumstances, no Chancellor with whom I served would ever have so exaggerated our difficulties as to prejudice the £ for purely party political reasons. I echo the words of my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle) earlier this afternoon to the effect that it would be folly to devalue the £ and that devaluation is obviously not in prospect. It is incredible that the First Secretary and the Chief Secretary, even in speeches on this Budget, the primary purpose of which is to strengthen sterling, as the hon. Member for Lincoln (Mr. Taverne) observed, have continued to emphasise the overall balance of payments deficit without a single word about the special factors which caused it last year.

Why did the right hon. Gentleman, the First Secretary, who is responsible for our economy, not stress the fact that by far the larger part of the rise in imports was due to re-stocking, which my right hon. Friend the Member for Barnet (Mr. Maudling) had anticipated? Why did he not tell the Committee that the outflow of ordinary direct investment was already less last year? Why did he not mention the special non-recurring factors concerning oil investment? These are genuine considerations which in the national interest ought to have been stressed.

It may be that the First Secretary of State simply does not understand them. When he was interrupted the other day after my right hon. Friend the Member for Bexley (Mr. Heath) has spoken, the First Secretary of State told us that he proposed to hit back, and he likened himself to an elephant, which he described as a dangerous animal. The other characteristics of an elephant—and I quote from the highest authority—are that it has a disproportionately large head but a brain which is not unusually well developed.

In that speech the right hon. Gentleman—and he is responsible for the trend of our economy—dealt at great length with the cancellation of the TSR2 and with what might take its place. According to the First Secretary, this is an essential part of the Budget proposals. But it is a staggering fact that when the First Secretary sat down, having spoken on a Budget designed primarily to deal with the balance of payments, he had said not one single word about the dollar cost of that replacement. He told us that we had the option to buy the F111A from the United States, but it was Mr. McNamara, not the First Secretary, who told the world that if we exercise this option it will cost more than 1,000 million dollars. Is not that highly relevant to the balance of payments? Why was it the one factor, and by far the most important factor, in connection with the TSR2 and the Budget, which the First Secretary deliberately concealed from the Committee? I saw in this morning's Daily Telegraph that the air correspondent, who was in Washington last week, reports, that the nature of the option I was told in Washington last week, is being 'kept particularly vague at the request of the British Government'". I do not know; maybe this accounts for the strange silence of the First Secretary on this point. But perhaps again the most generous construction is that on yet another essential point the right hon. Gentleman simply did not know the answer. After all, hon. Members will remember that six weeks ago the First Secretary made a speech based on the assumption that the import surcharge had already been reduced when in fact it does not come down until the end of the month.

Last Wednesday my right hon. Friend the Member for Bexley asked a simple question which has still not been answered. I hope that tonight we shall have an answer from the Chancellor, otherwise the country will draw its own conclusion—and the obvious one at that.

In the White Paper of 26th October the new Government, as they said, in possession of the full facts of the situation, which they purported to give to the nation in the White Paper, specifically stated that there was no undue pressure on resources calling for action. That is quite clearly set out in the White Paper. But two-and-a-half weeks later we had an autumn Budget, introduced by this Chancellor of the Exchequer—an autumn Budget which he believed adequately dealt with the situation at that time.

Now we have this Budget, specifically designed to decrease the pressure on our resources by £250 million. Does the Chancellor seriously pretend that what has happened since 26th October—when he published the White Paper—which has led to this deplorable Budget is not the sole responsibility of the Labour Government? If he wishes to deny it I will willingly give way now. That must be the most revealing moment of silence. On top of the record increase in taxation, the lack of confidence which the Government have themselves created by their actions has resulted in ihe maintenance of a 7 per cent. Bank Rate for almost the longest period one can remember.

The Prime Minister, in those entertaining speeches with which he regaled us when he was in opposition, was fond of quoting from HANSARD. I will read only one quotation from HANSARD. The present Prime Minister, after expatiating on the harmful effects of a 7 per cent. Bank Rate and after pointing out that it adds tens of millions of pounds to our annual outgoings on invisible account through increased interest charges paid across the exchanges, went on to say this of a 7 per cent. Bank Rate: Have we not learned by experience? Even the Chancellor … seemed to have been converted from this dangerous and debilitating over-reliance on the monetary weapon. Now he sinks again into the old groove."—[OFFICIAL REPORT, 26th July, 1961; Vol. 645, c. 445.] The right hon. Gentleman has not merely sunk again into the old groove, but has found himself up the creek—and somebody, in a moment of disequilibrium, has lost the paddle.

Our main complaint about this Budget is that, while it seeks to deal in the short term with the crisis of confidence in sterling, it does absolutely nothing in the long term to make this country more competitive, to increase our productivity, to reduce industrial costs, to stimulate initiative and enterprise or to improve our export performance. If hon. Gentlemen opposite are still doubtful about whether my words are right, do they really think that British industry will be helped by an extra 6d. on Income Tax, an extra 6d. on petrol, a 50 per cent. increase in vehicle excise licences, the threat of a 40 per cent. Corporation Tax and a devaluation of investment allowances?

My hon. Friend the Member for Twickenham (Mr. Gresham Cooke), a member of the Wider Share Ownership Committee said this afternoon that he thought that what had taken place in this Budget would deter people from investing. Reference has been made to the speech on Thursday last of the hon. and learned Gentleman the Financial Secretary to the Treasury, who said on this point: Even the reaction of the City of London appears to have been far more favourable than many hon. Members expected … He went on, after giving details of share rises, to tell us: The headline is: 'Index up 4.4 as share recovery goes on'".—[OFFICIAL REPORT, 8th April, 1965; Vol. 710. c. 797–8.] I hope that the hon. and learned Gentleman has seen the headline tonight, for it states: Share prices tumble—Index falls 7 points". The explanation given tonight is this: A wave of depression engulfed the Stock Market today". It goes on: Confidence was not helped by a weekend of detailed comment on the Budget". The truth is that people are beginning to realise just what the Chancellor is up to. The particular form of Corporation Tax which he has chosen to introduce is bound to penalise overseas investment. Indeed, it is designed to do just that. What is important is that it is designed to do it indiscriminately, without any regard whatever for the enterprises concerned. Yet, time and again, direct overseas investment has made new openings for British contractors abroad, for the provision of innumerable technical services and for the export of British manufacturers, particularly capital equipment, plant and machinery.

The latest balance of payments figures show a significant increase in invisible earnings, an increase of £47 million to £610 million. The fact is that overseas earnings from banking, insurance and shipping are frequently the direct consequence of overseas investment, which the Chancellor now seeks to curb. One may well ask where this country would be today but for the income from overseas investments. Last year the net increase from overseas interest, profits and dividends was up by £46 million to £435 million.

What the Chancellor is doing is not merely acting indiscriminately to cut future returns but also deliberately prejudicing the policy of aiding the poorer nations by trade rather than aid. It is no good his trying, as he did in an intervention the other day, to minimise the effect of this Corporation Tax on the poorer nations. While, of course, it is relevant to consider new investment in these countries, his tax would also have an effect on existing investment. It is the case that half of Britain's private overseas investment is in the developing countries.

Mr. Callaghan


Mr. Barber

This is true; the right hon. Gentleman will find that it is so.

I say nothing, because of the time, about devaluation of the investment allowances, which in any event was dealt with at length by my right hon. Friend the Member for Handsworth. Certainly, the effect of this and other aspects of the Corporation Tax, as my hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) pointed out, will be very serious indeed for the shipping industry.

I said that this Budget does nothing to stimulate exports. In February the Chancellor of the Exchequer, talking of the export rebate, said this to the House of Commons: A review is now taking place of other measures which, we have been told, cannot be put into force, but which we want to examine so as to satisfy ourselves about them, before we accept a policy of defeatism …"—[OFFICIAL REPORT, 22nd February, 1965; Vol. 707, c. 38.] Has the Chancellor now accepted a policy of defeatism, for there was certainly not a word in his Budget about this? I hope that he will tell us this evening. What about the promise the right hon. Gentleman made a year ago when he said that if he were Chancellor he would enter into discussions with other countries about the possibilities of giving some financial aid to our exporters which at present is against our international obligations". That was a year ago and it sounded all very fine at the time. Many people were taken in by it. He has now been in office for six months. Will he tell us whether he has opened discussions on these points, and with what success?

As for the export rebate, which the Prime Minister told the nation on television added up to £80 million, I made a few inquiries. It is now dawning on the exporting fraternity that this is not in fact quite what they expected, for the £80 million which exporters are to receive itself falls to be taken into the computation both for Income Tax and Profits Tax. The Prime Minister tells the nation that we need a change of attitude. If we are to get the additional exports which we need, the first attitude which needs changing is the Government's political prejudice and humbug against trading with countries of whose Governments they disapprove.

It is incredible that at a time when the Chancellor is pleading for more exports he should introduce two entirely new taxes which will yield nothing this year and are quite irrelevant. The Chief Secretary this afternoon said of the Corporation Tax that, in future, business life will be simplicity itself. At the weekend I asked a leading member of the tax Bar whether he thought this new tax would involve much additional taxation work for industry. I hope the right hon. Gentleman will be proud of the answer I received. The barrister replied, "The Socialists have never let us down yet".

I have already mentioned the effect of the Corporation Tax on overseas investment, but now we are also to revert to the long cherished Socialist dogma of penalising the company which distributes its profits. The right hon. Gentleman and his colleagues seem to assume that there is something almost immoral about dividend distribution and that mere retention of profits is an end in itself. Does not he know that last year capital expenditure in industry exceeded all expectations and was up by more than 16 per cent?

My right hon. Friend the Member for Bexley has already detailed the burdens which these two Budgets have heaped on the individual citizen. Of course, the standard of living of the very rich will not be affected by what the right hon. Gentleman has done because they can draw on their capital, but the people for whom he has made life more difficult are the working men and the young executives. Above all, it was the young executives and technologists whom the party opposite courted so cunningly and assiduously throughout the election campaign. What now becomes of the Prime Minister's promise that there would be no general increase in taxation? It sounds pretty hollow, I must say, after this Budget.

One does not, of course, need to rely only on the Prime Minister. What about the Chancellor of the Duchy of Lancaster? I am pleased to see that he is here. He and I had several altercations during the four years when I was at the Treasury. I agree with him when he describes himself in his election address as Labour's expert on taxation and finance. He then goes on in the address with this statement: Labour will not be a spendthrift Government. It will not need to increase the general level of taxation to pay for its programme.

The Chancellor of the Duchy of Lancaster (Mr. Douglas Houghton)

In the right hon. Gentleman saying that the Labour Government are a spendthrift Government? [HON. MEMBERS: "Yes."] What then will the party opposite say when we announce economies in the defence programme?

Mr. Barber

The right hon. Gentleman knows perfectly well that I quoted this passage because here was a clear promise that there would be no need to increase the general level of taxation. I will give him, in fairness, the credit for the qualification which followed in his election address: Give Labour a chance to govern and you will see. Then there was the Chief Secretary to the Treasury, who opened the debate today. I have has election address here, too. Why did he not even mention his specific promise to his electors that The new Labour Government will provide help for the housewife by lowering the rates."? I must say that that is a lark. After all, if we include the TSR2 scrapping within the context of the Budget the hon. Gentleman might at least have said a word to his housewives about the rates—but not a word.

The Prime Minister has always been known as a smooth operator, but in the realm of calculated evasion and political trickery his election promises and the subsequent action of this Government have been the work of a master craftsman. The Labour Government's elegy for the electorate is a simple one:

  • "We don't want to break our promises
  • But, by jingo, if we do—
  • We've got the votes, we've got the power
  • And so to heck with you."
The Prime Minister said in November that the new factor which was the cause of the pressure on sterling was one of confidence, and he was right. Yet even now the Government seem incapable of getting out of their 13-year-old habit in opposition of "knocking" Britain. Even in this debate the President of the Board of Trade spoke at that Box about stagnant production last year.

The President of the Board of Trade (Mr. Douglas Jay)

It was.

Mr. Barber

The right hon. Gentleman says it again. Why not go on to tell the Committee that last year industrial production in Britain was up on the previous year by 7.6 per cent.? Is that something to hide?

If there is one factor which has given heart to our overseas competitors, it is the constant drip of self-denigration. Whatever may be our temporary difficulties—I do not seek to minimise them—it is a remarkable fact of which we should be proud that this small country, with less than 2 per cent. of the world's population, is still the world's third largest trading nation, sterling still finances a third of the world's trade, we are still the world's third largest exporter, and these small islands still account for 9 per cent. of the industrial capacity of the free world.

If right hon. and hon. Members opposite are really determined to restore the confidence of the foreigner, let them go out into the world and speak up for Britain. Let them realise also that the strength and prosperity of Britain rests on private enterprise, that profits are something to be proud of, not to be ashamed of, and that low taxation is a virtue, not a vice.

Mr. Harold Walker (Doncaster)

Is the right hon. Gentleman speaking with the interests of the boards he joined after the General Election in mind?

Mr. Barber

That shows precisely what I have been saying. If that is the attitude of the party opposite, I need hardly say more. I am sure the right hon. Gentleman himself will agree that there is nothing inherently sinful in wanting to do better than the Joneses, or even to do better than the Browns. In all we do and all we want to do, success can come only from a thriving industrial base, and this means policies which actively encourage and promote the capitalist system. The whole approach of this Budget, as always with Socialism, is one of restriction and suspicion. Because right hon. Gentlemen do not believe in capitalism in a country which is still predominantly capitalist, their fiscal and economic policies are incapable of making it work. [Interruption.] The consequences of the Budget should not be to inhibit, to restrict and to control. On the contrary, a Chancellor's purpose should be to fashion policies designed to release the energies of our industry and to stimulate the enterprise of our people. That is the way to compete. [Interruption.] If hon. Members interrupt, I shall adopt the tactics of right hon. Members opposite—they will remember this from their days on these benches—when they used to say, "I have plenty of time. If I am interrupted, the time will all come out of the winding-up speech".

I was saying that initiative and enterprise are the ways to compete. These are the ways to bridge the gap between the millions of impoverished people throughout the world and the affluent societies of the West, and they form the only sound foundation for expanding our own welfare services at home. The means of fostering growth is not to pursue the Chancellor's myopic attitude to foreign investment, to shut ourselves within our tight, crowded little island and to protect ourselves against our overseas competitors. It is because this Budget is the consequence of the Government's own ineptitude and fails to tackle the basic need to make Britain more efficient and more competitive that we shall divide the Committee tonight.

The whole course of the Government's actions since 16th October has been parochial and inward looking. It is based on a conception of the world of finance, of industry and of commerce that exists only in their own imagination. This is the main reason why their policies are bound to fail, and why we on these benches will fight with everything in our armoury to secure again the power of Government which we believe we can exercise for the well-being of our people.

9.30 p.m.

The Chancellor of the Exchequer (Mr. James Callaghan)

I listened with very great interest to the speeches today. Indeed, if I may make a confession which I hope the Committee will take in the spirit in which it is proffered, I found the speeches so interesting that I did not myself prepare a speech. I therefore find myself having to make a speech onfy on the notes I then took—it will probably be a much better speech as a result.

I should like to congratulate the hon. Member for Berwick, Roxburgh and Selkirk—[HON. MEMBERS: "Oh."]—the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) on his maiden speech. In any case, I am sure that the Conservative Party will know whom I mean. The hon. Member spoke about the interests of his constituents in a manner which will stand him in very good stead up there, and I would certainly say to him that the action and attitude we in this Government wish to adopt in relation to the development areas, and in relation to Scotland and the other areas like the North-East and the North-West, as well as Wales, are of a character that we hope will strengthen them. We wish to ensure that the drift to the South-East is reversed and that these depopulated areas shall return to the position which they had many years ago.

I also congratulate the hon. Member for Leyton (Mr. Buxton) on a very interesting maiden speech, in which I thought that he spoke about his constituency as one who knew it and who had obviously trudged its streets for many years.

There have been a number of excellent speeches on both sides, and it might be inviduous to distinguish them. Some of them I liked more than others. I thought, for example, that not all the speeches from the opposite side of the Chamber dealing with overseas investment were wholly in tune with the spirit of the speech of the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber), but as I do not want those who uttered them in the absence of their colleagues to get into difficulties with their Whips, I shall not particularise.

What is interesting about this subject of overseas investment is to see the way in which discussion has been stimulated by the changes that are proposed. It would certainly be quite wrong for anyone to think that all the arguments are on one side; I have never claimed that, and I hope that hon. Members opposite do not claim it either. I should have thought that the appellation of "Little Englander" did not apply very well to one who represents a Welsh constituency and bears an Irish name. It is not our view on this side that, as the right hon. Gentleman put it, we should become a tight little island retreating within ourselves, with no overseas investment and cut adrift from all we have done over the centuries; but that is far different from saying that overseas investment must be judged on economic returns and without exceptional advantages. That is the point that I am making, and it is a point that has not been answered at all.

As to the cutting of Government overseas expenditure, I say quite clearly to the Committee that I am by no means satisfied with the amount of cutting that has taken place so far. We are determined to cut it. I would say that in some ways it has been allowed to develop into a lush and extravagant growth over the last five or six years. It must be pruned back, and pruned back hard. But one cannot do this responsibly within a matter of a few months. There are overseas commitments at stake. In some areas we are keeping the peace of the world. In others we have responsibilities to fulfil to the people and cannot easily cut loose.

But I want to put it on record as our aspiration and determination that Britain cannot be expected to go on shouldering the burden she is carrying at the present time. We have had left to us, or have taken on—and I do not mean only by the last Government but over a period of years—a series of problems which are now stretching our economy beyond the limits that it should carry and these must be cut down. It is the firm determination of the Government to see that they are cut down.

That is the basis of the review now taking place of all Government overseas expenditure, and I hope that right hon. and hon. Gentlemen opposite, who have not shown undue signs of impatience about the way in which Government expenditure has grown over the last few years, will at least give us a reasonable period to conduct a proper and sensible investigation before cuts are made. The review is going on and the cuts will and must come, because this is an essential part and an essential way of balancing our overseas payments.

I would like to say something more about the value of overseas investment. As I have said, no one on this side of the Committee denies the value of that investment. It is, indeed, of very considerable value. But, here again, we have allowed overseas investment, not so much on the direct side and not so much in relation to trade and commerce but especially in relation to portfolio investment—securities—to grow almost uncontrolled through the medium of the investment currency market.

Nearly £4,000 million in 13 years is from one point of view a remarkable record, and it is something for which right hon. and hon. Gentlemen opposite might want to claim credit. But there is not much credit in allowing portfolio investment to grow to, the point where one has to go to one's bankers and touch one's cap every year in order to continue financing it. For some years now, as I said in my Budget statement, we have not been earning sufficient to pay for the investment overseas that we have been making. I do not know how hon. Gentlemen opposite conduct their private affairs, but I cannot believe that they live on that basis. If they do, they will soon end in the bankruptcy court.

It has been said that a lot of this investment goes to developing countries. I looked at this aspect very carefully before I proposed my changes. It is true that quite a lot of direct private investment goes to the developing countries, but I regret to say—and the Committee should note this—that the proportion is getting steadily less. One sees this by looking at the direction of our overseas investment in the last ten years, and certainly in the last five or six years—and this is why I demurred a little when the right hon. Gentleman was speaking of this investment which I do not underrate. One sees that our investment in developing countries is declining. Today, of our total overseas direct investment, no more than one-quarter now goes to developing countries, whereas the developed countries—the United States, Europe, Australia, Canada and the rest—account for three-quarters of our overseas direct investment.

It would be foolish to say that this is not or could not be a remunerative investment; but I make the point that in some ways—though not in many—we have lost a great deal of money in direct investment in some of the developed countries. I shall not particularise. I am sure that instances and illustrations are known to all hon. Members and there is no point in rubbing salt into the wound But, in relation to the total amount needed, both through Government aid and through direct investment, the amount of direct investment in the developing countries is getting steadily smaller. Compared with Government aid, which is about £180 million to £190 million a year private investment has reached a low and diminishing total of £59 million.

Mr. Barber

Are the proportions which the right hon. Gentleman is giving the Committee proportions of existing capital investment overseas, or is he talking about new investments in the past few years? I was talking about existing capital investment.

Mr. Callaghan

I am talking about new investment. The figure of £59 million which I gave was the figure for the latest year I have, 1962–63. I have been talking about new investment throughout, although the percentages are not very different for existing investment, admittedly at book value—and the hon. Member for Worthing (Mr. Higgins) made a good point about that. The amount in the developing countries is not as great as I hoped or expected to find. While we must support the interests of the developing countries—and I repeat this—1 was right when I claimed in my Budget speech that the taxation measures which I am proposing would not have a significant adverse effect on the nature of the investment flowing there.

Mr. Norman Cole (Bedfordshire, South) rose——

Mr. Callaghan

I cannot give way now. A number of hon. Members have been here all day and I should like to deal with what they have said. The nature of the debate has changed considerably within the last three quarters of an hour. It is a very interesting debate at all times, but it has been a rather narrower debate than we are now having.

I should like to make a comment about the nature of our taxation arrangements. In my proposals I am not discriminating, in the strict sense of the word, against overseas investment. What we are doing is more nearly to equalise the tax treatment of investment, whether it be at home or overseas. It is important that this should be understood, because I would not like anything said from the benches opposite to persuade either the City of London or British businessmen that there is discrimination against or dislike of overseas investment. That would not only be untrue, but it would be foolish and shortsighted of any Government of any complexion to try to do. Equally, at a time when we are short of capital investment at home, it is very short-sighted to give an undue bias in favour of investment overseas. That is what these measures will correct.

Mr. Cole

May I ask what I hope is a fair question? In his thinking both about the developed and under-developed countries and the rewards of overseas investments, has the right hon. Gentleman addressed his mind to what might happen if we do not invest and other countries do?

Mr. Callaghan

I have considered that too, and to some extent I grant that it is inevitable, but I have looked at the nature and level of overseas investment by other countries, for example, Germany and Japan as the two most notable examples, in relation to their exports, and I do not think there is any particular correlation between the amount directly invested overseas and the quantity of exports.

Let me put it to the Committee that if as a result of our now having about £10,000 million invested overseas——

Hon. Members

£11,000 million.

Mr. Callaghan

That includes the Government's £1,000 million; it is £10,000 million private. If, after having invested some £10,000 million overseas, the volume of our exports of manufacturers has dropped from 20 per cent. to 13 per cent. of total world exports in the last 13 years, how much more do we have to invest overseas in order to get it back again?

Frankly, I think that the problem is different. It is not the amount invested overseas which determines the nature or quantity of exports, but the attitude of one's exporters and the opportunity for reward which they have. It is to this that the Government have to turn their attention.

I am a little astonished when I hear hon. Members opposite rebuking us for the absence of aid to exporters. I readily admit that I have not solved all the problems connected in suggestions which I used to put forward from that side of the Committee; there are still one or two left. But when I remember that within six months—[Interruption.] I am telling the Committee what we have done, not what we are discussing.

We have improved credit facilities, which we were told was not possible. We have introduced a lower borrowing rate for exporters, which we were told could not be done. We have improved the export facilities through E.C.G.D. We have rebated indirect taxes amounting to over £80 million in a full year. My experience is very different from that of the right hon. Gentleman. I am finding that exporters are beginning to appreciate this as a very valuable concession. If it is not, I do not know what we are spending £80 million for, because it is a lot of money, and certainly some of the industries concerned are getting a substantial rebate from it.

There are still one or two things waiting to be done. I am told that this Budget has not provided any incentive to exporters. If the Opposition wants to take both Budgets together for the purpose of criticism, perhaps I can take them together for the purpose of putting my side of the story. If we are taking them both together, £80 million is not a bad sum. A number of other proposals are afoot which we are considering to see in what way we can improve export facilities and rewards.

But if I had to give the overriding reason why domestic producers should export, it is not the return that they will get on their exports, because I think that it is almost always rather thinner than they will get on the home market. It is because they will not keep the home market unless they export. This is the basic reason which we have to get across. It is a difficult one for people to follow, but it amounts to this. Unless our products, whether they are sold at home or abroad, have a competitive edge, then sooner or later we shall be brought up against the stop-go which we have had so many times during the last 13 years.

This brings me to the point about confidence in sterling. It is argued that the Government could have avoided the so-called crisis of confidence. Hon. Members opposite do not seem keen to take up the point now, but it was certainly argued during the debate. Do they still believe that it would have been possible to avoid it? [HON. MEMBERS: "Yes."] Why did not they avoid it in 1960 and 1961? Which Government was it in 1960 and 1961 in which the foreigner did not have confidence? In 1960—if the right hon. Member for Flint, West (Mr. Birch) would listen—there was a deficit of £460 million. In 1961 there was a run on the £. There was a 7 per cent. Bank Rate. Purchase Tax was clapped on. We had a "stop-go" policy by stopping a great many productive investments which were then going ahead. Why did not the Government avoid that crisis in confidence? I will tell hon. Members opposite why.

I believe that the reason is the same as that which afflicted us last November, and it is one which the Committee should face. There comes a time—it happened in 1961 and again in 1964—when foreign countries really begin to wonder whether British industry has competitive edge which will enable us to climb out of our difficulties. This is the truth of the matter, and every hon. Member knows that it is the truth of the matter. I believe that we can climb out of these difficulties. I believe that our export prices are not out of line. I certainly do not believe that our currency is over valued. It would be absurd to suggest that it was. I am very grateful for the statements saying this which have been made in a long succession of speakers from the Opposition Front Bench during the last three or four days. I could have wished for some help a little earlier, but I am very glad to have it now. There is no doubt that when the leaders of the Opposition get up and say responsibly that they believe that there is no case for devaluation of the £, this helps a very great deal, just as it hurts when they are silent or whispers are going round that perhaps it ought to be devalued.

My view is that, as the result of this Budget, as the result of a changing attitude on the part of management and others, we have now reached the stage when not even the most doubting Thomas believes that the £ is likely to be devalued. Not only is there no case for it, but in my considered view I do not believe that anybody can force us to devalue. The nature of our reserves is such that, if we are tough enough as a nation, we can stop anybody from forcing us to devalue.

Having taken the necessary decisions in this Budget—the necessary decisions to ensure that there is room for exports in the economy and to ensure that we are able to redeploy our resources to get the exports—I believe, and we on this side, and, I hope, the whole Committee, take the view, that we should be justified in using our reserves to ensure that we are not required to devalue.

As a part of this process, over some months, as the right hon. Gentleman the Member for Barnet (Mr. Maudling) will know, we have been liquefying our dollar portfolio in the United States. The right hon. Gentleman began the process; I am continuing it. I think it is right to do so. As some members of the Committee will undoubtedly know, it is about 1,250 million dollars. I believe that the process of making it more liquid, which has been done with the full knowledge of the United States Government, will mean that there is a considerable reinforcement to our reserves. It is right that the world should know that that reinforcement stands there. Behind that there stands the upwards of £4,000 million of private portfolio investment, which is not so easily made liquid but which can be used to preserve the value of the £.

My view is that because the economy is moving in the way that it is at present, because our economy is capable of paying its way and because we can get the payments balanced, there will be no need to use the reserves once people realise that we are resolute and determined so to do.

Mr. Shepherd

Will the Chancellor tell the Committee why he did not put this point of view in November?

Mr. Callaghan

If I had thought it necessary to do it then, if I had been able to, I would have done it. [Interruption.] I will gladly go into it later in our debates, but I have many other things to cover now. If I had thought it possible to do it then, I would have done it. Now, I am in a position to do it and I do it. I hope that everybody is listening.

I turn to one or two other matters that I must speak about in the six minutes that remain to me. I should like to take up a word about the heating of the economy or its lack of heat. Where do the Opposition stand on this? I have listened to most of the debate. Is it the view of the Opposition—I still do not know the answer—that we are raising too much in taxation, which was the view put by the right hon. Member for Bexley (Mr. Heath), that we are not raising enough, or that we have done the right thing? If I am to listen to the speeches—at least, some of them—we are obviously raising too much.

The Opposition did not, however, vote against the Resolutions. All 20 of them went through. The only one against which, apparently, they intend to vote is the one which gives them the opportunity of putting down new Clauses. We shall defeat them on it so as not to deprive them of that opportunity. It is, however, a little odd that out of the whole 21 Resolutions, this is the only one which the Opposition can find to vote against. Our view is that pressure has mounted—and this is my answer to the right hon. Gentleman—during last summer particularly, and during the autumn and winter and the early months of this year. There is rather greater pressure in the economy than it can stand if we are to get the level of exports which are necessary. Therefore, I thought it was necessary to present to this Committee these additional taxation measures.

I should have thought, frankly, from the nature of the debate we have had, that on the whole, apart from the speeches from the Front Bench opposite, which had to be made in a certain vein, most back bench speeches agreed with us—HON. MEMBERS: "Oh."]—well now, what is the view of hon. Members opposite? Do they think that I am taking too much out of the economy?—[HON. MEMBERS: "Answer."]—do they think that taxation should be lower this April? It is a straight question and I am entitled to an answer. All right, I will leave it there, and, as the right hon. Gentleman said, the country will draw its own conclusions.

I really do put this thought to hon. Gentlemen opposite. There was that quotation which the hon. Gentleman made about, "We want aid and we won't wait"—which shows that he is still living in the pre-First World War era; and he is living in the pre-First World War era if he thinks that industry and the City are not willing to co-operate with the Government of the day, whether it be a Labour Government or whether it be a Conservative Government. The right hon. Member for Wolverhampton, South-West (Mr. Powell) certainly not only believes it but says it continuously It is our intention and our desire to work with industry and to work with the City of London in the rôle which it has to fulfil in the interests of the nation's economy. It is our view that unless we do work together the problems of any Government are made almost impossible.

From now on I have, in the Budget, made room for exports. We are attempting through the Department of Economic Affairs—and this is a process which, as the right hon. Gentleman the Member for Birmingham, Handsworth (Sir E. Boyle) acknowledged this afternoon, must take time—to redeploy resources; but, within this limit, while we can make a positive attempt to redeploy resources, from the moment the Budget is through, to some extent the problem is out of my hands, and it is in the hands of every industrialist, every worker in every factory, everybody on the factory floor, every export salesman, every sales director, for these are the people who are going to do the job.

I myself believe there is a spirit abroad which means that Britain is going to do the job, and I believe we can rely upon the co-operation of everyone. We invite that co-operation in order to overcome the balance of payments deficit—whomever one may blame for it, and hon. Gentlemen can have that argument whenever they like, but that deficit exists, and if action were not taken this country could not finance the deficit incurred.

Let me put in a nutshell how we financed the £750 million deficit last year: £122 million diminution in the reserves, £357 million borrowed from the International Monetary Fund, £216 million borrowed from the central bankers. That is how we financed last year's deficit. Unless we had taken direct action, unless the country now is willing to take direct action to put up its exports, to moderate its claims for wages and forgo taking more out of the economy than it will bear—unless we do these things then in my view we would not have been able to finance this year's deficit. I have to go to the International Monetary Fund next month in order to borrow more to make sure we get through this year. I do not like doing it. I am not ashamed of doing it, and I am not at this moment going to blame hon. Gentlemen opposite that I have to do it, but I have to do it. I say that this country has a responsibility for ensuring that at least in 18 months' time, if not earlier, it is out of debt, it can repay its debts and can repay the loans that it has had to borrow, and is living within its means. It is on that basis I present the Budget.

Question put:

The Committee divided: Ayes 313, Noes 294.

Division No. 88.] AYES [10.0 p.m.
Abse, Leo Butler, Herbert (Hackney, C.) Dunnett, Jack
Albu, Austen Butler, Mrs. Joyce (Wood Green) Edelman, Maurice
Allaun, Frank (Salford, E.) Callaghan, Rt. Hn. James Edwards, Rt. Hn. Ness (Caerphilly)
Aldritt, Walter Carmichael, Neil Edwards, Robert (Bilston)
Allen, Scholefield (Crewe) Carter-Jones, Lewis English, Michael
Armstrong, Ernest Castle, Rt. Hn. Barbara Ennals, David
Atkinson, Norman Chapman, Donald Ensor, David
Bacon, Miss Alice Coleman, Donald Evans, Albert (Islington, S.W.)
Bagier, Gordon A. T. Conlan, Bernard Evans, loan (Birmingham, Yardley)
Barnett, Joel Corbet, Mrs. Freda Fernyhough, E.
Baxter, William Cousins, Rt. Hn. Frank Finch, Harold (Bedwellty)
Beaney, Alan Craddock, George (Bradford, S.) Fitch, Alan (Wigan)
Bellenger, Rt. Hn. F. J. Crawshaw, Richard Fletcher, Sir Eric (Islington, E.)
Bence, Cyril Cronin, John Fletcher, Ted (Darlington)
Benn, Rt. Hn. Anthony Wedgwood Crosland, Anthony Fletcher, Raymond (Ilkeston)
Bennett, J. (Glasgow, Bridgeton) Crossman, Rt. Hn. R. H. S. Floud, Bernard
Bessell, Pater Cullen, Mrs. Alice Foot, Sir Dingle (Ipswich)
Binns, John Dalyell, Tam Foot, Michael (Ebbw Vale)
Bishop, E. S. Darling, George Ford, Ben
Blackburn, F. Davies, G. Elfed (Rhondda, E.) Fraser, Rt. Hn. Tom (Hamilton)
Blenkinsop, Arthur Davies, Harold (Leek) Freeson, Reginald
Boardman, H. Davies, lfor (Gower) Galpern, Sir Myer
Boston, T. G. Davies, S. O. (Merthyr) Garrett, W. E.
Bottomley, Rt. Hn. Arthur de Freitas, Sir Geoffrey Garrow, A.
Bowden, Rt. Hn. H. W. (Leics S.W.) Delargy, Hugh George, Lady Megan Lloyd
Boyden, James Dell, Edmund Ginsburg, David
Braddock, Mrs. E. M. Dempsey, James Gourlay, Harry
Bradley, Tom Diamond, John Greenwood, Rt. Hn. Anthony
Bray, Dr. Jeremy Dodds, Norman Gregory, Arnold
Brown, Rt. Hn. George (Belper) Doig, Peter Grey, Charles
Brown, Hugh D. (Glasgow, Provan) Donnelly, Desmond Griffiths, David (Rother Valley)
Brown, R. W.(Shoreditch & Fbury) Driberg, Tom Griffiths, Rt. Hn. James (Llanelly)
Buchan, Norman (Renfrewshire, W.) Duffy, A. E. P. Griffiths, Will (M'chester Exchange)
Buchanan, Richard Dunn, James A. Grimond, Rt. Hn. J.
Gunter, Rt. Hn. R. J. Mackie, George Y. (C'ness & S'land) Ross, Rt. Hn. William
Hamilton, James (Bothwell) Mackie, John (Enfield, E.) Rowland, Christopher
Hamilton, William (West Fife) McLeavy, Frank Sheldon, Robert
Hamling, William (Woolwich, W.) MacMillan, Malcolm Shinwell, Rt. Hn. E.
Hannan, William MacPhereon, Malcolm Shore, Peter (Stepney)
Harper, Joseph Mahon, Peter (Preston, S.) Short,Rt.Hn.E.(N'c't1e-on-Tyne,C.)
Harrison, Walter (Wakefield) Mahon, Simon (Bootle) Short, Mrs. Renée (W'hampton,N.E.)
Hart, Mrs. Judith Mallalieu, E. L. (Brigg) Silkin, John (Deptford)
Hattersley, Roy Mallalieu,J.P.W.(Huddersfield,E.) Silkin, S. C. (Camberwell, Dulwich)
Hayman, F. H. Manuel, Archie Silverman, Julius (Aston)
Hazell, Bert Mapp, Charles Silverman, Sydney (Nelson)
Healey, Rt. Hn. Denis Marsh, Richard Skeffington, Arthur
Heffer, Eric S. Mason, Roy Slater, Mrs. Harriet (Stoke, N.)
Henderson, Rt. Hn. Arthur Maxwell, Robert Slater, Joseph (Sedgefield)
Herbison, Rt. Hn. Margaret Mayhew, Christopher Small, William
Hill, J. (Midlothian) Mellish, Robert Smith, Ellis (Stoke, S.)
Hobden, Dennis (Brighton, K'town) Mendelson, J. J. Snow, Julian
Holman, Percy Mikardo, Ian Solomons, Henry
Hooson, H. E. Millan, Bruce Soskice, Rt. Hn. Sir Frank
Horner, John Miller, Dr. M. S. Spriggs, Leslie
Houghton, Rt. Hn. Douglas Milne, Edward (Blyth) Steel, David
Howarth, Harry (Wellingborough) Molloy, William Steele, Thomas
Howarth, Robert L. (Bolton, E.) Monslow, Walter Stewart, Rt. Hn. Michael
Howell, Denis (Small Heath) Morris, Alfred (Wythenshawe) stonehouse, John
Howie, W. Morris, Charles (Openshaw) Stones, William
Hoy, James Morris, John (Aberavon) Strauss, Rt. Hn. G. R. (Vauxhall)
Hughes, Cledwyn (Anglesey) Mulley,Rt.Hn.Frederick(SheffieldPk) Summerskill, Dr. Shirley
Hughes, Emrys (S. Ayrshire) Murray, Albert Swain, Thomas
Hughes, Hector (Aberdeen, N.) Neal, Harold Swingler, Stephen
Hunter, Adam (Dunfermline) Newens, Stan Symonds, J. B.
Hunter, A. E. (Feltham) Noel-Baker, Francis (Swindon) Taverns, Dick
Hynd, H. (Accrington) Norwood, Christopher Taylor, Bernard (Mansfield)
Hynd, John (Attercliffe) Oakes, Gordon Thomas, George (Cardiff, W.)
Irvine, A. J. (Edge Hill) Ogden, Eric Thomas, lorwerth (Rhondda, W.)
Jackson, Colin O'Malley, Brian Thomson, George (Dundee, E.)
Janner, Sir Barnett Oram, Albert E. (E. Ham, S.) Thornton, Ernest
Jay, Rt. Hn. Douglas Orbach, Maurice Thorpe, Jeremy
Jeger, George (Goole) Orme, Stanley Tinn, James
Jeger,Mrs.Lena(H'b'n& St.P'cras,S.) Oswald, Thomas Tomney, Frank
Jenkins, Hugh (Putney) Owen, Will Tuck, Raphael
Jenkins, Rt. Hn. Roy (Stechford) Padley, Walter Urwin, T. W.
Johnson, Carol (Lewisham, S.) Page, Derek (Kind's Lynn) Varley, Eric G.
Johnson,James(K'ston-on-Hull,W.) Paget, R. T. Wainwright, Edwin
Johnston, Russell (Inverness) Palmer, Arthur Walden, Brian (All Saints)
Jones,Rt.Hn.SirElwyn(W.Ham,S.) Pannell, Rt. Hn. Charles Walker, Harold (Doncaster)
Jones, J. Idwal (Wrexham) Pargiter, G. A. Wallace, George
Jones, T. W. (Merioneth) Park, Trevor (Derbyshire, S.E.) Warbey, William
Kelley, Richard Parker, John Watkins, Tudor
Kenyon, Clifford Parkin, B. T. Weitzman, David
Kerr, Mrs. Anne (R'ter & Chatham) Pavitt, Laurence Wells, William (Walsall, N.)
Kerr, Dr. David (W'worth, Central) Pearson, Arthur (Pontypridd) White, Mrs. Eirene
Lawson, George Peart, Rt. Hn. Fred Whitlock, William
Leadbitter, Ted Pentland, Norman Wigg, Rt. Hn. George
Ledger, Ron Perry, Ernest G. Wilkins, W. A.
Lee, Rt. Hn. Frederick (Newton) Popplewell, Ernest Willey, Rt. Hn. Frederick
Lee, Miss Jennie (Cannock) Prentice, R. E. Williams, Alan (Swansea, W.)
Lever, L. M. (Ardwick) Price, J. T. (Westhoughton) Williams, Ll. (Abertillery)
Lewis, Arthur (West Ham, N.) Probert, Arthur Williams, Mrs. Shirley (Hitchin)
Lewis, Ron (Carlisle) Pursey, Cmdr. Harry Williams, W. T. (Warrington)
Lipton, Marcus Randall, Harry Willis, George (Edinburgh, E.)
Lornas, Kenneth Rankin, John Wilson, Rt. Hn. Harold (Huyton)
Loughlin, Charles Redhead, Edward Wilson, William (Coventry, S.)
Lubbock, Eric Rees, Merlyn Winterbottom, R. E.
Mabon, Dr. J. Dickion Reynolds, G. W. Woof, Robert
McBride, Neil Rhodes, Geoffrey Wyatt, Woodrow
McCann, J. Richard, Ivor Yates, Victor (Ladywood)
MacColl, James Roberts, Albert (Normanton) Zilliacus, K.
MacDermot, Niall Roberts, Goronwy (Caernarvon)
McGuire, Michael Robertson, John (Paisley) TELLERS FOR THE AYES:
Mclnnes, James Robinson, Rt.Hn. K. (St.Pancras,N.) Mr. George Rogers and
McKay, Mrs. Margaret Rodgers, William (Stockton) Mr. Sydney Irvine.
Mackenzie, Gregor (Rutherglen) Rose, Paul B.
Agnew, Commander Sir Peter Awdry, Daniel Bennett, Sir Frederic (Torquay)
Alison, Michael (Barkston Ash) Baker, W. H. K. Berkeley, Humphry
Allan, Robert (Paddington, S.) Balniel, Lord Berry, Hn. Anthony
Allason, James (Hemel Hempstead) Barber, Rt. Hn. Anthony Biffen, John
Amery, Rt. Hn. Julian Barlow, Sir John Biggs-Davison, John
Anstruther-Gray, Rt. Hn. Sir W. Batsford, Brian Bingham, R. M.
Astor, John Beamish, Col. Sir Tufton Birch, Rt. Hn. Nigel
Atkins, Humphrey Bell, Ronald Black, Sir Cyril
Blaker, Peter Grant, Anthony Mills, Stratton (Belfast, N.)
Bossom, Hn. Clive Gresham-Cooke, R. Miscampbell, Norman
Box, Donald Grieve, Percy Mitchell, David
Boyd-Carpenter, Rt. Hn. J. Griffiths, Eldon (Bury St. Edmunds) Monro, Hector
Boyle, Rt. Hn. Sir Edward Griffiths, Peter (Smethwick) More, Jasper
Braine, Bernard Gurden, Harold Morgan, W. G.
Brewis, John Hall, John (Wycombe) Morrison, Charles (Devizes)
Brinton, Sir Tatton Hall-Davis, A. G. F. Mott-Radclyffe, Sir Charles
Bromley-Davenport.Lt.-Col.SirWalter Hamilton, Marquess of (Fermanagh) Munro-Lucas-Tooth, Sir Hugh
Brooke, Rt. Hn. Henry Hamilton, M. (Salisbury) Murton, Oscar
Brown, Sir Edward (Bath) Harris, Frederic (Croydon, N.W.) Neave, Airey
Bruce-Gardyne, J. Harris, Reader (Heston) Nicholls, Sir Harmar
Bryan, Paul Harrison, Brian (Maldon) Nicholson, Sir Godfrey
Buchanan-Smith, Alick Harrison, Col. Sir Harwood (Eye) Noble, Rt. Hn. Michael
Buck, Antony Harvey, Sir Arthur Vere (Maccles'd) Nugent, Rt. Hn. Sir Richard
Bullus, Sir Eric Harvey, John (Walthamstow, E.) Onslow, Cranley
Burden, F. A. Harvie Anderson, Miss Orr, Capt. L. P. S.
Butcher, Sir Herbert Hastings, Stephen Orr-Ewing, Sir Ian
Buxton, R. C. Hawkins, Paul Osborn, John (Hallam)
Campbell, Gordon Hay, John Page, John (Harrow, W.)
Carlisle, Mark Heald, Rt. Hn. Sir Lionel Page, R. Graham (Crosby)
Carr, Rt. Hn. Robert Heath, Rt. Hn. Edward Pearson, Sir Frank (Clitheroe)
Cary, Sir Robert Hendry, Forbes peel, John
Channon, H. P. G. Higgins, Terence L. Percival, Ian
Chataway, Christopher Hiley, Joseph Peyton, John
Chichester-Clark, R. Hill, J. E. B. (S. Norfolk) Pickthorn, Rt. Hn. Sir Kenneth
Clark, Henry (Antrim, N.) Hirst, Geoffrey Pike, Miss Mervyn
Clark, William (Nottingham, S.) Hobson, Rt. Hn. Sir John pitt, Dame Edith
Clarke, Brig. Terence (Portsmth, W.) Hogg, Rt. Hn. Quintin Pounder, Rafton
Cole, Norman Hopkins, Alan powell, Rt. Hn. J. Enoch
Cooke, Robert Hornby Peter Price, David (Eastleigh)
Cooper, A. E. Hornby, Richard prior, J. M. L.
Cooper-Key, Sir Neill Hornsby-Smith, Rt. Hn. Dame P. pym, Francis
Cordle, John Howard, Hn. G. R. (St. Ives) Quennell, Miss J. M.
Corfield, F. V. Howe, Geoffrey (Bebington) Ramsden, Rt. Hn. James
Costain, A. P. Hunt, John (Bromley) Rawlinson, Rt. Hn. Sir Peter
Courtney, Cdr. Anthony Hutchison, Michael Clark Redmayne, Rt. Hn. Sir Martin
Craddock, Sir Beresford (Spelthorne) Iremonger, T. L. Rees-Davies, W. R.
Crawley, Aidan Irvine,Bryant Godman (Rye) Renton, Rt. Hn. Sir David
Crosthwaite-Eyre, Col. Sir Oliver Jenkin, Patrick (Woodford) Ridley, Hn. Nicholas
Crowder, F. P. Jennings, J. C. Roberts, Sir Peter (Heeley)
Cunningham, Sir Knox Johnson Smith, G. Robson Brown, Sir William
Curran, Charles Jones, Arthur (Northants, S.) Rodgers, Sir John (Sevenoaks)
Currie, G. B. H. Jopling, Michael Roots William
Dalkeith, Earl of Joseph, Rt. Hn. Sir Keith Royle, Anthony
Dance, James Kaberry, Sir Donald Russesll, Sir Ronald
Davies, Dr. Wyndham (Perry Barr) Kerby, Capt. Henry St. John-Stevas, Norman
d'Avigdor-Goldsmid, Sir Henry Kerr, Sir Hamilton (Cambridge) Sandys, Rt. Hn. D.
Dean, Paul Kershaw Anthony Scott-Hopkins, James
Deedes, Rt. Hn. W. F. Kilfedder, James A. Sharples, Richard
Digby, Simon Wingfield Kimball, Marcus Shepherd, William
Dodds-Parker, Douglas King, Evelyn (Dorset, S.) Sinclair, Sir George
Doughty, Charles Kirk, Peter Smith, Dudley (Br'ntf'd & Chiswick)
Douglas-Home, Rt. Hn. Sir Alec Kitson, Timothy Smyth, Rt. Hn. Brig. Sir John
Drayson, G. B. Lagden Godfrey Soames, Rt. Hn. Christopher
du Cann, Rt. Hn. Edward Lambton,Viscount Spearman, Sir Alexander
Eden, Sir John Lancaster, Col. C. G. Speir, Sir Rupert
Elliot, Capt. Walter (Carshalton) Langford-Holt, Sir John Stainton, Keith
Elliott, R.W.(N'c'tle-upon-Tyne,N.) Legge-Bourke, Sir Harry Stanley, Hn. Richard
Emery, Peter Litchfield, Capt. John Stodart, Anthony
Errington, Sir Eric Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield) Stoddart-Scott, Col. Sir Malcolm
Farr, John Lloyd, Ian (P'tsm'th, Langstone) Studholme, Sir Henry
Fell, Anthony Lloyd, Rt. Hn. Selwyn (Wirral) Summers, Sir Spenser
Fisher, Nigel Longbottom, Charles Talbot, John E.
Fletcher-Cooke, Charles (Darwen) Longden, Gilbert Taylor, Sir Charles (Eastbourne)
Fletcher-Cooke, Sir John (S'pton) Loveys, Walter H. Taylor, Edward M. (G'gow,Cathcart)
Forrest, George Lucas, Sir Jocelyn Taylor, Frank (Moss Side)
Foster, Sir John McAdden, Sir Stephen Teeling, Sir William
Fraser,Rt.Hn.Hugh(St'fford & Stone) Maclean, Sir Fitzroy Temple, John M.
Fraser, Ian (Plymouth, Sutton) Macleod, Rt. Hn. lain Thatcher, Mrs. Margaret
Galbraith, Hn. T. G. D. McMaster, Stanley Thomas, Sir Leslie (Canterbury)
Gammans, Lady McNair-Wilson, Patrick Thomas, Rt. Hn. Peter (Conway)
Gardner, Edward Maginnis, John E. Thompson, Sir Richard (Croydon,S.)
Gibson-Watt, David Maitland, Sir John Thorneycroft, Rt. Hn. Peter
Giles, Rear-Admiral Morgan Marples, Rt. Hn. Ernest Tiley, Arthur (Bradford, W.)
Gilmour, Ian (Norfolk, Central) Marten, Neil Tilney, John (Wavertree)
Gilmour, Sir John (East Fife) Mathew, Robert Turton, Rt. Hn. R. H.
Glover, Sir Douglas Maude, Angus Tweedsmuir, Lady
Glyn, Sir Richard Maudling, Rt. Hn. Reginald van straubenzee, W. R.
Godber, Rt. Hn. J. B. Mawby, Ray Vaughan-Morgan, Rt. Hn. Sir John
Goodhart, Philip Maxwell-Hyslop, R. J. Vickers, Dame Joan
Goodhew, Victor Maydon, Lt.-Cmdr. S. L. C. Walder, David (High Peak)
Gower, Raymond Meyer, Sir Anthony
Mills, Peter (Torrington)
Walker, Peter (Worcester) Whitelaw, William Woodnutt, Mark
Walker-Smith, Rt. Hn. Sir Derek Williams, Sir Rolf Dudley (Exeter) Wylie, N. R.
Wall, Patrick Wills, Sir Gerald (Bridgwater) Yates, William (The Wrekin)
Walters, Dennis Wilson, Geoffrey (Truro) Younger, Hn. George
Ward, Dame Irene Wise, A. R.
Weatheriil, Bernard Wolrige-Gordon, Patrick TELLERS FOR THE NOES:
Webster, David Wood, Rt. Hn. Richard Mr. Martin McLaren and
Wells, John (Maidstone) Woodhouse, Hn. Christopher Mr. Ian MacArthur.

Resolution to be reported.

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